One of the most interesting financial stories from the last decade involves the incredible returns earned by the Daily Journal (NASDAQ:DJCO) on its portfolio of common stocks.
The Daily Journal isn't an investment company. It generates most of its revenue from publishing newspapers throughout California -- ones like the San Francisco Daily Journal and the San Jose Post-Record.
What makes the Daily Journal so unique is the fact that Charlie Munger, Warren Buffett's longtime confidant, is its chairman. And Munger, like Buffett, personifies the power of capital allocation.
At the beginning of 2009, the low point in the financial crisis for the stock market, Munger invested $20 million worth of the Daily Journal's cash largely into the shares of four companies: Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), U.S. Bancorp (NYSE:USB), and Posco, a company that manufactures and sells steel rolled products and plates in South Korea.
The recovery of their stock prices has since more than quadrupled the size of the Daily Journal's balance sheet.
By the end of last year, shares of Wells Fargo were 570% higher than when the Daily Journal bought them in the first quarter of 2009. Bank of America's stock finished last year 431% higher than the Daily Journal's basis. And U.S. Bancorp was up 374%. Only Posco has seen its stock price fall, losing 31% of its value over this stretch, leading the Daily Journal to pare its position.
It would be an understatement to say that this has transformed the Daily Journal. Eight years ago, it didn't own any stocks. Today, three-quarters of its assets consist of marketable securities. Its investments in Wells Fargo, Bank of America, and U.S. Bancorp alone made up 55% of its assets at the end of last year.
You can see the impact of this on the Daily Journal's income statement as well. It earned $3.8 million in dividend and interest income in 2015. That's up from $704,000 in 2009. As a percent of revenue, its dividend and interest income went from 1.7% all the way up to 8.7% over this stretch.
This income stream is only bound to increase. Bank of America in particular has substantial room to boost its quarterly dividend, which sits at $0.05 per share after it all but eliminated distributions during the financial crisis. And even though Wells Fargo and U.S. Bancorp's dividends have recovered since then, they can both be expected to ratchet up their payments on an annual basis for the foreseeable future.
In short, the Daily Journal's transformation speaks to the impact that a single individual can have at a company. This is especially true if that person has the knowledge and ability to profitably allocate capital. Indeed, if Munger and Buffett have taught us anything, it's that capital allocation should never be an afterthought for investors or executives.