22:07 treasury bubble
27:10 wells fargo
30:16 central banks vs bitcoin
36:19 costco vs amazon
44:27 robin hood
49:59 macro economic policy
53:34 modern monetary theory
57:57 the rich leaving california
1:08:30 tech innovation reducing circle of competence
1:18:17 digital economy tipping point
1:23:41 hydrogen vs electric
1:32:27 value slump vs permanent revolution in prices
1:34:28 wealth management
1:37:09 oil & gas
1:50:52 secrets of a happy life
1:54:15 final thoughts
Legendary investor and polymath Charlie Munger, Berkshire Hathaway’s vice-chairman and Warren Buffett’s long-time business partner, headlined the Annual Meeting of Shareholders of the Daily Journal Corporation (DJCO) in Los Angeles on Wednesday.
For nearly two hours, Munger, chairman of the Daily Journal’s board, and Jerry Salzman, the company’s CEO, fielded shareholder questions about topics ranging from SPACs, Bitcoin, and bubbles to mental models, circles of competency, and moats.
The meeting kicked off with a shareholder question about the speculative frenzy in the broader market and the psychological implications of these frenzies. Munger said his best policy is to “ride them out.” He also noted that the crowd tends to buy stocks on credit when they see them going up, which he added is “a very dangerous way to invest.”
Responding to a question about the recent Reddit-fueled GameStop short-squeeze, Munger said it’s “the kind of thing that can happen when you get a whole lot of people who are using liquid stock markets to gamble the way they would in betting on racehorses.”
He added that the “frenzy is fed by people who are getting commissions and other revenues out of this new bunch of gamblers. And of course, when things get extreme, you have things like that short squeeze.”
As for SPACs, or special purpose acquisition companies, Munger said he thinks “the world would be better off without them,” adding that this “crazy speculation in enterprises not even found or picked out yet, is a sign of an irritating bubble.”
“It’s just that the investment banking profession will sell s— as long as s— can be sold,” Munger said.
While Buffett is the more public and recognizable face of Berkshire Hathaway (BRK-B, BRK-A), the iconic conglomerate was built on Munger’s blueprint of moving beyond so-called “cigar-butt” investing to “buying wonderful businesses at fair prices.”
Thousands of people usually make the pilgrimage to Omaha, Nebraska, to listen to Buffett and Munger during Berkshire Hathaway’s annual shareholder meeting. Still, Munger’s devoted followers— affectionately nicknamed by him as “groupies” — travel to Los Angeles for the Daily Journal annual meeting, where he holds court as chairman. Like most in-person events, this year’s meeting was held virtually.
Shareholders and value-investing enthusiasts also used to make the trip for Pasadena, Calif.-based Wesco Financial Corp. meeting before Berkshire acquired it.
While there were only 410 shareholders of record of Daily Journal’s common stock as of Dec. 15, according to its annual report, Munger attracts a sizable and engaged audience each year, including non-shareholders, to hear his wisdom and maxims about business, investing, and life. He also talks about the Daily Journal’s business.
The company publishes 10 newspapers, including the Los Angeles Daily Journal and the San Francisco Daily Journal. Journal Technologies provides case management software for courts and other justice agencies. The software business accounted for 71% of its total operating revenues in fiscal 2020, up from 65% of total revenues in 2019, according to its annual report.
In the shareholder letter, Munger noted that after many years as a “cash cow,” the newspaper business broke even, posting revenue of $14.695 million, down 14% from the prior year. Meanwhile, the “much more important” software business delivered $35.247 million in revenue, up 12% from the year-ago period.
“I am very optimistic about the eventual success of the Company’s software business, but I expect this to take considerable time. In the Company’s newspaper business, my best hope is for it to turn a modest profit each year for many years to come,” Munger wrote.
As of Sept. 30, the Daily Journal Corporation held $28.96 million in cash and had a stock portfolio valued at $179.37 million. The portfolio includes investments in Bank of America (BAC), Wells Fargo (WFC), US Bancorp (USB), and Posco (PKX), according to the most recent 13-F securities filing. The portfolio of five companies includes one based in foreign currency.
“This trove of liquid wealth backs up the Company’s operating businesses,” Munger wrote. “The Company’s liquid wealth came from retained newspaper earnings, multiplied by seizing opportunities of a type no longer widely available.”
Munger added that the stock portfolio’s value reached $260 million on Dec. 31, up 45% from the end of September. He noted that “shareholders should not expect any significant appreciation above that level anytime soon.”
At the meeting, Munger was pressed on why the Daily Journal has not sold its shares in Wells Fargo while Berkshire Hathway has been cutting it. Munger noted that the prior leadership at Wells Fargo “were not consciously malevolent or thieving,” but they had “terrible judgment in having a culture of cross-selling.”
“You can understand why Warren got disenchanted with Wells Fargo. I think I’m a little more lenient, I expect less out of bankers than he does,” Munger said.
In response to a question about new technology disrupting the banking system, Munger said he does not think bitcoin is going to end up as the medium of exchange for the world.
“It’s too volatile…to serve well as a medium of exchange,” he added.
In another shareholder question about the Daily Journal putting the cryptocurrency on its balance sheet, he responded: “We will not be following Tesla into bitcoin.”
Munger, who also sits on the Costco (COST) board of directors, said the membership warehouse retailer “has one thing that Amazon (AMZN) does not.”
“People really trust Costco to be delivering enormous values. That is why Costco presents some danger to Amazon — because they’ve got a better reputation for providing value than practically anybody including Amazon,”Munger said.
During the meeting, Munger also revealed that he admires Lee Kuan Yew so much that he keeps a bust of Singapore’s first prime minister at his house.
“Lee Kuan Yew had the best record as a nation builder,” Munger explained. “He had probably the best grade record that ever existed in the history of the world. He took over a malarial swamp, with no army … And pretty soon, he turned that into this gloriously prosperous place.”
Shares of Daily Journal Corporation closed at $404 on Dec. 31, a price “reached amid (1) much speculative frenzy and (2) much forced buying by index funds,” Munger wrote.
蒙格写道，12月31日，《每日日报》公司（Daily Journal Corporation）的股价收于404美元，这一价格“是在（1）大量投机性狂热和（2）指数基金被迫买入的情况下达到的”。