In 1973, business magnate Warren Buffett — Chairman and CEO of Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB), one of the most successful conglomerate holding companies on the planet — invested $10.6 million in the Washington Post Company. As Buffett explained in his 1985 letter to shareholders, by 1974, the investment sank to a market value of about $8 million, a loss of nearly 25 percent. At a glance, a crushing defeat for a then still-rising investment manager.
But Buffett, perennially patient, was unfazed. In the same letter, he told his shareholders not that the investment was a bad idea, but that, “What we had thought ridiculously cheap a year earlier had become a good bit cheaper as the market, in its infinite wisdom, marked WPC stock down to well below 20 cents on the dollar of intrinsic value.”
Buffett’s keen eye for value in a habitually inefficient market — one that would value the Washington Post Company at $100 million in 1973, when “most security analysts, media brokers, and media executives would have estimated WPC’s intrinsic business value at $400 to $500 million” — showed him that far from being a bad investment, his pick had the potential to become far more valuable.