Former paperboy in the ink again

Warren Buffett has bought 28 dailies in the past 15 months, write Peter Lattman and Christine Haughney.

Over the past half-century, Warren Buffett has built a reputation as a contrarian investor, betting against the crowd to amass a fortune estimated at $US54billion ($A52.9 billion).

Buffett underscored that contrarian instinct in his annual letter to shareholders published on Friday. In a year when Buffett did not make any large acquisitions, he bought dozens of newspapers, a business others have shunned. His company, Berkshire Hathaway, has bought 28 dailies in the past 15months.

"There is no substitute for a local newspaper that is doing its job," he wrote.

Those purchases, which cost Buffett a total of $US344 million , are relatively minor deals for Berkshire, and just a small part of the giant conglomerate. And Buffett has begun this year with a bang, announcing last month his takeover, along with a Brazilian investment group, of the ketchup maker H.J. Heinz for $US23.6 billion.

Despite the Heinz acquisition, Buffett bemoaned his inability to do a major deal in 2012.

"I pursued a couple of elephants, but came up empty-handed," he said, adding that "our luck, however, changed early this year" with the Heinz purchase.

Written in accessible prose and largely free of financial jargon, Berkshire's annual letter holds appeal far beyond Wall Street. This year's dispatch contained plenty of Buffett's folksy observations about investing and business that his devotees relish.

"More than 50 years ago, Charlie told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price," Buffett wrote, referring to his longtime partner at Berkshire, Charlie Munger.

Buffett also struck a patriotic tone, directly appealing to his fellow chief executives "that opportunities abound in America". He noted that the US gross domestic product, on an inflation-adjusted basis, had more than quadrupled over the past six decades.

"Throughout that period, every tomorrow has been uncertain," he wrote. "America's destiny, however, has always been clear: ever-increasing abundance."

The letter provides more than entertainment value and patriotic stirrings, delivering to Berkshire shareholders an update on the company's vast collection of businesses.

With a market capitalisation of $US250 billion, Berkshire ranks among the largest companies in the United States.

Its holdings vary, with big companies such as the railroad operator Burlington Northern Santa Fe and the electric utility MidAmerican Energy, and smaller ones such as the running-shoe outfit Brooks Sports and the chocolatier See's Candies. All told, Berkshire employs about 288,000people.

The letter, once again, did not answer a question that has vexed Berkshire shareholders and Buffettologists: Who will succeed Buffett, who is 82, as chief executive?

Last year, he acknowledged that he had chosen a successor, but he did not name the candidate.

He has said that upon his death, Berkshire will split his job in three, naming a chief executive, a non-executive chairman and several investment managers of its publicly traded holdings. In 2010, he said that his son, Howard Buffett, would succeed him as non-executive chairman.

Berkshire's share price recently traded at a record high, surpassing its pre-financial crisis peak reached in 2007 and rising about 22 per cent over the past year.

The company reported net income last year of about $US14.8billion, up about 45per cent from 2011. Yet the company's book value, or net worth — Buffett's preferred performance measure — lagged the broader stockmarket, increasing 14.4 per cent, compared with the market's 16 per cent return.

Buffett lamented that 2012 was only the ninth time in 48 years that Berkshire's book value increase was less than the gain of the S&P 500 Index. But he pointed out that in eight of those nine years, the S&P had a gain of 15 per cent or more, suggesting that Berkshire proved to be a most valuable investment during bad market periods.

"We do better when the wind is in our face," he wrote.

A former paperboy and member of the Newspaper Association of America's carrier hall of fame, Buffett devoted nearly three out of 24 pages of his annual report to newspapers.

He told shareholders four years ago that he wouldn't buy a newspaper at any price. But his latest note reflects how much his opinion has turned.

His buying spree started in November 2011, when he struck a deal to buy The Omaha World-Herald Co, his home-town paper, for a reported $US200 million.

By May 2012, he bought out the chain of newspapers owned by Media General, except for The Tampa Tribune. In recent months, he continued to express his interest in buying more papers "at appropriate prices - and that means a very low multiple of current earnings".

"Papers delivering comprehensive and reliable information to tightly bound communities and having a sensible internet strategy will remain viable for a long time," Buffett wrote.

He said last month that he would consider buying The Morning Call of Allentown, Pennsylvania, a paper that Tribune Co is considering selling. But Buffett said he had not contacted Tribune executives.

"It's solely a question of the specifics of it and the price," he said about the Allentown paper. "But it's similar to the kinds of communities that we bought papers in."

"Charlie and I have again donned our safari outfits," Buffett wrote, "and resumed our search for elephants."