Following Warren Buffett’s investing moves is an obsession for many stock market players seeking to emulate the billionaire’s exceptional returns. Some investors and money managers also keep a careful eye on the activity of Buffett sidekick Charles Munger, Berkshire Hathaway’s vice chairman. Of special interest lately has been Munger’s success investing the cash of Daily Journal—publisher of 10 newspapers and California Lawyer magazine—where Munger, who owns 3.7 percent of the stock, serves as chairman.
By diving into stocks amid the market panic of 2009, Munger reaped millions in paper profits for Daily Journal. The investment gains, applauded by Buffett at Berkshire Hathaway’s annual meeting in May, have helped triple Daily Journal’s own share price. While Munger’s specific picks remain a mystery, a bet on Wells Fargo probably fueled the gains, according to shareholders who have heard Munger, 89, discuss the investments at the company’s annual meetings. “Here’s a guy who’s in his mid-80s at the time, sitting around with cash at the Daily Journal for a decade, and all of a sudden hits the bottom perfect,” says Steve Check, an investment manager based in Costa Mesa, Calif., who has attended the publisher’s meetings since 2004.
The stock market profits were first disclosed in a May 2009 Daily Journal regulatory filing under the heading, “Liquidity and Capital Resources.” The section outlined how the publisher was sitting on about $9 million in gains after spending $15.5 million buying common shares over six months through March 31 of that year. The results kept getting better. By the end of September 2009, they had appreciated to almost $48 million.
That caught the attention of some longtime Daily Journal observers, including Check, who began to speculate about what could have produced those results. There were plenty of possibilities. The Standard & Poor’s 500-stock index touched its financial crisis low in March 2009, then ended the year 23 percent higher than the 2008 close. Wells Fargo quickly became a leading candidate. The lender had plunged after the housing slump deepened, then rebounded as it emerged from the crisis with more market share after buying Wachovia. It’s among the largest holdings at Berkshire, and Munger and Buffett often praised the bank and its management.
Daily Journal disclosed some information in a May 2010 filing. “In February 2009, the company took advantage of near-panic selling in the stock market and redeployed some of its cash, which had been invested in Treasury securities and was generating only nominal interest, to purchase the common stock of two Fortune 200 companies and certain bonds of a third. So far, these investments have been very successful.”
At the company’s next annual meeting, in 2011, Check says, he asked directly whether all the gain was tied to Wells Fargo, since the returns matched nicely. Munger’s response was “not quite” all the stock was in the bank, according to notes taken by Randy Jeffs, president of Progressive Capital Managers in Irvine, Calif. Munger, Daily Journal, and Wells Fargo declined to comment.
In 2011 and 2012, Munger added holdings in two non-U.S. manufacturing companies and another Fortune 200 company, according to recent filings. The equity portfolio cost about $45 million and was valued at $112.3 million at the end of March, according to the publisher’s most recent quarterly filing. Daily Journal’s annual income from dividends and interest climbed to almost $2 million in the 12 months ended Sept. 30. That cushioned declines in advertising and circulation, the biggest sources of revenue.
Keeping what’s in the Daily Journal portfolio a mystery may be intended to limit copycat investing, says Richard Cook, co-founder of Cook & Bynum Capital Management. “Everyone wanted to know what he was buying because they wanted to follow his steps,” says Cook, who bought Daily Journal shares about a decade ago to be able to attend the company’s annual meetings.
Buffett, who built Berkshire from a textile maker to a company with a $97.2 billion stock portfolio, said at his annual meeting in May that the stock market would continue to offer opportunities like the one Munger seized. Munger added a catch: You need money to exploit them. Buffett’s problem when the men met in 1959 was that he had plenty of ideas and not enough money, Munger said. “Now we’re drowning in money,” Buffett replied. “And we’ve got no ideas.”