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Home - Cover Stories
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Buffett's Buddy
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Newspaper man
Stanford Lipsey and
Nebraska’s Pulitzer
by Leo Adam Biga
Omaha native and veteran newspaper publisher Stanford Lipsey has seen and done it all in a six-decade journalism career that’s closely allied him to Berkshire Hathaway CEO Warren Buffett.
Lipsey climbed the ranks at the now defunct Sun Newspapers in Omaha to become owner-publisher. In 1969 he sold the Sun to Buffett, but remained as publisher. In 1972 Lipsey was at the helm when the Sun, acting on a lead from Buffett, poked into the finances of Boys Town. The Sun’s probing led to sweeping changes at the charitable organization and earned the paper a Pulitzer Prize.
Buffett later appointed Lipsey publisher of the Buffalo (N.Y.) News. Lipsey is still its publisher today. In 1988 he was named a Berkshire vice president. The old friends, inducted in the Omaha Press Club Hall of Fame in 2008, may or may not get together this weekend at Berkshire’s annual shareholders’ meeting in Omaha.
Lipsey, who got his start as a photojournalist, came out with a photography book, Affinity of Form (2009, powerHouse Books), which can be purchased at the Qwest Center exhibition hall during the May 1 meeting or at The Bookworm. He still shoots, only with digital equipment, not the Brownie or Speed Graphic he began with. Instead of snapping news pics, he makes fine art images for galleries and books.
His life as a newshound spanned hot type, clattering typewriters, digital off-set presses, computerized newsrooms and newspaper websites. His training began at Omaha Central High and the University of Michigan. While in the U.S. Air Force he served as editor of the Offutt Air Force Base publication Air Pulse.
He began working at the Sun in 1952, learning the business inside and out. Lipsey said the Sun “was small enough so I could do it all.” He considers a well-rounded newspapering experience an “invaluable” education most publishers don’t have today. “In the large daily business hardly anybody has it. They come from one field. They were either an editor or an advertising manager or a business manager, but they don’t have the crossover background between news and advertising,” he said.
Buffett said, “He’s a real journalist but he understands every aspect of the business, and that was one of the considerations why we wanted him up in Buffalo.”
Under Lipsey’s watch, managing editor Paul Williams guided the Sun expose of Boys Town when the still single-campus, dormitory-style, boys-only home used weepy mass mail appeals to portray itself as destitute. The Sun revealed Boys Town sat on a $162 million endowment dwarfing that of many national institutions. Property and building assets created a total net value in excess of $200 million.
“We knew there was a story there, but we didn’t know how to get it,” said Buffett. “I was sitting at home doing the tax return for my own tiny little foundation and there was something in the instructions that said my tax return would be public. All of a sudden it dawned on me if a tax-free institution such as this foundation of mine had to make the return public, Boys Town probably did.”
The story goes Buffett called on a well-placed source who sat on the Boys Town board to verify Sun suspicions the nonprofit had accumulated a fortune. Public records confirmed the rest. Public indignation was strong.
“It’s a helluva story,” Lipsey said by phone. “It was so well done.”
He said breaking the exclusive, which major news outlets picked up, was what the Sun needed to do to stay relevant opposite the Omaha World-Herald.
In Buffett, the paper had deep pockets and considerable clout. In Williams, who went on to help found Investigative Reporters and Editors, Inc., a solid newsman. In Lipsey, a crusading publisher.
“See, we didn’t have the advantage of being a daily, so when we came out we had to have something fresh, so we did investigative reports, enterprise reports,” said Lipsey. “Warren, Paul Williams and I would sit down and brainstorm — what’s the story, what should we go after, and then this thing came along — it actually came along on a tip from Warren. It made for a great story.
Like Lipsey, Buffett still feels a sense of pride about what they did.
“That was a watershed. It didn’t do us any good commercially as a paper, but that was probably as interesting a month or two of my life as has ever occurred,” said Buffett.
The report upset the Catholic community. Defensive Boys Town officials attacked the Sun as “a yellow rag.” The gutsy coverage earned the Sun the first Pulitzer given to a weekly for Local Investigative Specialized Reporting. It’s the last Pulitzer, period, won by any Nebraska newspaper. The award also recognized the reforms the story instigated. A chastened, more transparent Boys Town embarked on a course serving at-risk youth in new, home-like environs across the nation. Boys Town also built the first of its major research facilities.
When Buffett acquired the Buffalo News in 1977 he asked Lipsey for help. “When I was in trouble up in Buffalo with the paper I called him,” said Buffett. At first Lipsey served as a consultant, commuting between Omaha and Buffalo, before accepting the role of publisher in 1983. The two men share an abiding mutual respect. “I admire Warren. I would say he’s someone who has taught me a lot. He’s a steady hand. He makes decisions that are totally moral, totally wise, and for the right reasons, and they’re not always necessarily for profit,” said Lipsey. “He won’t buy a company where the management isn’t in place. The only exception to that is me.”
The book The Warren Buffett CEO, Secrets from the Berkshire Hathaway Managers, devotes a chapter to “the turnaround” Lipsey engineered in Buffalo.
“You see a newspaper doesn’t really match what Warren buys in companies because this paper was losing money when he bought it but he always had enormous respect and love for newspapers. But then he was short — we had a very good editor but we didn’t have a good publisher here. He had to get one to come in, and he tapped me,” said Lipsey.
“There was a daily newspaper here in competition called the Courier Express. It became one of these fights to the death type thing. I got very interested in that. That was an enormous challenge, and I wanted to make sure we survived.”
Buffett said Lipsey was well qualified coming from a small paper to oversee a big paper because he knew all phases of newspaper operations: “Stan knew the press room, he knew circulation, he knew ad sales, he knew the newsroom. Stan’s been a terrific friend and business associate. He’s over 80 now and he goes to work every day with the same zest as always. There’s no one I trust more.”
With the dynamic pair behind it, the Buffalo News won out. Lipsey’s still in charge, but the shrinking place of printed newspapers in this digital age concerns him.
“Certainly right now the newspaper business is challenging. We’re doing better than most papers, but we’re not doing well. All our numbers are way down. Circulation, advertising, profit, volume, everything, and I think you’ve seen the same thing with the World-Herald, and they were enormously profitable. The trouble with newspapers is they’re extraordinarily costly, so when you have a sharp fall off in revenue it’s hard to cut as much as you’re losing, because you have to so many people in the newsroom, so many people running the presses, so many people driving the delivery trucks. That’s the problem.”
Buy Like Buffet
Lessons from Warren
Buffett’s pension portfolio
by Robert P. Miles
Did you know that Warren Buffett manages a pension portfolio separate from his longtime stock holdings in his conglomerate Berkshire Hathaway? The man many consider the world’s greatest investor has long declared that most of his and his family’s net worth is in Berkshire’s stock. Those holdings are well reported and analyzed. But what about his other investments, and what can we learn from that portfolio?
Berkshire’s pension equity portfolio is small compared to its $60 billion in common stock holdings, but with a recent value of $1.8 billion the conglomerate’s retirement holdings are substantial by any measure. Each quarter the worldwide media reports, usually incorrectly, that the common stock changes submitted by Berkshire Hathaway are made solely by its chairman, Warren Buffett. Many of the Berkshire buys and sells reported as Buffett’s are actually directed by Louis A. Simpson, CEO of Capital Operations at wholly owned auto insurer GEICO. By carefully reviewing the list of the 21 separate reporting entities listed at the beginning of the report, one can find, in Column 7 of the filing, which investments belong to the parent company Berkshire Hathaway and its subsidiaries and should be reported as actions of Warren Buffett, which purchases and sales result from Simpson, and which investments are managed solely by Mr. Buffett. All three are hiding in plain sight.
These reports, which must be filed 45 days after the end of each quarter by any U.S.-based institutional investor with $100 million or more under management, list the stocks that Buffett controls, not including cash, fixed income or foreign investments. Occasionally, for competitive reasons, Berkshire is given permission by the SEC to withhold and delay information about what it buys or sells for up to one year after the quarter end. Why should that quarterly report matter to you? Because it holds at least eight key lessons you can use to invest the way Buffett does.
#1 Do Your Own Research: Media reports can be misleading. Don’t believe everything you read or hear — not even from major news sources like Reuters, Forbes or CNBC, about what Buffett is buying or selling. At the end of 2009, the most recent filings indicate that a total of 41 stocks are in Berkshire and related party portfolios.
Your research should begin online. Here’s how to find Warren Buffett’s pension portfolio: First visit berkshirehathaway.com. Click on “Link to SEC Filings,” then click on the second entity (there are four) listed 0001067983 just to the left of Berkshire Hathaway Inc. On the left you will see a filings column: scroll down to the report listed as 13F-HR or 13F-HR/A (amended) and titled Quarterly Report Filed by Institutional Managers. Select the most recent quarter or a previous reporting period. Click on “documents.” Finally, click on either red document number listed after “FORM 13F-HR/A.” The filing is self-explanatory and easy to read. Remember, wherever you see the #4 in Column 7 it is a pension fund selection of Warren E. Buffett. Study, and learn from, what you find there.
#2 Consider Old School Investments With Little Change: The average company in the Buffett managed retirement portfolio was started in 1892, decades before he was born.
Like Buffett’s most recent purchase — Burlington Northern Santa Fe, founded in 1850 — the companies in his 10-stock fund have diversified little from the industry sector where they began. Buffett buys and holds century-old American companies (except for Ingersoll Rand, which is based in Ireland) with durable competitive advantages at a discount to their values. Most are multi-nationals capturing as much as 40 percent of their earnings in markets and countries outside the U.S. Buffett has no interest in new-fangled, fast-changing business models. Instead of Initial Public Offerings (IPOs), his pension portfolio is loaded with OPOs, Old Public Offerings. Buffett should consider himself a financial anthropologist. The older things become, the more interested he is.
#3 Be Decisive: When you decide to buy or sell, move quickly. As Buffett wrote in his most recent letter, “When its raining gold bring a bucket, not a thimble.”
Although decisive, Buffett once admitted costing his shareholders billions of dollars when he started to purchase Walmart and stopped when shares began to rise one quarter of one percent.
#4 Be an Owner, Not a Traitor: For Buffett, it’s not about trading or switching in and out of a stock based on quarterly or emotionally charged media reports. It’s about reading, thinking, and investing rationally at the right price or at a discount to the stock’s value. Notice his lack of trading activity.
In 2009, Buffett made four buys (green) and no sales. He had no trading activity “at all” in the first and fourth quarters. He added to two existing positions (Johnson & Johnson and Wells Fargo) and started two new stocks (Walmart and Exxon).
Buffett doesn’t trade in and out of stocks. Besides, the tax impact of short-term capital gains, if your investments are in a personal taxable account, can claim much of your profits.
#5 Go Big or Go Home: Holding a handful of stocks will do, if you know what you’re doing. Concentration is for the know-something investor. Diversification and dollar cost averaging, investing a set amount at regular intervals, is for the know-nothing investor.
“The average investor would be best served to buy a low-cost index fund,” Buffett said. Most of the “super investors” he’s known made fortunes by owning a handful of stocks. Mimicking Berkshire’s holdings and showcasing his long-held investment philosophy, over 75 percent of Berkshire’s pension fund is invested in five stocks. Buffett put as much as 21 percent of the fund’s $1.8 billion into Wells Fargo.
More than half the Buffett-controlled retirement holdings are in Wells Fargo, Johnson & Johnson, and Proctor & Gamble. Include Kraft and Wal-Mart and 77 percent of the portfolio could fit in one hand. You can still buy Johnson & Johnson and Kraft stock for a lower price than Berkshire paid.
#6 Large Names with Wide Moats: Most equities Buffett selects are large, recognizable multi-national names representing basic, long-standing categories like banks, health care, consumable goods, food and retail. These are stocks with very wide moats, making it difficult to compete against them. As with his recent, and largest, acquisition of a railroad, Buffett continues an all-in wager on America with Berkshire’s pension holdings.
#7 Dividends for Income: Since this is a retirement plan, assets are invested with a long-term objective of earning amounts sufficient to cover expected distributions and dividends. The fund manager must be prudent with the level of risk assumed.
#8 Think Independently: If you are a know-something investor, you must think independently. A know-nothing investor should invest (usually a set amount over a regularly scheduled period) in a low-cost index fund. As the top 500 domestic stocks fluctuate, so does the know-nothing investor. By doing so, they can beat 90 percent of the know-something professional money managers.
Buffett calls some professionals that charge their clients two percent of their assets and another 20 percent of the realized profits the “2 and 20 Club” or “helpers.” The irony is, these pros might not be thinking for themselves and are simply imitating what Buffett and others are doing.
Robert P. Miles is an author, international speaker, and founder of the 7th Annual Value Investor Conference, May 3-5, in Los Angeles. To learn more, visit valueinvestorconference.com. Full disclosure: He is a long-term shareholder of Berkshire Hathaway and Kraft. |
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