In the previous article, we saw the great success and worldwide popularity of The Washington Post in news reporting. It became the focus of the United States and the world!

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Warren Buffett Story: Challenges in Revenue and Profits

Although The Washington Post achieved tremendous success in news reporting, the essence of business operation comes back to revenue and profits. In this aspect, it did not perform as well. Since its stock went public in 1972, Katharine Graham often invited Wall Street analysts to hold meetings and conducted a series of reports through major newspapers, magazines, weekly publications, and several television channels, aiming to maximize the interests of all departments after its stock went public. However, the results of this extensive promotion did not meet her expectations. Ongoing labor union strikes resulting in increased worker wages and a profit margin of only 10% (below the historical average) led to trouble for the company.

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The Washington Post's Stock Price Decline

The Washington Post's stock price dropped a lot in the stock market. This happened for several reasons, not just because the Watergate scandal was no longer big news. Some people thought that Florida and other TV stations would soon be allowed to report on the same news. Also, bank interest rates were increasing while the stock market was decreasing. So, by 1973, even though the company used to make $200 million in sales, its total worth in the stock market was only about $80 million.

Normally, a good newspaper company should be worth about 2.5 times its yearly sales, but in this case, the market was doing the opposite of what was expected.

Warren Buffett's Investment Strategy

At this point, Warren Buffett saw a similar situation to when he bought American Express stock. He returned to his main investing principle: finding the hidden value in a company. After careful calculations, he realized that The Washington Post was worth $400 million, even though its stock price was only $80 million in the market.

Buffett said that this kind of situation doesn't happen in the real world. But in the stock market, many people didn't realize that The Washington Post had assets worth $400 million and were selling their shares for a much lower price. This means that even professional investors were not looking at the company's true value. Instead, they were just following others and selling their shares.

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Recognizing Intrinsic Value

We can say that The Washington Post's stock price was labeled unfairly by Mr. Market, but Buffett did not let this opportunity slip away. He chose the spring of 1973 as the entry point when the stock market severely declined. The stock price of the newspaper company dropped from its initial offering price of $65 to just $4 per share! Buffett's exclusive strategy of "buying cheap" came into play, and at this point, he purchased shares of the newspaper company, becoming the second-largest shareholder after the Graham family. At $4 per share, it meant a total market value of about $80 million, but its intrinsic value was approximately $400 million. As it turned out, he chose the right time to enter, and by 1981, in just eight short years, The Washington Post's market value reached $400 million. Its intrinsic value was 40 times what Buffett paid. After reading this, do you have a newfound appreciation and understanding of Buffett's investment strategy?

"Mr. Market" is a concept introduced by Benjamin Graham, a renowned economist and investor, and Warren Buffett's mentor. It's a metaphor used to describe the stock market's unpredictable and sometimes irrational behavior.

Conclusion

In this Warren Buffett story, we learned about Buffett's timing in buying The Washington Post at its best moment. Let's continue to learn how to understand a good company's intrinsic and future value, just like Buffett. Stay tuned for the next article!

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