Warren Buffett throws in the towel on newspaper empire | Hacker News Reader

Warren Buffett throws in the towel on newspaper empire

bloomberg.com

126 pointsdoctoroctogon118 comments

I recently read The Snowball: Warren Buffet and the Business of Life and a lot of that book focused on newspapers. Buffet delivered papers as a boy, had a big legal battle to buy a local Buffalo, NY paper, won a Pulitzer at the Omaha Sun for coverage of a scandal at Boys Town, and he was very close to Kay Graham of The Washington Post. I'm sure this was an emotional decision for him.

I read that book too and is it just me, or could it have been like 400 pages smaller? I felt like it had so much useless information in it.

He definitely invests in what he’s familiar with.

Which is why it perplexes me when tech people are so diversified with their holdings, there’s little opinion built in.

You have a competitive advantage. You see the tech tools that are utilized every day in your offices. You can understand neural networks and whether Tesla’s auto pilot OS technically reasonable.

You have the knowledge and skills to properly assess tech companies and their products.

You’re an insider in some respects.

Make an assessment, place your bets.

He also tends to avoid stocks with volatility. And tech has historically been relatively volatile.

As a software engineer, I also tend to not invest in big tech companies. YMMV though.

Why is that?

Why avoid a Apple, etc?

If you work in tech and get compensated with tech money and hold tech stocks as part of your compensation, then your net worth is already tied in a substantial way to tech as an industry. Buying more tech stock increases how much your net worth will swing based on tech industry trends.

Bigger risk, bigger returns. Oftentimes risk is opposite of the goal.

As long as you're aware of the interlinked nature of tech stocks in the tech industry, then by all means buy more, but if you're planning for retirement and you don't have a nest egg that's invested on lower risk with more modest returns, you might want to think twice about putting more eggs in the tech basket.

I've found that extremely few folks benchmark their active investments with alternatives (e.g. S&P 500). Not only that, they don't even analyze their own investment performance. Most people I know who've bought stock in a particular company have no idea in the long run how well that investment has done, beyond simple things like "Very well" or "decent".

I work in a tech company. And almost everyone I know who works there is continually surprised at the stock price. They're surprised when it goes up when there's no seemingly good reason for it to do so, and they're equally surprised when it goes down.

While some may have the skill to analyze and predict, it's safe to say that most people - tech folks included - do not.

The worst part is, even the ones that DO benchmark against the S&P500 or similar are almost always doing it wrong. I have a friend who owns TSLA stock. Of course it has done much better than the S&P over the past several years, so he thinks "it's easy to beat the market, especially if you know a lot about tech." But he's comparing just that ONE investment, not his entire portfolio of other (many failed) investments, weighted by dollars. I know he put a bunch of money on a couple of altcoins and probably several other losing stock picks, but he never talks about any of those other investments.

More importantly (and what you're kind of alluding to) is the RISK - sure, Tesla is beating the SP500 - but how about a week from now, or a year? He is taking on significantly more risk compared to someone who just holds the SP500 - that's fine if it matches your risk appetite, but most people fail to consider the other side of the risk/return coin.

Likewise, a good understanding of the overall portfolio is key - and not just investments. For example, if you work at Tesla and hold mostly Tesla shares you are running an even higher risk than the average Tesla investor - the risk of you getting laid off is closely tied to Tesla shares tanking - and failing to diversify away that risk can hit many of us very, very hard.

I have done it as a sanity check and so far have beat SPY. Its kinda hard to calculate though. In TD Ameritrade, it doesn't give you that metric for you (that I know if, if you know how please let us know!). I have to look at the day I bought each stock and compare it against the price of SPY the same day.

It's not 100% because I don't compare against SPY the same exact time I bought the stock (too much work) and I don't bother calculating dividends. I just assume I am doing better there since I have a higher yield than SPY.

I do better than the market, but I don't recommend people trying to do so for money. I do it as a hobby, its fun for me. Otherwise a person's time is worth putting elsewhere, except in one area. While a person might not be able to beat the market, by being engaged they are more likely to invest more and avoid fruitless spending.

When someone spends 1000$+ on a handbag, I think gee, I'd rather have a share of google instead

> You can understand neural networks and whether Tesla’s auto pilot OS technically reasonable.

The problem with people you describe is learning to do the other half of the company analysis.

There was recently post in HN "Tesla races past $100B in market valuation" : https://news.ycombinator.com/item?id=22118913 People gave good reasons why Tesla has good tech, good cars etc. None of those arguments were tied to price range. They would be just as valid for $100B, $500B or $1T valuations.

Most tech people know very lot about very little. Most programmers know next to nothing about neural nets. Most neural net researchers know very little about self driving cars. Most self-driving car researchers are experts in incremental changes and know very little about what grand breakthroughs are likely in the next 2-3 years. To give you an idea, most go players and most AI researchers were shocked by AlphaGo. The expertise didn't help.

I think for technologists in particular expertise can be very dangerous as we tend to think we know a lot more than we do. Predicting the feasibility of an autopilot on a 1-2 year time horizon is a highly specialized difficult analysis. It's definitely not close to something most tech people can do well.

Is it true that most AI researchers were shocked by AlphaGo? These are the people who say it's impossible we'll get some qualitative breakthroughs yielding human-level or super-human general intelligence in the next few decades.

So if the majority of the group is that shocked by an incremental improvement, it would be better if we just interpreted their long-term forecasts as meaning "no idea" instead.

It would be best to interpret most long-term forecasts as meaning "no idea" instead. This goes for all groups, not just just ML researchers. Now, they have a little edge, and a big edge in the short term, but it's closer to "no idea" than anything else in the long term.

It’s quite true. A take I found insightful (I think it might have made the top page when it was first posted):

https://intelligence.org/2017/10/13/fire-alarm/

Maybe "tech people" are smart enough to realize that, on a macro level, tech moves together. By diversifying out of their area of expertise, they limit their potential upside but presumably they're hoping to limit their downside exposure. Unless I misunderstand your .. perplexion.

This is not good financial advice. Invest out of the sector you work in

Compared to people whose full-time job is to analyze tech companies for whether they are good investments, I think most tech people know relatively little.

I could certainly pick out which tech companies are likely to succeed better than my grandma, but I'm not competing against her, I'm competing against professionals, and I simply don't have enough time to match someone who spends their entire day on it.

You could make the opposite argument too - our livelihoods are already wrapped up in the industry; so hedge your savings in others.

(Personally I favour diversifying with funds across countries and industries; plus a bet on a particular share, mostly tech for your reasoning, here and there.)

My ability to understand facebook's stack doesn't help me understand whether tiktok will eat their lunch, or whether the government will break up facebook and instagram.

At the stage where tech companies aren't behemoths like that, they're waiting longer and longer to go public. Uber, the poster child for this generation of startup investing, waited until it was a $60B company before it went public. Maybe it's easy as a company to get private investment in the cases where my insider's expertise would help me.

My ability to see that full self driving wouldn't be here by 2020 and that Musk's timelines were hype-fueling B.S. doesn't help me with tesla stock, which went way up regardless.

I think netflix, as it currently exists, is on the way out. But that's a long term bet. Not only can the market stay irrational longer than I can stay solvent, netflix can make changes and turn shit around on that time scale. My informed opinions about the macbook don't help me predict the invention and success of the iphone.

Maybe I could use my expertise for investing if I made investing my full time job, but I have one already, and it probably pays better than whatever I'd earn gambling. What's a reasonably reliable amount to beat the market by in your mind? A few percent? Is a few percent worth giving up a $50k-200k/yr promotion by devoting those same efforts to getting better at my day job? Is a few percent worth investing in my industry so that my portfolio losing value becomes even more correlated to my home losing value and more correlated with losing my job?

Hell, when I vest stock at work, where I'm literally an insider, I immediately sell during open trading windows. It has exactly zero to do with how I feel about my company and everything to do with wanting to hedge my wealth and my employment against each other. A.k.a. diversification.

So many people think there is a way to beat the market but no one outside of a handful have over the course of their life.

I just sat in a stand-up listening to my peers talking about making $20 or $60 on an Apple or Nvidia trade they made, and I'm like dudes you can make thousands in dividends a year and hardly look at your portfolio.

This is just straight naive, please do not bet on stocks based on your 'inside information.'

> Which is why it perplexes me when tech people are so diversified with their holdings, there’s little opinion built in.

This is a strength, not a weakness. It protects against assumptions and biases in opinions.

> You have a competitive advantage. You see the tech tools that are utilized every day in your offices. You can understand neural networks and whether Tesla’s auto pilot OS technically reasonable.

The people I personally know in tech are mostly not located in sv and dont work with hot new shit. They are doing LOB programs for businesses. Smart people but i wouldn't be asking them about Neural Nets

> You’re an insider in some respects. Make an assessment, place your bets.

Most people really aren't

User 'nullc made a good point the other day on the "Anatomy of a scam" thread:

> Honestly, I think being "tech savvy" is a liability. Someone who doesn't think they're tech savvy knows they don't know. It takes a certain level of expertise to talk yourself into something extremely dumb.

https://news.ycombinator.com/item?id=22169680

9% interest! Buffet thinks the industry is toast, Lee is making a huge gamble (betting against someone who is known to make good predictions) and Buffet might never see that money again if the business goes bankrupt. Pretty odd transaction, maybe someone can explain how it is mutually beneficial.

9% interest! Are you saying that is good or bad? If Buffet is getting interest, at least he is getting money off the table sooner than later. It's less risky than taking an equity stake. The loan is for a lot more than the sale. The loan is probably cheaper money than Lee can get elseware while the sale price for Buffet is probably a better sale price than if he just tried to fire sale the assets. Buffett is an infamous "one last puff" investor. While newspapers are heading down a continual decline, there is still some money to be made for a while.

I think the original comment meant that a 9% interest for a loan is quite steep and might be signaling Buffett's lack of confidence in media as an industry and its ability to generate value in the long term. However in a deal like this 9% might not be unusually high since the article mentions it is mostly being used to "refinance existing debts" so the high interest is probably a premium on that part

Perhaps Buffett sees that bold action is needed to optimize profits e.g. cutting jobs or asset stripping. He definitely doesn't have have time to be make these bold decisions. And he may not want to cloud his reputation by being in control while the jobs are cut.

A third possibility is that Lee has synergies that Berkshire doesn't have e.g. Lee can give it scale.

Arguably being a big investor type probabbly has a lot to do with knowing ... when you're not in a position / maybe not good at the thing that needs to be done.

Lee is already the manager of the company. He worked for Buffet.

This is spot on. Lee is gonna do things Buffet wouldn't

All of Buffett's companies are pretty lean. They actually let go of a lot of people, he just doesn't wear it because he doesn't run the companies directly.

Buffet might also want to acquire the business via loan foreclosure.

The 9% discounts the eventual acquisition.

He already owns the business... he is selling and financing the sale.

A common (sometimes predatory) tactic is to make a bad loan at a high rate, as part of a self-financed sale to someone you suspect will have short term success but long term failure, knowing you'll get payments for a certain amount of time, then have the asset returned.

It's used car tactics at the next level.

Ok but that really doesn't work in this situation. Buffet would foreclose on the loan, retake ownership and then sell it again?

That's one option, but maybe less likely for a business than for a car, because of valuation.

If he already thinks the business's days are numbered, options are limited. Instead of taking a loss by holding it until bankruptcy, or selling it cheap to someone who also sees limited value, he sells it to someone who's (overly) optimistic, and and is willing to pay a higher value.

Since the risk (at that higher value) is high, lenders will either refuse to finance, or offer a rate higher than what Buffet is offering. Buffet needs to offer the financing to make the sale possible, or at least more attractive.

So at worst, he's turned a dead-end investment into positive cash flow for a few months, where he previously was getting zero. If he forecloses and there's something of value left, he might try to sell again, but the foreclosure makes that less likely, given future buyers will consider it in determining it's value. Regardless, he's still better off than before.

Or the business does ok, and he gets a better price for selling than he otherwise would have. And 9% interest on it, which is something, but I suspect extremely low for Buffet. But he's locked in a minimum value and getting a positive rate, mitigating what he perceived to otherwise be a bigger loss.

He’s selling it to his business manager.

But does he like the guy? :)

Berkshire moves up in the capital structure: from equity to pretty seriously junk debt (which is still above equity).

Deceiving headline, here's the real transaction:

   > Berkshire is lending Lee $576 million at a 9% annual rate for the purchase and to refinance other debt.

Which is to say, he expects the newspaper business to not return 9% - otherwise he would keep it.

That’s not true, it’s about risk-adjusted returns. What Buffet presumably believes is that a 9% loan has a better reward/risk ratio than the newspaper business. As long as a return is greater than the borrowing rate, you csn synthetically make any return you want. This is why risk is important, because leverage is going to multiply it as well.

Which is crazy, makes you wonder what the terms of the debt being refinanced are.

Is that the same Lee Publications that makes trade publications for agriculture and similar sectors?

Among other things: https://lee.net/markets/ // https://www.agupdate.com/

http://archive.md/pWYFr

I'm surprised it has taken this long, TBH.

Can we fix the headline typo? It's Buffett.

Who is Warren Buffet? The submission should be edited to reflect the guy's actual name: Warren Buffett

paywall

Block Javascript.

and people wonder why newspapers cannot make money

We all don't like the idea of not being paid for our work, but somehow it's the duty of these journalists, editors, publishers, prints, etc to do so.

It's the same everywhere. We want to be paid but reach is even more important.[1]

[1] https://www.latimes.com/archives/la-xpm-2006-apr-09-fi-micro...

"As economies mature and flourish and people and companies begin buying legitimate versions, they usually buy Microsoft because most others already use it. It’s called the network effect."

There's no interoperability with news. And these economies are mature. This is just theft.

At this point, the problem with content subscriptions is ease of use and "fuck you, customer" experiences rather than willingness to pay. I'd gladly pay, say, $200 per year to never see a paywall or commercial and never have to worry about account registrations or overcharging.

But after paying $100 in for a single article I read in a Norwegian newspaper last year, due to a weekly subscription that had "compulsory auto-renewal" in the small print, and no payment confirmations other than the account statement of my rarely-checked bank account... Let's say I'm not so keen on managing 30+ subscriptions to different providers, keeping up with their terms of service and ensuring they don't screw me.

I'll gladly pay when a company is able to figure out the proper UX for this, and the content producers get their heads out of their asses and consent to a sane distribution agreement with them.

Don't punish the publishers for this. They don't manage those aspects themselves, and haven't in a long time.

A couple of publishers do have stakes in those services (ex: Hearst, via https://www.cds-global.com/). At least in North America.

And for what it's worth—auto-renewal is standard and has been for a long time, like with most subscription/monthly services. I don't take that as a "fuck you" as you put it. Alternatively—a lot of people would be just as pissed off if their subscription automatically ended while they're waiting for their next issue.

Anyway I'm not sure I'm clear on why this means they should work for free?

https://about.pressreader.com/ - $360 a year, so a bit more expensive, but probably affordable on a tech salary if news is important to you.

Fun fact: the Toronto Public Library provides free subscriptions to PressReader for those who live in the city limits or work or attend school here as long as you hold a library card.

It’s worth petitioning your local libraries to do the same.

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