Warren Watch: '75 memo crafts plan for Post's pension

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Posted: Sunday, August 18, 2013 12:00 am

If you think most investment advisers can make above-average profits, you might agree with a man who sat down with his friends for a game of poker and said:

“Well, fellows, if we all play carefully tonight, we all should be able to win a little.”

Warren Buffett added: “Yes, Virginia, maybe every football team can have a winning season this year.”

The lines are within a memo that Buffett wrote to the late Katharine Graham when she was chairwoman of the Washington Post Co., made public by Buffett just last week through Fortune magazine.

The 19-page memo, sent to Graham on Oct. 14, 1975, lays out options for managing the Post's then-$12 million pension plan. He offers his advice as a Post board member and, as chairman and CEO of Berkshire Hathaway Inc., a major shareholder.

It also describes Buffett's investing philosophy and the advantages of buying stock in a good business, among other ideas.

Buffett told senior Fortune editor Stephen Gandel that Graham deserves credit for adopting what he described in the memo was “a mildly non-conventional investment approach.”

“She was a smart woman who wanted to learn, and she controlled the board,” Buffett said.

Today, the Post's pension fund now holds $2.4 billion, about $1billion more than its pension obligations.

History 'Buff'ett

Among the writings making Warren Buffett's reading list lately is “Harriman vs. Hill: Wall Street's Great Railroad War” by Larry Haeg.

The book published by the University of Minnesota Press is an account of the Northern Pacific Corner, the 1901 struggle for control of U.S. railroads between Edward H. Harriman of the Union Pacific and James J. Hill of the Great Northern, which eventually became the Berkshire Hathaway-owned BNSF.

The Northern Pacific was a minor rail line, but the key to connecting eastern markets to Chicago and the American West. Competition between Harriman and Hill ended up involving J.P. Morgan and the Rockefellers, the nation's oil and steel industries and a legion of wealthy investors.

Wild price swings, a market panic and a near-collapse of Wall Street banks and brokerages followed, with the Supreme Court and President Theodore Roosevelt taking lead roles in what Haeg, former communications director for Wells Fargo & Co., calls “this epic battle.”

The situation is called a “corner” because investors tried to corner the market for the railroad's shares.

In 16 hours, Northern Pacific's stock price went from $110 a share to $1,000, even though it had twice been bankrupt and sold five years earlier as low as 25 cents a share.

Modern government regulation can be traced to the incident, the book says, as well as Supreme Court Justice Oliver Wendell Holmes' reputation as “the great dissenter.”

On the back cover, Buffett is quoted as saying he first read about the Northern Pacific Corner when he was 10 years old. His office wall has a framed copy of a New York Times story on the Corner, published on May 10, 1991.

Buffett read a pre-published version of the book, which he said “now tells the full story, and I enjoyed every word of it.”

On CNBC, Buffett once said, “I like history. I like financial history particularly,” and remarked that former Federal Reserve Chairman Alan Greenspan knows all about the Northern Pacific Corner.

“It's useful to realize how extraordinary things can happen occasionally,” Buffett said. “You should know financial history.”

In his preface, Haeg notes that Buffett told him most MBA students don't know about the Northern Pacific Corner. “Now they have no excuse,” Haeg wrote.

The book includes 47 pages of end notes, a 12½-page bibliography and material from 26 newspapers, including The World-Herald and the Omaha Bee.

Community building

Rockford, Ill., is looking at a Buffett-favored urban renewal program to help a neighborhood, the Rockford Register Star reported.

Buffett is a backer of Purpose Built Communities, an Atlanta nonprofit group that helps struggling communities. The group also is working with Seventy Five North Revitalization Inc. of Omaha, an effort endorsed by Buffett and his daughter, Susan.

Officials from the Atlanta group were shown two public housing projects in Rockford that local leaders say have been a roadblock to redeveloping the area. Just holding the meeting is “a very positive move forward for everyone,” said Rockford businessman Dave Fontana. “This particular effort is in its infancy, and we will continue to monitor it closely.”

Berkshire buys energy firm

NV Energy's board of directors will reap a “financial bonanza” with Berkshire's $5.6 billion purchase of the Nevada electric utility, Eli Segall wrote for the Las Vegas Sun.

Stock owned by the directors will bring $21.2 million to NV Energy President and CEO Michael Yackira, with the nine other directors' holdings ranging in value down to $575,629.

HomeServices acquires Realtor

Berkshire's HomeServices of America has acquired Prudential Fox & Roach of Philadelphia, the largest Realtor in the Pennsylvania, New Jersey and Delaware region and the fifth-largest in the country, with 4,000 sales people in 62 offices.

The purchase, for an undisclosed amount, includes Trident Mortgage Co., Trident Insurance and Trident Land Transfer Co. The company's 25,000 home sales in 2012 totaled $8.3 billion, with 9,800 home mortgages and 48,000 transactions of all services.

HomeServices now has 30 brands with 21,000 real estate agents in 24 states, with a sales volume of $53 billion last year.

Cartoon series goes global

Buffett's cartoon series that teaches children about business is headed abroad.

WorldScreen.com reported that A Squared Entertainment and PGS Entertainment have signed broadcast agreements to license the “Secret KidVenture Club” series in Singapore, Thailand, Brazil and Israel.

Toys R Us is planning a line of merchandise based on the series, too.

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

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