By Colin Barr
January 21, 2011

Rarely has a publisher been so shaken by the departure of a former paperboy.

But then, Warren Buffett isn’t just any ex-newscarrier. Buffett said Thursday he is leaving the board of Washington Post Co. (WPO) after nearly three decades advising the media-and-education company. The company’s stock tumbled (see right) before regaining some of its losses.

Washington Post, which runs the No. 5 U.S. daily newspaper by circulation as well as the Kaplan online education company, said Buffett won’t stand for re-election to the company’s board when it meets in May. He’ll stay on the board till then.

The news short-circuited a modest rally in Washington Post shares, which have been hammered in recent years on questions about the company’s growth outlook.

The shares were up 3% at midday before the company issued a press release announcing the departure at around 1 p.m. EST. At 1:30 p.m. they were up just 1%.

Buffett, the billionaire investor who runs Berkshire Hathaway (brka), said in the company’s statement that he still regards Washington Post highly. Berkshire is Washington Post’s largest shareholder, with a 24% stake worth about $750 million at recent prices.

Though the Washington Post has been one of Buffett’s flagship investments – he bought his stock in 1974 for a mere $11 million – he has been criticized in some quarters for holding onto the stock as the company’s prospects decline.

Buffett himself has publicly questioned the economics of the newspaper business, and the private education business that the company diversified into has come under attack as enjoying a wasteful and unproductive federal subsidy.

And while Berkshire’s $740 million or so unrealized gain on the stock is certainly nice, it is also true that that gain was at least twice as big in 2004, when Washington Post shares briefly flirted with $1,000 each.

Still, the holding represents just a fraction of Berkshire’s massive stock portfolio, and the company continues to pay a sizable dividend, justifying the cost of carrying it. Washington Post on Thursday raised its annual payout by 40 cents to $9.40 a share.

Buffett has been on the board continuously since he bought the stock, except for an eight-year stretch in the 1980s in which he acted as a director to another company then in Berkshire’s portfolio, the Capital Cities television business that was later sold to Disney (dis).

“I’ve loved The Washington Post since I delivered almost 500,000 copies of it as a youth in Washington,” Buffett said. “That love for the product, the company and the management continues unabated today. I will always be available to help management in any way they request. It’s been a great 37 years.”

Though Buffett’s departure will raise speculation he’s about to part ways with his Washington Post holdings, there are precedents to the contrary.

Buffett stepped down from his directorship at Gillette in 2002, citing increasing demands on his time. He continued to hold shares of the company, which was subsequently sold to Procter & Gamble (pg). As of Sept. 30, Berkshire still owned more than $4 billion worth of P&G stock.

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