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Should You Catch A Falling Knife In Stock Market? - Warren Buffett - YouTube
Channel: Value Investors Archive
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if either of you were looking at a newspaper stock聽
today and watching them fall as some people may聽聽
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categorize falling knives what would you use聽
to determine or how would you determine a very聽聽
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comfortable margin of safety the question is what聽
what multiple what what multiple should you pay聽聽
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for a business that's earning 100 million dollars聽
a year called pre-tax whose earnings are going聽聽
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to go down five percent a year compared to聽
what you should pay for a business without聽聽
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it's earning a hundred million dollars a year聽
that's earning those earnings are going to go聽聽
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up five percent a year and i would say that i'm聽
not saying that those are percentages i predict on聽聽
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newspaper companies but certainly newspaper聽
companies face the prospect of their newspaper聽聽
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earnings eroding and we've seen some of it聽
already we see every trend pointing in that聽聽
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direction we own a newspaper ourselves and聽
and you know i do not think the circulation聽聽
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of our paper will be larger in five years and i聽
don't think the advertising pages will be greater聽聽
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and i think that's true even of newspapers聽
that operate in in more prosperous聽聽
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or actually more growing i should say聽
areas of the country than than we do so
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but i don't think i don't think most owners聽
of papers still have quite gotten to the聽聽
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point where they start projecting out declining聽
earnings certainly multiples on newspaper stocks
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are unattractively high if you would see some聽
decline like five or six percent a year on聽聽
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earnings occurring for this point they're聽
just they're not cheap enough to compensate聽聽
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for that sort of erosion in earning power and then聽
you face the added risk that they may have a sort聽聽
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of a perception lag and that they may continue to聽
use some of that money to to buy other newspapers聽聽
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at prices which again don't make much sense聽
it's it's pretty hard in a declining business聽聽
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to buy things cheap enough uh to compensate for聽
the decline uh people in the business always tend聽聽
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to think that they're seeing the first robin聽
you know or something and then it's gonna get聽聽
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better and i would say the newspaper business the聽
decline is if anything is accelerated somewhat聽聽
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i uh you know when they take when they take聽
people out to the cemetery they're taking聽聽
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newspaper readers and when people graduate from聽
school they're not gaining newspaper readers and聽聽
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and that may not uh change things overnight but聽
it it goes in the wrong direction and the less聽聽
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the readers the less the readership the less聽
compelling argument they have to advertisers so聽聽
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that virtuous circle uh where everybody read a聽
paper because every ad was in it and every ad was聽聽
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in it because every everybody read a paper that聽
virtual cycle is going in the other direction now聽聽
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and i don't uh i don't think present prices聽
for papers compensate for that and you you are聽聽
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now hearing from a couple of guys that just love聽
newspapers we think newspapers are indispensable聽聽
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but we don't have a lot of we have less company聽
in that viewing before we we love i read聽聽
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five newspapers every day charlie probably聽
does about the same and and yeah well he's聽聽
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it shows too the uh the uh you know聽
we we couldn't live without them but聽聽
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a lot of people can and more聽
people can every day and
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now we love the idea of buying newspapers we聽
travel to cincinnati and sat in cheap hotels and聽聽
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all kinds of things to buy newspapers but and we聽
thought incidentally we we loved them as products聽聽
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and we and we thought they were the greatest of聽
businesses the ultimate bulletproof franchise聽聽
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but it became apparent we were wrong them you聽
know we still love them as as products but we聽聽
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were wrong about the bulletproof franchise and聽
and you know when we we got to believe our eyes聽聽
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in terms of what we're seeing in in that world聽
charlie yeah i have an even greater sin to聽聽
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admit to i once thought general聽
motors was a bulletproof franchise and聽聽
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but we have a wonderful way of coping with a聽
lot of these things we have this too hard pile聽聽
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i don't know if warren is buying general motors聽
or or uh or not but i have a good guess and and聽聽
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it's just too hard if something is too hard to do聽
we look for something that isn't too hard to do
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what could be more obvious than that
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it may mean that we don't do very much聽
yeah yeah we won't get into some specifics
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it's it's i don't think anybody has watched聽
the newspaper business much more carefully than聽聽
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charlie and i have for really 50 years we used聽
to we we always talked about every paper in the聽聽
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country and and the potential for buying聽
and all of that sort of thing and it was a聽聽
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it was easily understood i mean it聽
was it was about as easy an economic聽聽
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a business economics problem as聽
you can imagine and we slowly聽聽
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woke up to change on it actually i wrote in the聽
1991 annual report uh the newspaper the very聽聽
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the pre-prince of the world you know started聽
turning the newspaper into a wrapper it was聽聽
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contained a whole bunch of things that could聽
have been contained in some other package聽聽
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now your newspaper was wasn't reproducible聽
in some other package but this this thing聽聽
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was carrying around a bunch of preprints now the聽
question is is there a bunch is there are there聽聽
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easier ways to carry around those preprints but聽
there was nothing magical about the paper except聽聽
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it got inside the house and and brought the聽
preprints inside the house and as the newspaper聽聽
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lost penetration it became a somewhat less聽
efficient way of getting things into the house and聽聽
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other other ways became more efficient at getting聽
things into the house and so there's these things聽聽
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it's it's not a hard business to understand聽
and it has been interesting to me to watch聽聽
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both owners direct owners and investors in the聽
business sort of resist seeing what's right in聽聽
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front of them you know it it just it went so long聽
the other way that you couldn't make a mistake聽聽
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buying a monopoly newspaper nobody ever made a聽
mistake buying one you know up until what 1975聽聽
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or 80 or something like that if the technology had聽
not changed they'd still be impregnable franchises聽聽
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but the technology did change fortunately carbide聽
cutting tools appear to have no good substitute聽聽
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it's a lot better business over time if you have聽
the right manufacturing it takes very good money聽聽
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nice thing about the newspaper business 30 or 40聽
years ago took no management at all i mean if if聽聽
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you had an idiot new nephew you know you'd be a聽
perv or network television station i mean they聽聽
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were going to make money no matter what happen聽
they're going to make more money if they were聽聽
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under good management i mean if tom murphy was聽
running your television stations you were going聽聽
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to do much better than if you had your nephew聽
doing it but the nephew would have done all right
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