Andrew Bary
Daily Journal, the small West Coast legal publishing company, paid tribute to its longtime chairman Charlie Munger in a securities filing, saying that it doesn't expect the financial performance of its equity portfolio to match the results that he generated.
Munger, who died on Nov. 28 at age 99, was the chairman of Daily Journal from 1977 to 2022 and remained a director until his death. He also was the longtime manager of the company's equity portfolio, which totaled $303 million at the end of September, but he is best known as the vice chairman of Warren Buffett's Berkshire Hathaway.
Daily Journal called Munger a "legendary investor" in its 10-K annual filing with the Securities and Exchange Commission, released Thursday. The publisher said that while its board "will work to ensure that the portfolio remains well-managed, it's impossible to ever replace Mr. Munger. Given the loss of Mr. Munger, the Company does not expect the future financial performance of its marketable securities portfolio to rival its past performance."
The portfolio is showing a nice profit given a cost basis of about $165 million.
Daily Journal's quarterly 13-F filing, which reflects what it owned as of Sept. 20, details only about half its equity portfolio. Its largest equity holdings were Bank of America and Wells Fargo at more than $60 million each, followed by Alibaba Group Holding at about $26 million. There is a small holding in U.S. Bancorp.
The undisclosed holdings could be overseas stocks that don't need to be reported in the 13-F. One could be BYD, the Chinese electric vehicle company in which Daily Journal has invested and profited from. Four of the eight equity holdings aren't disclosed in the 13-F.
The company didn't reveal Munger's long-term record.
In recent years, Daily Journal's investment performance has been hurt by Munger's investment in Alibaba, while both Bank of America and Wells Fargo have failed to match the S&P 500 index over the past decade.
At Daily Journal's annual meeting in early 2023, Munger called Alibaba "one of the worst mistakes I ever made." He said that he didn't realize that "it's still a goddamned retailer" operating in a competitive environment in China,
He added that the Bank of America and Wells Fargo holdings were purchased cheaply during the 2008-2009 financial crisis. Munger said one reason those stocks haven't been sold is that they have big gains. As a California-based company, Daily Journal can face a 40% tax on equity gains given high state taxes.
The company has used margin debt to leverage its equity investments, with $75 million of borrowings on Sept. 30. Munger said he used leverage for the equity portfolio despite his longtime admonition that "Ladies, Liquor and Leverage" can be hazardous. He said that an investment partnership Buffett managed before he took over at Berkshire in the mid 1960s used leverage as well.
Buffett's conglomerate had a much larger holding in BYD and scored a big profit on the investment, which was made on Munger's recommendation. Berkshire has scaled back its BYD investment in recent quarters.
Daily Journal, whose stock finished Friday at $341, gained 36% in 2023. It trades for more than two times its book value of about $145 a share. The company earned more than $15 a share in its latest fiscal year ending in September, but most of those earnings came from gains on the equity portfolio that are reflected in its income statement.
Daily Journal's core business of legal publishing is under pressure. It is now is focused on a newer legal software business, Journal Technologies.
With its mix of an operating business and investments long run by Munger, Daily Journal was sometime referred to as a mini Berkshire Hathaway. But the company disputed that characterization in the 10-K.
"The Company is not a smaller version of Berkshire Hathaway Inc. Indeed, given the passing of Mr. Munger, the Company does not expect its holdings of marketable securities to generate gains in the future consistent with the past. The Company's goal is simply to continue to develop a successful and profitable software business, while continuing to enjoy the benefit of its Traditional Business for as long as possible."
Write to Andrew Bary at andrew.bary@barrons.com
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(END) Dow Jones Newswires
December 29, 2023 17:23 ET (22:23 GMT)
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