Barron’s Letter to the Editor on Buybacks at Graham Holdings – January 7th

Barron’s published my Letter to the Editor:

Graham Buybacks

To the Editor:

Andrew Bary presents an excellent case for the undervaluation of Graham Holdings (“This Mini Berkshire Hathaway Flies Under the Radar. And Its Stock Is Cheap,” Dec. 30). However, I disagree with his suggestion that stock buybacks should be given a higher priority than purchasing additional businesses. Presumably, Graham’s recent acquisitions of a consumer internet company and a Virginia Ford dealership represent opportunities for the company to earn an expected rate of return on invested capital that exceeds its cost of capital. These acquisitions would then be expected to add to shareholder value. A company should buy back its shares only when value-enhancing investments are unavailable and its shares are trading below intrinsic value. This is the same approach being followed by its role model, Warren Buffett’s Berkshire Hathaway.

David I. Kass, University of Maryland, College Park, Md.