1999: What does Buffett think about the cable industry?

AUDIENCE MEMBER: My name is Merritt Belisle from Austin, Texas. The company has a large investment in the Washington Post Company, which has many cable television systems serving non-major metropolitan areas, as well as a recent investment in TCA Cable. I was hoping to get a comment about the cable television business generally. The other question is about your philosophy of children handling money and inheriting money.

WARREN BUFFETT: The first question about cable, the Washington Post Company does have — and we own about 17 percent of the Washington Post Company, and I believe they have 700,000-plus homes. As you say, they’re in largely smaller areas. It’s been a good business. Cable prices have been galloping here in the last year or so. From the standpoint of the Post, that’s bad news because the Post would have been a net buyer of cable and will not be a seller.

It’s very much like our attitude towards stocks and stock prices. It is not good news for the Washington Post Company when cable prices go up, because the company’s going to be investing funds. If it wants to put money in cable, it’s way better off if cable prices go down than up.

Regarding TCA, Lou Simpson runs a separate equity portfolio at GEICO, so I’ve never read an annual report of TCA Cable. I know nothing about it. If he still has it, it’s an investment of Lou’s at GEICO, for GEICO, and it’s not something that falls under my management at all.

I mention this because periodically the press picks up on items that say that Berkshire — or sometimes it says that I am buying X, Y, or Z. Sometimes that’s true, but sometimes it isn’t, because filings are made on behalf of various other entities associated with us, and I don’t know anything about them.

I saw one here a couple of weeks ago reporting that I was buying some real estate investment trust with the name Omega in it. I’d never heard of it. That story appeared in various places. I can assure you, I filed no form with the federal government saying that I was buying that stock, although you would have deduced that from certain press accounts.

Various other entities, like a subsidiary of General Re, New England Asset Management, may have to report periodically on what they do. Since General Re is owned by Berkshire and New England Asset Management is a part of General Re, who knows what they pick up on that. I caution you, generally, to be a little careful about reports as to what is being bought or sold by me or by Berkshire Hathaway.

Now, as I remember, there was a second question that I didn’t like quite as well to answer. (Laughs) Charlie, you want to tackle that one?

CHARLIE MUNGER: Well, I think there was more interest in the future of cable. (Laughter) We have demonstrated a signal lack of aptitude in correctly diagnosing the future of cable in a way that made us a lot of money. We’ve done that despite the fact that in retrospect it seems a lot that was perfectly obvious was lying around.

WARREN BUFFETT: Today, cable is not — I mean, cable has been here for what, 30 years or so. Cable has not made extraordinary returns on invested capital at all. But it’s always had the promise of greater returns and that you wouldn’t have to keep investing money in it the way you have had to date.

Currently, people think that unusual returns will be made in cable, relative to invested capital, not relative to the purchase price of them, but relative to the invested capital in the property itself. As I say, that has not really been the case. It’s been the case with cable programming. There’s been a lot of money made in relation to capital investment.

But in terms of the actual investment in cable facilities, the capital investment has been such, the expenditures in developing systems have been such, that the returns so far have not been great. However, the prices for cable systems now would indicate that people think those returns are finally going to start flowing in, in a big way.