Buffett and Washington Post - Buying Dollar Bills for 25 Cents

Look, imagine you walk into a store and see a crisp $100 bill on the shelf with a price tag of $25. You would buy every single one they had, right? That is exactly what Warren Buffett did in 1973 when he bought shares of the Washington Post Company. He paid roughly 25 cents for every dollar of real business value. And then he held on for decades while that investment turned $10.6 million into over $1 billion.

Let me tell you how one of the greatest investments in history actually played out.

The Setup – A Great Business Under Political Pressure

The Washington Post Company went public in 1971, selling about 1.4 million shares of Class B stock and raising $33 million from investors. Here is an important detail: the Graham family kept all the supervoting Class A stock, which gave them the power to elect 70% of the board of directors. So while outside investors could own shares, the Graham family was firmly in control.

This matters because it meant the company was run by people who had massive skin in the game. The Graham family was not just a group of hired managers collecting paychecks. They were owners. And that makes a difference in how a business gets run.

By 1973, the stock price had taken a serious hit. Why? The Washington Post had been aggressively covering the Pentagon Papers – classified documents that revealed how the U.S. government had expanded the scope of its actions in the Vietnam War. The New York Times had been explicitly told to stop printing this stuff. The Washington Post kept going.

Here is the thing – there were real concerns that the government might shut the paper down. On top of that, the Nixon administration was challenging the broadcast licenses of television stations owned by the Washington Post Company. This was not just theoretical risk. The government was actively trying to hurt this business.

So the stock dropped. Hard.

The Math That Made Buffett Pull the Trigger

While everyone else was running scared, Buffett sat down and did what he always does: he calculated the actual value of the business.

His conservative estimate put the Washington Post Company’s intrinsic value somewhere between $400 million and $500 million. The stock market was valuing the entire company at just $100 million. Let that sink in. The market was pricing a $400-500 million business at $100 million. That is 20 to 25 cents on the dollar.

Buffett bought $10.6 million worth of stock.

And then something painful happened. The stock kept falling. By the end of 1974, his stake was worth only about $8 million. That is a 20%+ loss on paper. Most people would have panicked. Most people would have questioned their analysis. Most people would have sold.

Buffett did none of those things. He later described the situation perfectly: what they had thought was ridiculously cheap a year earlier had become even cheaper, with the market valuing the stock at below 20 cents on the dollar of intrinsic value.

Here is the thing about buying great businesses at massive discounts – you can afford to be wrong on timing because you are so right on value. When you pay 25 cents for a dollar, even if it drops to 20 cents, you are still holding something worth far more than you paid.

Katharine Graham – The CEO Who Supercharged Returns

Now, this is where the story gets really interesting. Katharine Graham, the CEO of the Washington Post Company, saw the same thing Buffett saw: her company’s stock was absurdly undervalued. And she did something about it.

Graham started repurchasing massive amounts of the company’s stock at these rock-bottom prices. This was brilliant for three reasons that all worked together like a compounding machine:

First, the actual intrinsic value of the business kept growing. The Washington Post was a profitable, well-run media company that continued to perform well regardless of what the stock price was doing.

Second, per-share business value increased even faster than company-wide value because of the buybacks. When a company buys back its own shares, there are fewer slices of the pie, so each remaining slice becomes bigger.

Third, the gap between the market price and the real value eventually closed. The market woke up and realized this business was worth far more than its stock price suggested.

These three forces working together created an absolute wealth machine for long-term shareholders like Buffett.

Why Share Buybacks Are Incredible (When Done Right)

Let me show you why smart share buybacks are so powerful. Take a hypothetical company that trades at 15 times earnings and uses 75% of its earnings to buy back stock. If you start with 1% ownership, after 30 years of buybacks alone – even with zero business growth – your ownership more than quadruples to nearly 4.7%.

Now make it more realistic. Say the business also grows earnings at just 5% per year while maintaining those buybacks. After 30 years, your initial investment would be worth roughly 21 times what you paid. A 2,079% return from a company growing at only 5% per year. That is the magic of buybacks combined with even modest growth.

But here is the critical point that most people miss: buybacks only build value when the stock is undervalued.

Think of it this way. You have three equal partners in a business worth $3,000. If one partner wants out and you buy their share for $900 instead of $1,000, you and your remaining partner each gain $50 instantly. But if you overpay at $1,100, you each lose $50.

The same math applies to every public company doing buybacks. When the Washington Post was buying back stock at 25 cents on the dollar, every $1 spent on buybacks created $4 in value. That is incredible capital allocation.

But when companies buy back overvalued stock – and plenty of them do – they are literally destroying shareholder value. They are paying $1.50 for something worth $1. That helps nobody except the people selling.

So when you see a company doing buybacks, do not automatically celebrate. Ask yourself: is the stock actually cheap? If yes, those buybacks are your best friend. If no, management is lighting your money on fire.

The Final Score

Buffett never sold his Washington Post shares. Over the decades, the Washington Post subsidiary was eventually sold to Jeff Bezos, and the remaining company became Graham Holdings. Buffett ultimately exchanged his Graham Holdings stock for a package that included a television station and some Berkshire Hathaway shares. The deal valued his position at approximately $1.1 billion.

From $10.6 million to $1.1 billion. That is roughly a 100x return on an investment in a company that was hiding in plain sight. The information was public. Anyone could have done the math. But almost nobody had the courage to buy when the government was threatening to shut the business down.

How This Applies Today

Look, you are not going to find the next Washington Post by just screening for low P/E ratios. The opportunity Buffett found came from a specific combination of factors that you should train yourself to recognize.

Watch for temporary political or regulatory fear. When a great business gets hammered because of a government investigation, a regulatory threat, or political controversy, the stock often drops way below its real value. The key word is “temporary.” You need to assess whether the threat will actually destroy the business or just scare people for a while.

Look for insider buying and smart buybacks. When company leadership is buying back stock aggressively at low prices, that is one of the strongest signals you can find. They know their business better than any analyst. If they think the stock is cheap, pay attention.

Understand the difference between price and value. The market priced the Washington Post at $100 million. The business was worth $400-500 million. That gap is where fortunes are made. Price is what the stock screen shows you. Value is what you get when you actually analyze the business.

Skin in the game matters. The Graham family owned supervoting shares and had their wealth tied to the company. When management has that kind of alignment with shareholders, they make better decisions. Always check insider ownership before you invest.

Key Takeaways

• Buffett bought the Washington Post at roughly 20-25% of its intrinsic value – paying quarters for dollars
• The stock dropped another 20% after he bought it, and he held through the pain because he trusted his analysis of the business
• Katharine Graham’s share buybacks at depressed prices created a triple compounding effect: growing business value, increasing per-share value, and narrowing discount to intrinsic value
• Share buybacks only create value when the stock is undervalued – when companies buy back overpriced stock, they destroy shareholder wealth
• Even modest 5% earnings growth combined with smart buybacks can generate 20x+ returns over long holding periods
• The original $10.6 million investment grew to approximately $1.1 billion, demonstrating what happens when you combine a great business, a great price, great management, and extreme patience