Munger Triples Publisher’s Value With Panic-Era Stock Bet
Daily Journal Corp. (DJCO), the California publisher that counts Charles Munger as its chairman, more than tripled in value since 2008 after the company jumped into stocks during the financial crisis.
Best known as Warren Buffett’s longtime business partner, Munger began accumulating equities in early 2009 at the Daily Journal. The portfolio was worth $112.3 million as of March 31, or about 65 percent of the Los Angeles-based publisher’s current market value. Investors who attend the company’s annual meetings said he signaled that Wells Fargo & Co. (WFC) was among the bets.
“Here’s a guy 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,” said Steve Check, a Costa Mesa, California-based investment manager who has attended the publisher’s meetings since 2004.
Munger’s involvement has drawn investors for years to the Daily Journal, which covers the law, business and real estate at its 10 newspapers and California Lawyer magazine. The 89-year-old helped Buffett build Berkshire Hathaway Inc. (BRK/A) from a failing textile maker into one of the world’s largest companies through stock picks and takeovers. The publisher’s transformation shows how Munger applied some of the same principles at a smaller venture, producing gains by buying when others were fearful.
The Daily Journal portfolio includes stocks in three Fortune 200 companies and a pair of foreign manufacturing firms, according to regulatory filings that don’t name the holdings. The publisher said it relies on the judgment and suggestions of Munger and Vice Chairman J.P. Guerin in managing the portfolio.
“Both of them will continue to play an important role in monitoring existing investments and selecting any future investments,” the company said.
Munger’s investments were disclosed in a May 2009 filing under the headline, “Liquidity and Capital Resources.” The section outlined how the publisher was sitting on about $9 million in gains after spending $15.5 million on common stocks.
The results kept getting better. Three months later, the Daily Journal said the holdings were valued at more than $41 million. By the end of September of that year, they appreciated to almost $48 million.
That caught the attention of Daily Journal observers, including Check, who began to speculate about what produced those results. There were plenty of possibilities. The Standard & Poor’s 500 Index touched its financial-crisis low in March 2009, then ended the year 23 percent higher than the 2008 close.
One guess was Wells Fargo, the biggest bank on the U.S. West Coast. It’s among the largest holdings at Berkshire, and Munger and Buffett, 82, frequently praised the San Francisco-based company.
The lender had plunged in early 2009 to as low as $7.80 after the housing slump deepened and competitors failed or were forced to sell themselves. Wells Fargo rebounded that year as it emerged from the crisis with more market share after buying Wachovia Corp. It closed at $44.31 today in New York.
More clues appeared in a May 2010 Daily Journal 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,” the publisher wrote. “So far, these investments have been very successful.”
At the company’s 2011 meeting, Check said, he asked directly whether all the gain was tied to Wells Fargo, since the returns matched up nicely. Munger’s response was that not quite all the stock was in the bank, according to notes compiled by Randy Jeffs, president of Progressive Capital Managers in Irvine, California.
The billionaire declined to comment about the investments through an assistant. Daily Journal Chief Executive Officer Gerald Salzman also declined to comment as did Ancel Martinez, a Wells Fargo spokesman.
The equity portfolio cost about $45 million and was valued at $112.3 million on March 31, according to the publisher’s most recent quarterly filing. The gains helped more than triple Daily Journal’s stock price since the end of 2008, said Richard Cook, co-founder of Cook & Bynum Capital Management LLC.
Keeping what’s in the Daily Journal portfolio a mystery is probably intended to limit copycat investing, said Cook, who bought Daily Journal shares about a decade ago to be able to attend the company’s annual meetings.
“Everyone wanted to know what he was buying, because they wanted to follow his steps,” Cook said in a phone interview.
The investments have transformed the publisher’s finances. Holdings of stocks and bonds in six companies accounted for $120.3 million of the publisher’s $165.7 million in assets at the end of March. That compares with about $20 million in Treasuries and $46 million in assets at the end of 2008.
Annual income from dividends and interest more than doubled over four years to almost $2 million in the 12 months ended Sept. 30. That cushioned declines in advertising and circulation, the company’s biggest sources of revenue.
Buffett, who built Omaha, Nebraska-based Berkshire to a company with a $97.2 billion stock portfolio, cited Munger’s results in May as an example of how to seize opportunities. Buffett was a net seller of stocks at Berkshire in early 2009, after he drew down his company’s cash pile to invest in Goldman Sachs Group Inc. and General Electric Co. in 2008.
Buffett told Berkshire shareholders in May that there will be more opportunities for investors. Munger, Berkshire’s vice chairman, added a caveat: You need cash to act. Buffett’s problem when they 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.”
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