The Warren Buffett Philosophy of Investment – How a Combination of Value Investing and Smart Acquisitions Drives Extraordinary Success : [PDF Download]

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“In the end, Buffett’s competitors shut down their paper. Having acquired the local monopoly position, Buffett raised the prices for advertisers. He recouped the money that he had invested in approximately seven years, even though at the beginning he had been carrying substantial losses.

According to independent estimates made in the late 1990s, Buffett was earning a nearly astronomical return on his investment in the Buffalo Evening News: around 90 percent annually (as estimated based on the original acquisition price; however, it is important to remember that there would also have been an impact from inflation) [Lowe, 2000, p. 145].

The Buffalo Evening News turned out to be one of the most profitable of Buffett’s acquisitions. There might have been, however, another significant element in the story of the Buffalo Evening News.

According to some unconfirmed indications, which have not been discussed widely in public, the Buffalo Evening News did not publish a Sunday edition prior to its acquisition by Warren Buffett because of an informal agreement about the division of the market between the families that owned the two papers.

If so, the original owners may have felt uncomfortable about breaking the agreement, but Buffett probably did not share their feelings. The value of the business may have been higher for him than for the old owners.

The parties to the transaction could reach a mutually satisfactory sale price. The sale of the paper may have been a way to restructure the business and abandon personal obligations that could have been construed as unprofitable.

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