PlanMaestro

We Buy Some Newspapers. . . Newspapers? During the past fifteen months, we acquired 28 daily newspapers at a cost of $344 million. This may puzzle you for two reasons. First, I have long told you in these letters and at our annual meetings that the circulation, advertising and profits of the newspaper industry overall are certain to decline. That prediction still holds. Second, the properties we purchased fell far short of meeting our off-stated size requirements for acquisitions. We can address the second point easily. Charlie and I love newspapers and, if their economics make sense, will buy them even when they fall far short of the size threshold we would require for the purchase of, say, a widget company. Addressing the first point requires me to provide a more elaborate explanation, including some history. News, to put it simply, is what people don’t know that they want to know. And people will seek their news – what’s important to them – from whatever sources provide the best combination of immediacy, ease of access, reliability, comprehensiveness and low cost. The relative importance of these factors varies with the nature of the news and the person wanting it. Before television and the Internet, newspapers were the primary source for an incredible variety of news, a fact that made them indispensable to a very high percentage of the population. Whether your interests were international, national, local, sports or financial quotations, your newspaper usually was first to tell you the latest information. Indeed, your paper contained so much you wanted to learn that you received your money’s worth, even if only a small number of its pages spoke to your specific interests. Better yet, advertisers typically paid almost all of the product’s cost, and readers rode their coattails. Additionally, the ads themselves delivered information of vital interest to hordes of readers, in effect providing even more “news.” Editors would cringe at the thought, but for many readers learning what jobs or apartments were available, what supermarkets were carrying which weekend specials, or what movies were showing where and when was far more important than the views expressed on the editorial page. In turn, the local paper was indispensable to advertisers. If Sears or Safeway built stores in Omaha, they required a “megaphone” to tell the city’s residents why their stores should be visited today. Indeed, big department stores and grocers vied to outshout their competition with multi-page spreads, knowing that the goods they advertised would fly off the shelves. With no other megaphone remotely comparable to that of the newspaper, ads sold themselves. As long as a newspaper was the only one in its community, its profits were certain to be extraordinary; whether it was managed well or poorly made little difference. (As one Southern publisher famously confessed, “I owe my exalted position in life to two great American institutions – nepotism and monopoly.”) Over the years, almost all cities became one-newspaper towns (or harbored two competing papers that joined forces to operate as a single economic unit). This contraction was inevitable because most people wished to read and pay for only one paper. When competition existed, the paper that gained a significant lead in circulation almost automatically received the most ads. That left ads drawing readers and readers drawing ads. This symbiotic process spelled doom for the weaker paper and became known as “survival of the fattest.” Now the world has changed. Stock market quotes and the details of national sports events are old news long before the presses begin to roll. The Internet offers extensive information about both available jobs and homes. Television bombards viewers with political, national and international news. In one area of interest after another, newspapers have therefore lost their “primacy.” And, as their audiences have fallen, so has advertising. (Revenues from “help wanted” classified ads – long a huge source of income for newspapers – have plunged more than 90% in the past 12 years.) Newspapers continue to reign supreme, however, in the delivery of local news. If you want to know what’s going on in yourtown – whether the news is about the mayor or taxes or high school football – there is no substitute for a local newspaper that is doing its job. A reader’s eyes may glaze over after they take in a couple of paragraphs about Canadian tariffs or political developments in Pakistan; a story about the reader himself or his neighbors will be read to the end. Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents. Even a valuable product, however, can self-destruct from a faulty business strategy. And that process has been underway during the past decade at almost all papers of size. Publishers – including Berkshire in Buffalo – have offered their paper free on the Internet while charging meaningful sums for the physical specimen. How could this lead to anything other than a sharp and steady drop in sales of the printed product? Falling circulation, moreover, makes a paper less essential to advertisers. Under these conditions, the “virtuous circle” of the past reverses. The Wall Street Journal went to a pay model early. But the main exemplar for local newspapers is the Arkansas Democrat-Gazette, published by Walter Hussman, Jr. Walter also adopted a pay format early, and over the past decade his paper has retained its circulation far better than any other large paper in the country. Despite Walter’s powerful example, it’s only been in the last year or so that other papers, including Berkshire’s, have explored pay arrangements. Whatever works best – and the answer is not yet clear – will be copied widely. ************ Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time. We do not believe that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And the less-than-daily publication that is now being tried in some large towns or cities – while it may improve profits in the short term – seems certain to diminish the papers’ relevance over time. Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet.

Argentina, always something going on. Argentina Says It Won’t Voluntarily Comply With Bond Ruling http://www.bloomberg.com/news/2013-02-27/argentina-seeks-relief-from-u-s-court-in-debt-fight.html

Japan wakes up to US shale revolution. http://www.ft.com/intl/cms/s/0/20b40574-8007-11e2-96ba-00144feabdc0.html#axzz2M3ZQLfUi http://farm9.staticflickr.com/8510/8512433506_780b4cdb8f.jpg

RBS Under Pressure to Sell Assets, Prepare for Sale. http://www.bloomberg.com/news/2013-02-26/rbs-under-pressure-to-sell-assets-prepare-for-sale.html RBS (RBS) will this week announce plans to sell a stake in Citizens Financial Group Inc. and shrink assets at its investment-bank by as much as 30 billion pounds, said a person with knowledge of the plans, who asked not to be identified because the matter is private. As recently as August, Hester said he didn’t intend to sell the U.S. consumer and commercial lender it acquired in 1988.

Forecasting is a tricky business: there are so many ways of being wrong timing the market: * Being wrong on the move while being wrong on the reasons: no comments * Being wrong while being right: markets do strange things in the ST. * Being right while being wrong : luck has the nasty habit of catching up later. * Being right on move despite the reasons... but then missing back in the market. And in the meantime BAC, AIG, tarp warrants, you know the drill. The game of probabilities and regrets.

How to succeed by adding brands: VW, Chrysler strategies counter those of rivals Read more: http://www.autonews.com/article/20130225/RETAIL07/302259966#ixzz2LvfXaopd On the flip side, GM went from nine brands in the United States a decade ago to four now. Ford Motor Co. dropped from seven to two, though four of its five castoffs survive under new ownership. "We're going against the grain," Chrysler-Fiat CEO Sergio Marchionne said last month. "Ford has decided to go with an oval strategy across the whole range, and we're the only ones that keep on carving up or have carved up our brand-name portfolio into more distinct pieces." Brand churn Additions, subtractions to the U.S. brand roster since 2000 New Alfa Romeo, 2013 (planned) Fiat, 2010 Fisker, 2010 Ram, 2009 Tesla, 2008 Smart, 2008 Bugatti, 2006 Maybach, 2003 Scion, 2002 Mini, 2002 Hummer, 2000 Dead Suzuki, 2012 Maybach, 2012 Saab, 2011 Mercury, 2010 Pontiac, 2010 Saturn, 2010 Hummer, 2010 Isuzu, 2008 Oldsmobile, 2004 Daewoo, 2002 Plymouth, 2001

WENGER, OSBORNE, AND THE IRRATIONAL VIRTUE OF STUBBORNNESS. http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2013/02/the-irrational-virtue-of-stubbornness.html It seems, then, as if Wenger and Osborne have much in common. Except for one thing - Wenger is a genius and Osborne, well, might not be. The difference, I suspect, lies in point 1. Wenger's prior that he knows best is founded upon things like: the fact that he's the only coach in 130 years to have taken a team through a whole top-division season unbeaten; the fact that no team that cost less to assemble has finished above Arsenal; and that he has turned countless players from unknowns to world stars. Osborne's prior is somewhat less well-founded. Yes, Wenger might be biased. But sometimes, cognitive biases are a good thing, as they give us the strength to stick with a correct course in the face of adversity. … We should not, then, criticize Osborne for being stubborn. Stubbornness can be a virtue. The problem instead is that he's simply wrong.

Slim backs KPN €4bn rights issue http://www.ft.com/intl/cms/s/0/d08da50c-7b45-11e2-8eed-00144feabdc0.html Under the agreement KPN will execute a €3bn rights issue and issue hybrid bonds making up the additional €1bn. The agreement is subject to shareholder vote on April 10. América Móvil’s support came as a surprise to some analysts and bankers who expected Mr Slim to make more demands from KPN’s management. The rights issue, originally earmarked for €4bn, prompted speculation that Mr Slim would consider buying the company or seek to uproot senior management. “Any investor when faced with a company’s decision to issue €4bn when it has a market capitalisation of less than €5bn will ask: is this management credible?,” one person close to the deal said. “They [AMX] certainly weren’t handled in the best way in terms of getting information,” the person said, adding there was still tension between the two companies over KPN’s failure to inform América Móvil ahead of its decision to seek a rights issue. The move will dilute Mr Slim’s stake in KPN. He has already lost €1.7bn since he battled with KPN management last year to acquire a 27.5 per cent stake in the company.

If deflation it's good, if inflation it's good … that reminds me of something. Feynman on vague theories.

Better than the book. http://www.gurufocus.com/news/209022/oaktrees-howard-marks-thinks-the-recovery-is-in-the-early-days-and-he-likes-real-estate

Tangible BV $26 Book Value $37.6 TCE Ratio 8.4% Basel III 8.2%

http://www.ft.com/intl/cms/s/0/628cc9c4-7088-11e2-85d0-00144feab49a.html http://farm9.staticflickr.com/8235/8486577215_946cf2f98f.jpg

Yes, very good one. Thanks Sanjeev.

Contrarian sees potential in Barclays stock. http://www.ft.com/intl/cms/s/0/86d75d62-78fd-11e2-930b-00144feabdc0.html#axzz2LB2XYyNj Jenkins sets out Barclays reinvention. http://www.ft.com/intl/cms/s/0/470553ce-7542-11e2-b8ad-00144feabdc0.html#axzz2LB2XYyNj Taming the Barclays behemoth. (video) http://video.ft.com/v/2160149852001 At a dinner hosted by one of the UK’s biggest investment companies last week, a group of portfolio managers were asked to pick one stock that could outperform all others over the next decade – perhaps even matching the 6,500 per cent share price rise of computer company Apple over the past 10 years. Of the five fund managers to respond, Ian McVeigh almost apologetically suggested shares in Barclays, the scandal-hit UK bank. Most of the journalists in the room laughed. But Mr McVeigh, who runs one of the biggest UK equity funds for the dinner’s hosts, Jupiter Asset Management, is taken seriously by his peers – as many other fund managers supported his view that bank stocks are back. … He adds that Barclays is a good example of a cheap stock with strong potential for further gains. It has a share price to tangible book value ratio of 0.86 today, compared with 3.91 in 2005, and a forward price/earnings multiple of 8.57 times, compared with 11.23 eight years ago. “Barclays offers great value at current prices,” he argues. At Jupiter’s dinner, it was not just Barclays that was singled out as a potential star stock. Royal Bank of Scotland was mentioned, too. Both banks have chief executives that investors appear to like: Antony Jenkins at Barclays and Stephen Hester at RBS. “They are both committed to turning their banks into responsible institutions but at the same time offering shareholders strong returns,” said one fund manager. “They can’t afford to be complacent. They have to get it right, and I think they will.

Back to the future. http://farm9.staticflickr.com/8110/8481075934_d9911899d6.jpg

Warren Buffett turns his eye to annuities. http://www.marketwatch.com/story/warren-buffett-turns-his-eye-to-annuities-2013-02-12?link=mw_story_kiosk David Merkel on the deal. http://seekingalpha.com/article/1183081-berkshire-hathaway-and-variable-annuities?source=email_authors_alerts&ifp=0

There is a Telefonica thread. http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/tef-telefonica/msg74763/#msg74763 Portugal Telecom is another one. The main risk is their Euro debt if those countries leave the Euro, the debt load is huge.TEF and PT have large Latin American operations but still something to handicap. A good case study is the Telecom Argentina default of 2002. http://news.bbc.co.uk/2/hi/business/1907607.stm

Morningstar: How Toyota Lost Its Moat. http://finance.yahoo.com/news/toyota-lost-moat-120000528.html I wish they had discussed more the role of Volkswagen/Audi in changing of the rules of the game.

Hey, you are right onyx. And let's not forget that many large caps were cheap in 1997-2000, like Berkshire Hathaway, because most were distracted by these new economy stocks.

From 1997:

If someone thinks that BAC's intrinsic value is as low as $20 maybe that would explain it. The thing is that that's probably wrong and by a wide margin (and I don't think I'm alone on that view.) There is still such a long list of opportunities just in the US that I just don't see how someone can go to a large cash position and not say it's market timing or a macro call. Yes, the market may be a little overvalued, but not by much while some ships have not recovered at all from the 2008 shock. Should I remind everyone what happened with Citi and Wells in the 90s. And the market was way more overvalued then. Bottom up guys (and read Peter Lynch.)

The New York Times’s landmark metered paywall will be two years old next month, and it’s already successful beyond anyone’s expectations. The NYT’s newspaper industry rarity. http://www.cjr.org/the_audit/the_nyt_grows_in_2012.php

You are correct sir, thought that the trend and comparison was interesting and did not check the scale. http://www.economist.com/node/21548275

Some problems of timing the market. http://video.ft.com/v/2150605261001/Reversion-to-which-mean- And this is a fantastic report. Credit Suisse Yearbook 2013. http://www.investmenteurope.net/digital_assets/6305/2013_yearbook_final_web.pdf

Average Age American Cars. http://farm9.staticflickr.com/8243/8468860442_41161f1946.jpg