While Warren Buffett (Trades, Portfolio) runs Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial), his right-hand man and long-term business partner Charlie Munger (Trades, Portfolio) also runs the Daily Journal Corporation (DJCO, Financial). Munger is the chairman of the Daily Journal, and he is also vice-chair of Berkshire.
The Daily Journal annual meeting of shareholders has become a significant event in the value investor's calendar. While this meeting has never been held on anywhere near the same scale as Berkshire's, it has become one of the few regular events where the investor takes questions from the audience. As such, this annual event has become one of the few occasions when investors can hear Munger speak his mind on various topics.
Munger and the Daily Jornal
Munger first became involved with the Daily Journal in the late 1970s. Around this time, he was starting to think about winding down his investment partnership, but he was always on the lookout for good ideas.
Through his legal connections, the investor had heard that the newspaper, which specialized in publications for the legal profession, was coming up for sale as part of a settlement in an antitrust case.
At that time, Munger's partnership had most of its assets invested in two companies. Around 50% of partner assets were invested in the New America Fund, a venture capital fund originally called The Fund of Letters, which Munger and his partners took over and restructured, and Capital Cities Communications.
Using a similar strategy Buffett had also used with Berkshire, Munger paid $2.5 million for the Daily Journal with cash from the New America Fund. When Munger dissolved his partnership in the late 1970s, he distributed its remaining assets to partners, including the New America Fund.
According to Janet Lowe's book, "Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger (Trades, Portfolio)", Munger liquidated the New America Fund in 1986, and the Daily Journal became an over-the-counter traded public company with several thousand shareholders.
Munger tried his hand at becoming a media mogul. Before he acquired the newspaper, Munger asked Stan Lipsey, who ran the Buffalo News for Berkshire, to take a look. He told him the publication was outdated and needed modernizing.
When the New America Fund was dissolved, Munger, his family and business partners, including Rick Guerin, owned 52.5%. The ownership provided Munger the flexibility he required to turn the company around and create a media empire. As Lowe's book explained:
"In 1988, the Daily Journal Corporation bought the San Jose PostRecord, the San Jose Advocate Journal, and the Santa Cruz Record. The acquisitions continued, and by 1997 the company owned 18 newspapers with a total paid circulation of about 35,000. The flagship newspaper, the Los Angeles Daily Journal had a circulation of 15,000.7 The company acquired the California Lawyer from the California State Bar. The publication has about 700 paid subscribers, and the magazine is sent free to California attorneys. In addition to California, the company now has operations in Arizona, Colorado, Nevada, and Washington state. Counting all its publications, the company has 100 reporters and 350 total employees."
Since the book was published, the media side of the corporation has declined. However, by diving into the market in the middle of the financial crisis to scoop up shares of banks such as Wells Fargo (WFC, Financial) and Bank of America (BAC, Financial), Munger has been able to create far more wealth than the media business ever did. This was his bread and butter back at the time when he paid $2.5 million in the beginning—building a concentrated portfolio of undervalued securities. The Journal was one such business, and Munger was able to completely transform its fortunes.
