Stansberry's Credit Opportunities newsletter; Warren Buffett is giving up on newspapers; A Paradox at the Heart of the Newspaper Crisis; How long-short managers feel
1) Though I've been almost entirely a stock investor over my career, I recognize and appreciate the role that bonds can play in a properly diversified portfolio.
But, as with stock investing, you'd better know what you're doing – or get very good, objective advice (don't trust a bond salesperson any more than you'd trust a stockbroker).
I know my own limitations, so I always read the Stansberry's Credit Opportunities newsletter with interest. It's written by veteran investors Mike DiBiase and Bill McGilton over at my corporate affiliate Stansberry Research.
Mike and Bill look for opportunities among distressed bonds – those that are trading at a meaningful discount to par value. Chosen carefully (you want to avoid defaults!), such bonds offer a double benefit: you earn interest and, if the bonds trade back up to par, capital appreciation as well.
Mike and Bill have built an enormous database to find those "needle in the haystack" bonds. When combined with their good judgement, the result has been fabulous annualized returns of around 20% – three times their benchmark.
I particularly respect these two because – like all successful investors – they not only know when to invest, but when not to invest. For example, in the latest issue of Credit Opportunities, they break down "the current craziness in the bond market," identify seven hidden bombs in the corporate credit market today, and share five steps to help you build an ideal bond portfolio.
Best of all, they agreed to let me share the issue with you – click here to read it. And if you'd like to learn more about a subscription to Credit Opportunities – for half off the regular price – just click here.
2) Today's news that Warren Buffett has sold Berkshire Hathaway's (BRK-B) newspaper operations marks the end of an era. It was no doubt an easy business decision for Buffett... He acknowledged last year that all but the three biggest papers – the New York Times, Washington Post, and Wall Street Journal – were "toast," and Berkshire's papers were microscopic in the context of a conglomerate with a $548 billion market cap.
But it must have been a hard decision emotionally because of his long history with newspapers. As a teenager, he delivered them (as did I – my first job ever, in sixth grade, was delivering two dozen copies of the Greenfield Recorder to my neighbors in Northfield, Massachusetts). And Buffett has often spoken about newspapers' importance to a healthy democracy (I couldn't agree more). He even hosts a newspaper tossing competition during Berkshire's annual shareholder meeting.
Buffett got into the business in 1977 with the $33 million purchase of the Buffalo News, which was a highly successful deal. Like See's Candies, another defining acquisition of Buffett's early career, the Buffalo News provided robust cash flows that Buffett used to build Berkshire. It wasn't without controversy, however... This Los Angeles Times article documents how he quickly drove the other paper in the city, the Buffalo Courier-Express, out of business, which resulted in years of litigation: How Warren Buffett, who says the news business is 'toast,' tried to kill my first paper.
3) Speaking of newspapers, here's an interesting New York Times article from August about the challenges they face – and the tensions with their hedge-fund owners... A Paradox at the Heart of the Newspaper Crisis. Excerpt:
Hedge funds have found that they are able to wring profits out of an ailing product: the print newspaper. But for how long?...
Print's persistence often takes the form of what a study published by the U.N.C. researchers called ghost papers – spectral incarnations of once-thick publications able to haul in cash even as they lack the deep reporting that once made them essential to their communities.
These phantoms have hung on because print revenue, while in steep decline, still brought in more than $25 billion last year...
Neil Chase, the former executive editor of the Bay Area News Group, said that the news organization he oversaw regularly received profit targets from its owner, Digital First News – now known as MediaNews Group, a company controlled by the hedge fund Alden Global Capital. To hit those targets, he had to slash costs.
During Mr. Chase's tenure, from 2016 to the start of this year, layoffs and attrition cut the newsroom to around 165 from an already diminished staff of 240, he said.
Mr. Chase and his team tried to preserve the company's core publications, The Mercury News in San Jose and The East Bay Times. And so the group's weeklies – titles like The Walnut Creek Journal and The Los Gatos Weekly-Times – took a big hit.
"We gutted those papers by taking the journalism out of them," said Mr. Chase, now chief executive of CALmatters, a nonprofit covering California state politics...
Journalists at one newspaper that suffered particularly drastic job cuts – The Denver Post, an MNG publication – made news last year when they rebelled against their bosses by publishing a six-page special opinion section blasting their ownership. In the lead essay, the Post singled out the hedge fund behind MNG, Alden Global Capital.
"If Alden isn't willing to do good journalism here," it said, "it should sell the Post to owners who will."
4) This meme is circulating in the hedge-fund community – for good reason: its gallows humor captures how most long-short managers feel after more than a decade of underperformance, mostly driven by big losses on the short side...
Best regards,
Whitney