Skip to main content
subscribers only

Extra! Extra! Warren Buffett loves newspapers. He praises the product in his most recent annual letter to Berkshire Hathaway shareholders and reveals his company bought 28 of them in the past 15 months for $344-million (U.S.)

While Mr. Buffett is red all over about the daily print business, there's one business that's notably absent from this year's letter: his fractional private jet ownership operation, NetJets. It barely merits a mention, a stark contrast from years past, when Mr. Buffett spoke as enthusiastically about it as he does now about print.

What do the two businesses have in common? Neither will make a dent on Berkshire stock; and Mr. Buffett is a devoted customer of both. But when Mr. Buffett buys a business he loves as a customer, it doesn't mean it's a business investors should love.

For years after Berkshire bought NetJets in 1998, Mr. Buffett lathered praise on the company, the biggest player in the business of selling shares of high-end business jets (which NetJets operated and maintained). At various times he called founder Rich Santulli "extraordinary," "one of the most dynamic managers I've ever met" and someone you would pick "to join you in a foxhole." That is, until Mr. Santulli left as CEO in 2009 and NetJets booked a $711-million loss.

Mr. Buffett all but disowned it – emotionally, at least – calling it "Berkshire's only major business problem," saying financial results since he purchased it were "a failure" and noting that without the backing of Berkshire, NetJets would have gone broke. Under new management, NetJets has reined in spending and is now modestly profitable but showing little growth (pretax profit in 2012 was almost unchanged from the previous year's $227 million). A turnaround continues to elude the business aviation sector, with no evidence fractional ownership will ever reach its long-promised potential.

NetJets' problems didn't suddenly spring up: a review of 15 years of past Berkshire letters reveal Mr. Buffett was an early, enthusiastic and frequent NetJets customer, willing to overlook the company's chronic profit shortcomings. He kept promising better days ahead until finally acknowledging the house needed to be cleaned. In retrospect, it's hard to see why, as an objective investor, Mr. Buffett was ever drawn to the business – it's so different than his more typical investments, like American Express and Coca-Cola, with a long track records for creating shareholder wealth.

Unfortunately, anyone with an interest in the newspaper business (including me) should not conclude Mr. Buffett's move is a reason for optimism or even a wise investment decision. He readily acknowledges as much, noting that circulation, advertising and profits in the business are certain to continue declining. Berkshire's cash earnings from papers will "almost certainly trend downward over time," he says.

He admits he'll only buy papers he likes at "a very low multiple of current earnings," but that's still no guarantee the investments will fare well. He even admits that he has repeatedly broken his own self-imposed size requirements for acquisitions with his repeated newspaper purchases.

His advice to daily publishers is to resist cutting the frequency of papers and to maintain resources devoted to local content, but doesn't seem to know better than anyone else about how to pay for that, given that his two biggest papers, in Buffalo and Omaha, are bleeding revenue.

From time to time, Mr. Buffett wears his heart on his chequebook. That's no more advisable an investment strategy for a multibillionaire than it is for an average investor – only he can afford to be sentimental.