92 THE WARREN BUFFETT WAY
Next, Golub set f inancial targets for the company: to increase earn-
ings per share by 12 to 15 percent a year and 18 to 20 percent return on
equity. Before long, the company was again generating excess cash and
had more capital and more shares than it needed. Then, in September
1994 the company announced that, subject to market conditions, it
planned to repurchase 20 million shares of its common stock. That was
music to Buffett’s ears.
That summer, Buffett had converted Berkshire’s holdings in pre-
ferred stock to common, and soon thereafter, he began to acquire even
more. By the end of the year, Berkshire owned 27 million shares. In
March 1995, Buffett added another 20 million shares; in 1997, another
49.5 million; and 50.5 million more in 1998. At the end of 2003, Berk-
shire owned more than 151 million shares of American Express stock,
nearly 12 percent of the company, with a market value of more than $7
billion—seven times what Buffett paid for it.
The Washington Post Company
The Washington Postgenerates substantial cash f low for its owners, more
than can be reinvested in its primary businesses. So its management is
confronted with two rational choices: Return the money to shareholders
and/or prof itably invest the cash in new investment opportunities. As
we know, Buffett prefers to have companies return excess earnings to
shareholders. The Washington Post Company, while Katherine Graham
was president, was the f irst newspaper company in its industry to repur-
chase shares in large quantities. Between 1975 and 1991, the company
bought an unbelievable 43 percent of its shares at an average price of $60
per share.
A company can also choose to return money to shareholders by in-
creasing the dividend. In 1990, confronted with substantial cash reserves,
the Washington Postvoted to increase the annual dividend to its share-
holders from $1.84 to $4.00, a 117 percent increase (see Figure 6.1).
In addition to returning excess cash to its owners, the Washington
Posthas made several prof itable business purchases: cable properties from
Capital Cities, cellular telephone companies, and television stations. Don
Graham, who now runs the company, is continually beset with offers. To
further his goal of developing substantial cash f lows at favorable invest-
ment costs, he has developed specif ic guidelines for evaluating those