Media / PublishingCase Study

The Washington Post Company

Company Overview

The Washington Post Company was, for most of the late twentieth century, one of the great media franchises of the world: the dominant newspaper in the nation's capital, a group of television stations, Newsweek magazine, and a classified-advertising position so complete that it functioned as a legal monopoly on reaching the Washington audience. Berkshire Hathaway bought into it in 1973, at the bottom of the worst bear market since the Depression, and the position became the single most-cited proof in the Munger-Buffett repertoire that price and value can diverge to absurd degrees when panic does the quoting.

For Munger the Washington Post was three lessons in one investment: a lesson in valuation (a great franchise marked at a fraction of obvious worth), a lesson in people (Katharine Graham and the management quality that made the holding a pleasure rather than merely a profit), and eventually a lesson in technological contingency (a moat that looked permanent until the internet reclassified it). He returned to the story in speeches for thirty years, and his most famous telling of it is preserved verbatim in the 1994 USC worldly wisdom talk.

Investment Story

The 1973 purchase.

The setting was the 1973–74 market collapse — in Munger's recollection, "almost like 1932," a once-in-forty-years denouement in the markets. Newspapers were out of favor, the Post was embroiled in labor trouble and the aftermath of Watergate-era political hostility, and the entire company was quoted at roughly $80 million while its properties were plainly worth several times that to any private owner. Berkshire bought approximately ten percent of the company. Munger's own account, from the 1994 USC speech, is the definitive one:

"In one of those — The Washington Post — we bought it at about 20% of the value to a private owner. So we bought it on a Ben Graham-style basis — at one-fifth of obvious value — and, in addition, we faced a situation where you had both the top hand in a game that was clearly going to end up with one winner and a management with a lot of integrity and intelligence. That one was a real dream. They're very high class people — the Katharine Graham family. That's why it was a dream — an absolute, damn dream. Of course, that came about back in '73-'74. And that was almost like 1932. That was probably a once-in-forty-years-type denouement in the markets. That investment's up about 50 times over our cost. If I were you, I wouldn't count on getting any investment in your lifetime quite as good as The Washington Post was in '73 and '74."

— A Lesson on Elementary, Worldly Wisdom, USC, 1994

Every element of his investment doctrine is in that paragraph: the Graham-style statistical discount, the qualitative upgrade (a game with one winner, management with integrity and intelligence), and the yield of patience — fifty times cost, with dividends, over the holding period.

The buyback and the orangutan.

The Post compounded Berkshire's gain not only through operations but through capital allocation — and here Munger told the story as a parable about academic finance. In his 2003 UCSB talk on economics education, he described how hard-form efficient market theory had produced the conclusion that it could never be rational for a corporation to repurchase its own stock, since the price was by definition efficient:

"And they taught this theory to some partner at McKinsey when he was at some school of business that had adopted this crazy line of reasoning from economics, and the partner became a paid consultant for the Washington Post. And Washington Post stock was selling at a fifth of what an orangutan could figure was the plain value per share by just counting up the values and dividing. But he so believed what he'd been taught in graduate school that he told the Washington Post they shouldn't buy their own stock. Well, fortunately, they put Warren Buffett on the Board, and he convinced them to buy back more than half of the outstanding stock, which enriched the remaining shareholders by much more than a billion dollars."

— Academic Economics: Strengths and Faults, UCSB, 2003

The buyback — retiring more than half the shares at prices the theory said could not be attractive — transferred more than a billion dollars of value to the remaining holders. Munger filed it as "at least one instance of a place that quickly killed a wrong academic theory," but it is also a clean statement of his view of what a good board does: allocate capital by arithmetic, not by doctrine.

Katharine Graham.

Munger's admiration for the Post's proprietor was personal as well as analytical. Katharine Graham had inherited the company after her husband's death, in an era when a woman running a major media company was treated by much of the business world as a placeholder, and she proceeded to make the two most consequential decisions in the paper's history — publishing the Pentagon Papers and standing behind the Watergate investigation — against explicit legal and political threat. In Munger's vocabulary she was the proof that management quality is a real variable: the same assets under fearful management would have been a merely good investment; under Graham they were an absolute, damn dream.

Business Analysis

The Post's franchise, in its prime, was the purest example of the metropolitan newspaper moat: once a paper achieved decisive circulation leadership in its city, advertisers had no economical alternative for reaching that city's audience, and the classified section in particular became a monopoly toll booth on the local economy — jobs, cars, and housing all paying tribute to reach the readers. The moat fed itself: more readers attracted more advertisers, more advertisers funded more journalism, more journalism attracted more readers. Within the boundaries of print distribution geography, the position was effectively unassailable, which is what "the top hand in a game that was clearly going to end up with one winner" meant in practice.

The same case, extended forward in time, became Munger's standing warning about technological contingency. The moat was real, enormous, and entirely dependent on the distribution technology of paper. Classified advertising migrated to the internet not gradually but categorically, and with it went the toll booth. The Post lesson is therefore double: a durable competitive advantage can be genuine and worth paying for, and its durability must still be re-examined against technological change rather than assumed. Munger's framework holds both truths at once — the 1973 analysis was right, and an investor who mechanically extended it into the internet era would have been wrong.

There is also a quiet governance lesson in how Berkshire's position worked. Buffett joined the Post's board and became, by Graham's own account, her trusted tutor in capital allocation — the buyback being the largest fruit of that education. The investment thus compounded on three levels simultaneously: the market's re-rating of an absurdly cheap asset, the operating performance of a dominant franchise, and the improved capital allocation of the company itself. Most investments offer only the first lever; the Post offered all three, which is why its fifty-fold return was an expression of structure rather than luck.

Munger placed the Post in a broader family of winners in the same 1994 talk — a pattern he considered one of the replicable models in Berkshire's history:

"If you look at Berkshire's investments where a lot of the money's been made and you look for the models, you can see that we twice bought into two-newspaper towns which have since become one-newspaper towns. So we made a bet to some extent."

— A Lesson on Elementary, Worldly Wisdom, USC, 1994

The model generalizes: in markets where the economics cascade toward a single survivor — daily newspapers being his canonical example — buying the likely winner at a distressed price is a bet on structure, not on forecasting.

Investment Lessons

The best purchases combine statistical cheapness with qualitative excellence. One-fifth of private-owner value would have been a good Graham trade by itself; the same discount attached to a one-winner franchise with high-integrity management was a fifty-bagger. Munger's evolution past pure Graham consists precisely in demanding both screens at once.

Buybacks at deep discounts are value transfers, not financial engineering. The Post's repurchase of half its shares at a fifth of value enriched remaining holders by more than a billion dollars without selling a single additional newspaper. When a company trades far below conservatively estimated value, repurchasing stock is the highest-return investment available to it — a point the efficient-market orthodoxy of the era literally could not see.

Management courage is an economic asset. Katharine Graham's willingness to risk the company on publishing decisions protected the editorial franchise that the business franchise depended on. Munger priced that quality into his assessment of "integrity and intelligence" — and his phrase "very high class people" was an analytical conclusion, not a social pleasantry.

Moats must be re-underwritten against technology. The classified toll booth was the strongest local monopoly in American business for decades, and it evaporated within one technological generation. Munger's rule: durability is a hypothesis about the future, and the arrival of a new distribution technology is the moment to re-run the entire analysis rather than amortize the old one.

Mentioned In

A Lesson on Elementary, Worldly Wisdom, USC, 1994 (the "absolute, damn dream" passage)
Academic Economics: Strengths and Faults, UCSB, 2003 (the buyback and the McKinsey consultant)
Poor Charlie's Almanack, Talks Two and Ten (the Washington Post and efficient-market discussions)