Note to readers: We are pleased to present an assessment of the Daily Journal Corporation. The free report is available by clicking this link. An introduction to the report appears below. While The Rational Walk is not resuming a regular publishing schedule, we may occasionally publish free or paid research reports on topics of interest.
In late November, many Berkshire Hathaway shareholders were surprised to learn that the company reached an agreement to acquire the Omaha World-Herald in a $200 million transaction. Warren Buffett, Chairman and CEO of Berkshire, has commented on the difficulties facing the newspaper industry on numerous occasions but seemed bullish on the Omaha economy and prospects for the paper to deliver “solid profits” in the future. Berkshire has owned the Buffalo News for over three decades and has a significant minority interest in the Washington Post. As a result, Mr. Buffett clearly knows the industry and feels comfortable enough with the future of newspapers in his hometown to make a long-term ownership commitment.
Although we do not know if Berkshire Hathaway Vice Chairman Charles Munger was involved in the Omaha World-Herald decision, he may have had something to add regarding the prospects for newspapers in general. In addition to his role at Berkshire, Mr. Munger has been Chairman of Daily Journal Corporation since 1977.
Daily Journal (Nasdaq: DJCO) publishes several newspapers in California and Arizona with a specific focus on topics of interest to the legal and real estate professions. Daily Journal, which is unaffiliated with Berkshire Hathaway, has a market capitalization of approximately $90 million. Based on the most recent proxy statement, Mr. Munger owns 9 percent of Daily Journal’s common stock. Over the past few years, Daily Journal’s business has enjoyed exceptionally strong advertising revenues due mainly to increased public notice advertising driven by foreclosure notices. However, dark clouds loom on the horizon as circulation continues to decline and advertising spending appears destined to normalize at much lower levels. In such a situation, a poorly run company would desperately deploy temporarily high cash flows toward ill advised “diversification” schemes while a well run company would responsibly decide to return cash to shareholders and decline gracefully. Mr. Munger appears to have settled on another approach: Daily Journal has effectively transformed into an investment vehicle where a highly concentrated marketable securities portfolio now accounts for the vast majority of the company’s intrinsic value.