March 8, 2013

Social Media’s Reaction to Warren Buffett’s Letter

From a young age, Warren Buffett loved to count bottle caps, stamps, coins and golf balls.  In later life he counted investment dollars and returns, both economic and market.  This quantification allows him to see patterns and trends that not apparent to others.

 Following the Oracle of Omaha’s playbook, we decided to code and count the topics found in 72 social media posts about Buffett’s 2013 shareholder letter.  These were sent between Friday, March 1 after his letter was released to the world at 4 p.m. and close of market Monday, March 3.

What captured the interest of journalists, investment analysts and bloggers?  Four topics emerged representing almost three-quarters of these posts:

  1. Buffett’s $344 million purchase of 28 daily newspapers and his defense of the fundamental – if not spectacular – viability of the (local) news business (40.3 percent of blogs).  Given the minuscule impact of this investment on Berkshire’s future earnings, it’s startling to see the large number of posts about Buffett’s acquisitions of local newspapers.  We chalk it up to journalists whose business is under assault and see a powerful ally in Buffett putting his money where his mouth is!  He wrote:  “Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communications and having a sensible Internet strategy will remain viable for a long time.”
  2. Berkshire’s “subpar year” because the S&P 500’s total return outpaced the growth in Berkshire’s book value (16.7 percent of blogs)  In response to Buffett’s description of the company’s “subpar year”, Barron’s Andrew Bary lashed out, “Subpar? More like a Birdie for Berkshire.”  He declared that Berkshire is in better shape than ever reflected in its stock price, with Berkshire “A” stock hitting a new closing record of $152,750 on March 1.  We, however, admire Buffett’s consistent handicap: for the past 48 years he has used book value as his performance proxy – it measures the “intrinsic value” or future earnings power of the company.  This matters more than share price.
  3. Buffett’s shout out against CEOs who cry “uncertainty” as an excuse not to invest in their businesses (9.7 percent of blogs).  Buffett boasts in his letter that Berkshire spent a record $9.8 billion on plant and equipment in 2012 – up 19 percent year-over-year.  As well, “about 88 percent of that was spent in the United States.”  Buffett counsels CEOs “who use “uncertainty” as an excuse not to invest capital in growing their businesses: Take the long, historic view.  These “hand-wringers” are missing important investment opportunities.
  4. Invites readers to submit their qualifications to be chosen to make the case for NOT investing in Berkshire at the annual meeting (6.9 percent of blogs).  Buffett amazingly, intends to “spice up” the May 4th 2013 Berkshire annual meeting by adding “a credentialed bear” to the panel of financial analysts who will grill him and Vice-chairman Charlie Munger during the 5+ hour marathon Q&A at Omaha’s CenturyLink Center.   By Monday March 4, the winner was announced:  Douglas Kass of Seabreeze Partners.  His 2008 report, “11 Reasons to Short Berkshire,” captured Buffett’s attention.  How will Kass paint a bleak picture of Berkshire’s future?  All will be revealed on May 4 before the approximately 30,000 expected guests at the annual meeting.

Bottom line:  None of these topics has ever appeared in executive communications found in the Rittenhouse Rankings Corporate Culture and Candor Annual SurveyTM over the past ten years.  And dollars to donuts, we don’t expect to find these in the new crop of 2013 shareholder letters coming out.

Kudos to the blogosphere for highlighting these innovative outliers!  But what about the posts that did not get a wide following?  These are equally revealing and will be highlighted in our next blog.