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82015 ANNUAL REPORT
n Businesses we believe have at least 10 years of
stable or growing earnings ahead of them
n Reinvestment opportunities that are readily
apparent within the business
Of course, when the opportunity presents itself, we
can also buy back our own shares if we believe they’re
materially below intrinsic value. The Company has
done this in significant quantities over time, but not
at regular intervals. This is how we will operate in the
future as well. Do not expect us to announce that
we will spend a certain amount of money on share
buy-backs to be completed in a specific time frame.
If our share buy-backs are not below intrinsic value,
then we are destroying shareholder value, and we’ll
refrain from doing so. We believe this is the best
approach to share buy-backs and hope you do too.
One area where I will likely operate dierently from
Don is in relation to technology and our exist-
ing businesses. To understand this better, let me
explain how I view many consumer, advertising, and
enterprise technology businesses from a capital
allocation standpoint. I believe the best times to
invest in technology businesses are:
1) When the winner is known in a space we understand
2) When we believe we know something proprietary
about a space, and it’s still quite early.
Reflecting on the first, look at how many of the
technology verticals have evolved: travel (Expedia),
search (Google), retail (Amazon), and reserva-
tion systems (OpenTable). They’ve become either
winner-take-most or winner-take-all markets.
While most of these companies lost a significant
amount of money for years in order to gain share,
once the battle was won, reduced marketing and
sales costs as well as high contribution margin per
additional unit sold added considerable operating
leverage and strong results. Once a winner is clear,
the ability to generate really impressive compound-
ing exists as incremental market share is eaten up.
The “winners” are usually too large of a bite for our
little company to acquire; but, when we find one
that is mispriced in the public markets or that is a
rare private market opportunity, we won’t be afraid
to take a small bite.
Investing in start-ups is usually a pretty bad idea for
Graham Holdings. In general, the failure rate is high;
the return on time invested relative to the potential
reward is usually quite low. So why would we ever
do it? If we believe we have insight into a space that
allows us to be advantaged, then we’ll act. This could
one area Where I WIll lIkely
operate dIfferently from don Is In
relatIon to technology and our
exIstIng busInesses.