Warren Buffett hasn’t become the world’s biggest and smartest investor without learning quite a bit along the way.

His company, Berkshire Hathaway, last year increased its value by around $US16 billion by following some old-fashioned rules: always look for value, never pay too much, and keep good managers.

The media, especially newspapers, have been a rich area of investment for Buffett: stakes in ABC Capital Cities before the merger with Disney, holdings in the Washington Post Company and ownership of the Buffalo News in New York state, a local monopoly.

A highlight of hundreds of thousands of investors around the world is his missive to Berkshire shareholders: the 2006 letter emerged at the weekend.

Amid some interesting ideas, one stood out. His comments on the future of newspapers and the view that the glory days of easy money are gone:

  • Fundamentals are definitely eroding in the newspaper industry, a trend that has caused the profits of our Buffalo News to decline.
  • The skid will almost certainly continue.
  • No paper in a one-paper city, however bad the product or however inept the management, could avoid gushing profits.
  • The industry’s staggering returns could be simply explained. For most of the 20th century, newspapers were the primary source of information for the American public.
  • Advertisers preferred the paper with the most circulation, and readers tended to want the paper with the most ads and news pages. This circularity led to a law of the newspaper jungle: Survival of the Fattest.
  • Now, however, almost all newspaper owners realise they are constantly losing ground in the battle for eyeballs. Simply put, if cable and satellite broadcasting, as well as the internet, had come along first, newspapers as we know them probably would never have existed.
  • However, the economic potential of a newspaper internet site – given the many alternative sources of information and entertainment that are free and only a click away – is at best a small fraction of that existing in the past for a print newspaper facing no competition.
  • Aspiring press lords should be careful, however: There’s no rule that says a newspaper’s revenues can’t fall below its expenses and that losses can’t mushroom.
  • The days of lush profits from our newspaper are over.

The sage of Omaha has spoken.