Tough Business, Great Investments

If the Internet existed before newspapers, would newspapers have been invented?

I've never heard anyone ask that question without assuming the answer is "No."

But, no matter what your answer, it's worthwhile to question the viability of the newspaper industry today. It's no secret that times have gotten hard for the business... Over the last five years, daily newspaper readership in North America has fallen about 15%. From 1994 to 2004, about 90 daily newspapers in the U.S. shut down.

Newspaper companies are taking steps to cut costs. They are reducing the number and size of pages and using lighter paper. If you read The Wall Street Journal or Barron's, you've seen the changes yourself. Both papers recently switched to a smaller format. My local newspaper has done the same thing. And that's hurting the paper industry.

Okay, that's a lot of bad news for newspapers and paper companies.

But... here's another question for you. If you were walking down the street in a world without newspapers, what would you do if you saw a newspaper selling for $1?

I bet I know what you'd do. You'd pull out a dollar and buy one.

I doubt you'd instantly dismiss it in favor of reading the same content on your cell phone. In fact, I bet you'd think the newspaper was pretty cool. In a world without newspapers, you would be relieved that you didn't have to plug into some gizmo to get that much information and insight at your fingertips. I bet the first newspaper to hit a wired, newspaperless world would seem refreshingly direct and satisfyingly tangible. In the words of that sage of our era, Madonna, We are living in a material world, and I am a material girl.

Here are some other questions for all you material boys and girls out there:

I don’t know about you, but the answers to those questions are easy for me. The question about whether newspapers would be invented if the Internet came first... well, that answer only seems harder to figure out.

I won't argue the decline of newspapers in the U.S. But what about outside the U.S.? If you look abroad, things aren't nearly as bad. While newsprint demand is falling in the U.S., it's been rising globally.

Global Newsprint Demand 
in kilograms per capita:

Well-run companies in declining industries can make shareholders rich. Consider another declining, paper-oriented industry: check printing. Your own paper checks, the ones you use to pay bills, are probably printed by one of two companies: Deluxe or Harland.

Stock in Deluxe, the largest check printer, sunk as low as $12.98 last July. It's more than $33 now, up 154% in less than eight months. Harland bottomed last August at around $33.10 per share. It was recently bought out at $52.75 per share, a 59% return off its 52-week bottom.

Hint: For your next investment homerun, look for well-run companies in the newspaper industry.