Buffett, the proud controller of the Omaha Sun newspapers, with a small circulation and struggling to produce a target profit of $100,000, had an intimate knowledge of his home town.
Into his possession came some information strongly indicating a scandal at one of the nation’s favourite charities, based in Omaha.
Boys Town was established in 1917 by Father Flanagan, an Irish priest, as a refuge for homeless boys. By the mid-1930s it had 160 acres, a school and athletics facilities.
It got a terrific boost when it was made famous by a 1938 by being portrayed in an Oscar-winning film “Boys Town”, with Spencer Tracy and Mickey Rooney.
Following the film the charity went national in its fund-raising, regularly sending out millions of letters. They implied that the boys would go hungry without more money.
So it poured in, and Boys Town expanded to 1,300 acres. By 1971 it housed 665 and employed 600 staff.
It started to go wrong
But things had started to sour. The boys were kept in a high degree of isolation – on campus, no contact with girls, only one (approved) visitor per month and their letters were censored.
This was bad enough, but the main focus of Buffett and his editor at the Sun, Paul Williams, was how it raised and spent money.
In marketing to donors it claimed it got no money from church, the state or the federal government. But, it turned out that the Nebraska state did supply money.
More investigations followed. Buffett, enjoyed going around Omaha acting as a sleuth, alongside the professional journalists. He helped compile the numbers on the charity.
They discovered that the 50 million letters annually were bringing in so much money (about $25m pa) that the cash pile was growing at around $18m per year – four times what it spent. The pile had reached $209m (about $300,000 per boy), and still they pleaded for Americans to give generously. It even had two Swiss bank accounts.
They lacked financial control systems to manage the money……… To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1