The fascinating facts behind Warren Buffett's best investment

Warren Buffett
PHOTO: Reuters

The Washington Post Company is one of the best – if not the best – investment that Warren Buffett has made in percentage terms. What can we learn from it?

One of the best returns – maybe even the best – that Warren Buffett has enjoyed came from his 1973 investment in shares of The Washington Post Company (WPC), which is now known as Graham Holdings Company. Back then, it was the publisher of the influential US-based newspaper, The Washington Post.

Buffett did not invest much in WPC. He controls Berkshire Hathaway and in 1973, he exchanged just US$11 million (S$15 million) of Berkshire’s cash for WPC shares. But by the end of 2007, Buffett’s stake in WPC had swelled to nearly US$1.4 billion. That’s a gain of over 10,000 per cent.

There are two fascinating facts behind Buffett’s big win with the newspaper publisher.

First, WPC’s share price fell by more than 20 per cent shortly after Buffett invested, and then stayed there for three years.

Second, WPC was a great bargain in plain sight when Buffett started buying shares. In Berkshire’s 1985 shareholders’ letter , Buffett wrote:

“We bought all of our WPC holdings in mid-1973 at a price of not more than one-fourth of the then per-share business value of the enterprise. Calculating the price/value ratio required no unusual insights. Most security analysts, media brokers, and media executives would have estimated WPC’s intrinsic business value at $400 to $500 million just as we did. And its $100 million stock market valuation was published daily for all to see. Our advantage, rather, was attitude: we had learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.”

How many investors do you think have the patience to hold on through three years of losses? Buffett did, and he was well rewarded. Patience is the key to successful investing. It is necessary, even if you have purchased shares of the best company at a firesale-bargain price.

Warren Buffett has investing acumen that many of us do not have. But there are also times when common sense and patience is more important than acumen in making a great investment. Buffett himself said that no special insight was needed to value WPC back in 1973.

What was needed to earn a smashing return with the company was the right attitude and patience.

This article was first published in The Good Investors.