Inc. Magazine
52 years ago, Warren Buffett wrote a letter to Katharine Graham, CEO of The Washington Post, showing immense confidence in her leadership and the company’s potential despite challenging times. His emphasis on strong management, undervalued assets, and long-term vision continues to inspire investors today, especially amidst today’s turbulent market conditions.
52 Years Ago, Warren Buffett Wrote a Truly Remarkable Letter. Here’s Why It’s So Inspiring Today
Author: Bill Murphy Jr.
The year was 1973. Warren Buffett was already a very successful investor. And he wrote a letter that year that people are rediscovering today.
Context: Buffett, then 42 years old, had just made a $10 million investment in the only Fortune 500 company with a woman CEO at the time.
The company was the entity behind The Washington Post newspaper, and Buffett’s investment then was the equivalent of just over $71 million today.
The letter was addressed to CEO Katharine Graham, who was also the publisher of the newspaper.
Inspiring Leadership
As much as I hate to call anyone an accidental CEO, Graham might well have described herself that way.
Her father had owned the Post, but he had given control of it to Graham’s husband, Philip Graham — a move that she later wrote “pleased” her at the time, because she’d never thought of herself as leadership material.
Dated June 4, 1973, Buffett’s note was a powerful endorsement and letter of encouragement.
“This purchase represents a sizable commitment to us — and an explicitly quantified compliment to the Post as a business enterprise and to you as its chief executive. Writing a check separates conviction from conversation,” Buffett wrote. “I recognize that the Post is Graham-controlled and Graham-managed. And that suits me fine.”
Risky Business
Graham had taken over the business only after her husband died by suicide in 1963. By the time Buffett made his investment, she had recruited legendary journalist Ben Bradlee as the Post‘s editor-in-chief and stood at the helm during the Pentagon Papers.
Perhaps most memorable today, the Post was neck-deep in reporting on the Watergate scandal.
The U.S. attorney general at the time, John Mitchell (who would later go to prison for conspiracy, obstruction of justice, and perjury), had threatened Graham over the Post‘s stories.
The Post‘s reaction was to run Mitchell’s threat verbatim in the newspaper — one of the many Watergate articles written by reporters Carl Bernstein and Bob Woodward, although it cleaned up his language a little bit.
I don’t know about you, but perhaps a few months after the top law enforcement officer of the U.S. made personal threats against the CEO of a company would not be the prime moment that I would think of making a big investment in it.
Enduring Advice
I guess that’s why Warren Buffett is Warren Buffett, and I’m writing stories about him.
For one thing, this was a remarkable vote of confidence in Graham herself, at a time when she had no woman peers as chief executive of such a large company.
It also set Buffett up to become a financial mentor to Graham in the years that followed.
Also, if you look back at the text of Buffett’s 1973 letter, you’ll see three principles that he’s championed over his entire career:
- First, he showed how much he cares about the value of top-notch, trustworthy management. Buffett went on to become a very important personal adviser to Graham, but at the time of his investment, he offered nothing less than a full-throated backing of her leadership.
- Second, he demonstrated his “be greedy when others are fearful” paradigm.
- Finally, he trusted the numbers — and the numbers told him that the Post was very much undervalued.
He told Graham in the letter that buying a big chunk of the Post reminded him of an experience he’d had buying part of Disney a few years before:
The stock was ridiculously cheap based upon earnings, asset values, and capability of management. That alone was enough to make my pulse quicken (and pocketbook open), but there was also an important extra dimension to the investment. In its field, Disney simply was the finest — hands down.
…
I feel the same way about The Washington Post. The stock is dramatically undervalued relative to the intrinsic worth of its constituent properties, although that is true of many securities in today’s markets.
But, the twin attraction to the undervaluation is an enterprise that has become synonymous for quality in communications. How much more satisfying it is going to be to watch an investment in the Post grow over the years than it would be to own stock in some garden variety company which, though cheap, had no sense of purpose.
Buffett’s Emotional Connection
I should add that there’s a fourth principle, not mentioned in the letter, that Buffett clearly holds dear, which is to avoid getting emotional or sentimental about investments. He admits to a tendency to do this, although he works to combat it in himself.
You can see it here. It’s also in the story he’s told many times of how it was anger that led him to buy Berkshire Hathaway to begin with, and the story of how he worked hard to keep money-losing textile mills he owned in New England running for decades because so many low-skill employees relied on the jobs.
I should admit to an emotional connection to this story of my own: I worked between 2005 and 2007 as Woodward’s reporting assistant and then went to Iraq as a foreign correspondent for the Post.
Graham passed away in 2001, and Buffett is now 94. The reason people are rediscovering this letter is because of an Amazon Prime special on the life of Graham that is now streaming.
It’s a good opportunity to remember. Sometimes people say that those who don’t study history are damned to repeat it.
When it comes to business history, if you pick mentors like these, study what they’ve done, and even copy it — repeating it just might be a blessing.
Credits: TCA, LLC.