Daily Journal Corporation (DJCO)
I attended the Daily Journal annual meeting today in Los Angeles. Charlie Munger, 84, is the Chairman. Rick Guerin, 78, is also on the board. I think this is the 4th time I've attended this company's meeting. I live about 45 minutes away, so it's not too hard for me to attend. The meeting had about 30 people in attendance, of which I estimate maybe 10-15 were independent shareholders. It is an interesting chance to see/hear Charlie up close as the meeting takes place in a conference room. It is not, however, a meeting which one should go to much effort to attend as in some years it has lasted as little as 30 minutes; today's meeting of slightly over an hour was the longest for me. The Daily Journal story is fun to monitor as it is a declining cash-cow business with a venture-capital-type operation that may or may not ever pan out.
I took some notes that are by no means comprehensive. Usually I just jot down some quotes or thoughts.
World Book was a good business until Bill Gates started giving away encyclopedias as part of the Window's operating system. While not as good of a product, it more or less put World Book out of business.
There are a group of companies that are like declining large oil wells. The NY Times may be such a business. Big city newspapers are much more threatened than small-town newspapers that publish the gossip of the town. Buffalo News is doing OK because Buffalo is half the size it used to be and the people still there are old and like to read the paper. But the Buffalo News is still a declining oil field. Newspapers had a great run, something like 100 years, where the publisher's had a high place in society. They made money with the passage of time. Classified ads were the profit centers of newspapers and they're being replaced by the Internet.
It's about durable competitive advantage.
DJCO makes a fair amount of money in public-notice advertising. With the great number of home foreclosures, business is good. Foreclosure notices are up 250% in the last year. DJCO charges a reasonable rate for such notices.
Most people project the future by extrapolating the past. Investment bankers do this all the time with their reports. It's almost a crime.
Aggressive homebuilders have all lost a minimum of half their net worth in the last year or two. Land inventory kills you. Right now a lot of builders are holding on just hoping they can make it to the next eventual upturn.
Bond-rating agencies say "mistakes have been made", but in a passive tense. In reality, they really screwed up in some areas and wish they could do it over again; they'd change some things. Charlie said it was like the mouse that took the cheese in the mousetrap, the mouse wished he could do it over again. Rating agencies have never lost a big lawsuit because of their ratings. Recently, their reputations have been tarnished and many investors will never again buy certain investments because they were burned so bad. But eventually a new generation of investors comes along.
People/companies in a favored position sometimes make mistakes by getting into things they shouldn't. The bond insurers are an example. Mortgage brokers and investment bankers with heavy incentives led them astray. (Charlie said mortgage brokers are an even lower-class group than investment bankers.) Charlie, in his usual "pay the consequences" for sin and folly, stated that some bond insurers probably deserve to perish. He didn't want to speak much on this since Berkshire was looking to enter the field.
Tragedy: where you are slowly ground down-and it is inevitable. This is in contrast with an accident where it happens unexpectedly, like being hit by lighting; this is not a tragedy.
I believe a lifelong interest of Charlie's is observing the behavior of people. He likes to recognize commitment bias, incentive bias, etc. He is also always amused at how people in specialized areas often miss some really big things that they should be aware of. There was a discussion of Pavlov and his dog experiments. Charlie stated that no clinical psychologist that he'd met was even aware of such important experiments. [I can relate. I'm presently trying to hire a sales/marketing person, and even though I interview people that have been in the investment industry for years, I've never interviewed a single person that knows Warren Buffett or Berkshire Hathaway at any significant level of detail. This is the case despite Buffett's best track record in history.]
Charlie mentioned Sandy Gottesman and his version of shooting a fish in a barrel. Charlie said Sandy wanted to drain all the water out of the barrel, wait for the fish to die, and then shoot them. I'm not sure how the discussion got on this topic, but I assume it was along the lines of easy decisions/outcomes-Sandy was/is a very successful investor.
There was a fair amount of discussion of DJCO's latest court automation software. DJCO has had a tough go of getting an installation in the marketplace that will hopefully prove the viability of the software. This venture-capital-type product could pay off big someday, but there is no certainty. If DJCO had to do it all over again, they probably would not have made the investment that they did because of the costs and difficulties. However, the cost to play out the idea is now somewhat minimal. Charlie and Rick seem to find this a very interesting business venture and are hopeful of eventual success.
Daily Journal Corporation (DJCO)