It’s that time of year again. Warren Buffett has just released the annual shareholder letter for investors in his investment vehicle, Berkshire Hathaway.
The letter is one of the most widely-read documents in the financial world, and is scanned for clues as to where the world’s most successful investor is considering putting his money.
The most interesting, albeit relatively small, investment in 2012 was a newspaper buying spree. Indeed, in the last 15 months Buffett has bought 28 daily newspapers at a cost of $344m. That’s small change for a firm worth $250bn, but it’s notable because four years ago Buffett said that newspapers faced “unending losses” and that he wouldn’t buy them “at any price”.
What’s changed his mind? The key, says Buffett, is to buy local news. While acknowledging the competition of the internet, Buffett says that “newspapers continue to reign supreme… in the delivery of local news. If you want to know what’s going on in your town – 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.”
At the other end of the scale Buffett is keeping faith in Berkshire’s ‘big four’ investments of American Express, Coca-Cola, IBM and Wells Fargo. Indeed he has increased his stake in these firms, joking that “too much of a good thing can be wonderful”.
Aside from those investment insights, regular Buffett watchers were looking for comment on a possible successor – he is 82 after all – and his investment record. Buffett’s natural replacement would be right-hand man Charlie Munger but, given that he is 89, investors can be forgiven for looking a bit further down the line.
The letter did little to settle those nerves. As ever, Buffett alluded to a time when “Charlie and I have left the scene”, and praised some of his up-and-coming managers, but didn’t given any concrete details of who would replace him.
As for the investment record, Buffett says that it was “subpar” in 2012. Using book value, his preferred method of measuring Berkshire Hathaway’s performance, he noted that the firm’s net worth increased by $24.1bn in 2012, up 14%.
Most investors would be happy with those sorts of figures, but it trailed the 16% total return of the S&P 500 in the same year. That matters because beating the S&P500 “by a small margin” is the yardstick that Buffett measures his success by.
Buffett was typically upbeat about the prospects of the US economy, betting that 2013 would see him make record investment in the country. Indeed fresh from his $12bn Heinz investment, he says that “Charlie and I have again donned our safari outfits and resumed our search for elephants”.