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Yesterday Is History, Tomorrow a Mystery, now DJCO is a Present.

January 23, 2012 | About:

Leucadia, Fairfax, Berkshire and Loews can’t hold a candle to the Daily Journal Corporation (NASDAQ:DJCO). The company has increased book value per share fifteen-fold in a decade.

This is truly remarkable in light of the following:

There is no goodwill on the balance sheet.

Unlike Berkshire, Fairfax and Loews, DJCO avoids insurance risk.

Shares trade on the NASDAQ at a 30% discount to a pessimistic estimate of fair value.



No leverage

Never a down year

NAV doubles every 2.5 years for an IRR > 30%

Forget about Vito Maida, Michael Burry, Bruce Berkowitz or David Winters. Munger is the investor of the decade. The other guys are not just being nice when they say Munger is brilliant.

Munger did it by loading up on treasuries in the first half of the decade and selling them in 2009 to buy WFC, USB and some other securities. Painfully simple.


DJCO has been publicly traded since 1986. That year, the fund run by Charles Munger and his close friend Rick Guerin was liquidated. One of the holdings, DJCO, was IPOed. The stock was distributed to the fund's investors. Guerin and Munger ended up holding about 80% of DJCO (40% each).

Today, Munger and Guerin still sit on the board. With them at the helm, the company simply adds a zero to NAV each decade like they did with their New America fund in the '70s and '80s.

The company has about 200 employees including 30 at Sustain for software development and consulting.


1) Newspapers and Information services

Charlie Munger is a lawyer from California. The newspapers published by DJCO seek to be of special utility to Californian lawyers and judges.

One thing lawyers have in common is that they are acutely aware of the relationship between time and money. Lawyers will spend X hours at the office and bill clients 3X. I have done business with a number of law firms. At all of them, lawyers monitored their personal “multiplier” on a weekly basis. 4x was something to brag about; 2x wasn’t.

Basically, in the mind of a $500-an-hour lawyer, anything that helps rack up another five minutes of billable time each day is worth $1000 dollars a month!

Lawfirms pay DJCO a few hundred dollars (up to $1500) per annum. For that, they get a daily paper, a monthly booklet and access to DJCO's online resources.

The Daily Journals provide case summaries of all opinions certified for publication by all California Courts and the U.S. Supreme Court.

The Daily Journals also include a monthly booklet listing all judges in California courts as well as courtroom assignments, phone numbers and courthouse addresses, judicial appointments, elevations, confirmations, resignations, retirements and deaths.

The Court Rules service reproduces court rules for certain state and federal courts in California. The company updates Court Rules on a monthly basis. The volumes are normally updated or replaced whenever there are substantial rule changes.

The Judicial Profiles services contain information about all active and retired judges in California. Most of the profiles have previously appeared in The Daily Journals as part of a regular feature. The Judicial Profiles include biographical data and financial disclosure statements on judges and information supplied by each judge regarding the judge's policies and views on various trial and appellate procedures and the manner in which appearances are conducted in his or her courtroom.

Foreclosure information primarily provides distressed property information, some of which also appears in some of the company's newspapers, as well as expanded features.

The California Lawyer magazine is distributed on a monthly basis to about 150,000 attorneys.

I guess it’s fair to say DJCO is to California lawyers what Google is to you and me. Unsurprisingly, margins are obscene. Like Google, most of the money DJCO makes is from advertising.

The business may not be growing but it certainly has competitive advantages. The incumbent can spend more time and money to gather high-quality information and can charge more for advertising.

2) Broker

There is a broker hiding in the 10-K. A division of DJCO (CNSB) is a commission-earning selling agent specialized in public notice advertising. Public notice advertising consists of legal notices required by law to be published in an adjudicated newspaper. The major types of public notice advertisers are real estate-related businesses, governmental agencies, attorneys and businesses. CNSB places notices and other forms of advertising with adjudicated newspapers, many of which are not owned by DJCO.

3) Software

Sustain develops software that enables court systems and other justice agencies to automate their operations. Such systems are referred to as eCourt software. The term “eCourt” is in fact a trademark of Sustain software.

The California Administrative Office of the Courts (AOC) has during the past several years installed Sustain Justice Edition in 13 of the State Superior Courts. The contract was worth about $20 million.

The AOC installation integrates Sustain with the California Department of Motor Vehicles, California Department of Justice, police department (traffic citations), district attorney, jail, etc.

Sustain software is licensed in 12 U.S. states and Canada. The two largest courts in North America (Los Angeles Superior Court and Toronto) use Sustain, along with more than 100 courts in Georgia alone.

Sustains is based on the Java2 Enterprise Environment (J2EE) platform, an industry standard for developing enterprise applications. Users only need a web browser.

Sustain competes with Infocom Systems Services Inc., Justice Systems Inc. and Tyler Technologies (Odyssey).


Balance sheet: There’s no debt and about $15 million of cash plus treasuries.

Cash flow statement: DJCO spent $10 million in 12 months buying marketable securities (common stock of two foreign companies) without drawing down their cash (+treasuries) balance or taking on debt.

In other words, the owner of DJCO earned $10 million in 2011. Under GAAP, the company earned about $5 million on average over ten years.

Book value is $65million, for a decent ROE of 15%.

Back out $70 million of excess cash and investments to get a not-so-decent triple digit unlevered ROE. A triple-digit ROE means a dollar retained becomes worth two dollars within two years.


Remember, these numbers include the Sustain software business. At present, that division is a net user of cash.


Gerald Salzman serves as CEO and CFO. He has been at the company for as long as anyone cares to remember. Per annum, the board pays him $250,000, a bonus and a claim on 0.5% of earnings over the next ten years.

It adds up. The way this works is that the claim on “0.5% of profits” he got in 2002 expires by 2012. Assuming he’s still employed, he gets another claim for 0.5% until 2022.

Salzman currently takes home about 8% of profits. 8% is the accumulation of the claims he was granted in 2002, 2003, 2004, etc. DJCO has accrued a $5 million liability on the balance sheet for the outstanding grants.

This scheme has some interesting effects:

In a bad year, DJCO’s expenses are automatically lowered.

CEO pay is tied to performance.

A new CEO can step in with the same scheme without shareholders taking a hit.

I can see why Salzman doesn’t employ a CFO but would if it made sense.

Salzman probably has some clear ideas about succession.

Charlie Munger is chairman of the board and manages the investment portfolio. He gets paid nothing. He buys some of the newspapers though. If you want to brag to people about how Charlie Munger pays you to manage your money, buy DJCO.

Peter Kaufmann is a member of the board. He runs Glenair and is the author Poor Charlie’s Almanack.

There's a superinvestor hiding in the 14A. Mr. Guerin has been a director of the Company since 1977. Along with Walter Schloss, Bill Ruane and of course Munger, Guerin is one of the "Superinvestors of Graham-and-Doddsville". Of that group, Guerin has the best record. Guerin too is a close friend of Buffett.

I can see why Charlie sits on the board for free. I know I would if I got to talk stocks with Rick Guerin.

This board has the best capital allocators I have come across. Bar none. You get the services of two superinvestors for free.

Again…. WOW !

As always, there is something to worry about. Management has an impeccable record spanning many decades. Succession is an issue. It does create some uncertainty with shareholders but there are many reasons why these men wouldn’t disclose their plans.

There is a fair chance that at some point Li Lu replaces Munger on the board. Li Lu manages some of Munger’s money and sits on the board of Knovel. Like DJCO, Knovel makes web-based software.

Alternatively, Guerin and Munger could simply call it a day, declare victory and liquidate the business in a tax-efficient manner. They’ve done it before. History doesn’t repeat but it does often rhyme — sell the Daily Journals to Gannett, the Washington post, the Buffallo evening news or Dolan (Daily Journal of Commerce), distribute the portfolio of investments to shareholders and IPO Sustain.


There are 1.38 million stocks outstanding. At $69 the company sells for $95 million.

Replacement value

Ok, we are creating DJCO form scratch…. right. We need:

1) The investments and the treasuries => $70 million

2) Buildings, equipment and land (gross). => $20 million

Remember, DJCO specializes in advertisements concerning foreclosures in California. The book value of the land probably understates current fair market value.

3) Sustain software and current contracts with Courts => $20 million

AOC spent billions (yes, that’s a “b”) building case management software for Californian courts. For some reason, the courts continue to use Sustain. I’m being pessimistic here so I’ll just use the amount AOC paid DJCO ($18 million) for a license and ignore the sunk costs plus the value of the contracts in Canada, Oregon and Georgia.

Yes, I believe AOC would buy Sustain outright, in an instant, for $20 million. There’s a clear business case in that deal.

4) Brands and licenses (eCourt and adjudicated newspapers) => ?

Let’s call it $120m => $93 per share.

Munger says invert. Assuming someone were willing to lend you $120 million at 0% but you MUST spend it to create a company that will put DJCO out of business. Would you be willing to borrow the money ?

Owner earnings

7 x owner earnings of $10 million, plus

treasuries and securities worth $70 million => $100 per share.

Debt capacity

The newspaper alone, with $10m of pretax earnings could easily service $70 million of debt at 8% interest.

I’m not an LBO artist but I would pay $120 million for DJCO in an instant. Now in control, I’d have DJCO borrow $70 million and use that money to buy more stock. I’d subsequently split off the investments, now worth $140 million. => $100 per share

I’d give Salzman 20% of the stock of the now levered DJCO, distribute the remainder among the employees and go fishing.

In other words, under my control, DJCO would be instantly worth a 35% premium over current prices. The company is not under my control though. You decide if DJCO deserves to trade at such a discount because Munger has control and I don’t.


1) At some point, the uncertainty surrounding the issue of succession will be cleared up.

2) In recent months, Munger has deployed another $10 million into the common stock of two foreign manufacturing companies. Given time, the investing community will figure out BYD was one of the stocks. In typical Munger style, he bought at the bottom.

As was the case in 2009, the market value of the investments will eventually be reflected in the stock price.

3) One of the securities is referred to as “certain bonds”. Those bonds are yielding about 8% today and 10% on cost (2009). I think it is unlikely Munger in March of 2009 was buying straight bonds at 10%. Even if he was, the 10-K wouldn’t refer to them as “certain bonds”. As any fan of Leucadia will tell you, bonds can be worth many multiples of their nominal (book) value.

For now, the yield on these bonds is consistent with the convertibles of Goldman Sachs. Munger is a fan of Goldman. At some point, we will know for sure


There are some risks worth mentioning.

1) Revenue loss. About half of current profit comes from public notice advertising. This has been at an elevated level due to the large number of foreclosures in California. If the housing market returns to pre-2007 levels, DJCO’s profits could be cut in half.

I believe this particular risk may be balanced out by a positive effect on the market value of the portfolio of marketable securities.

2) Availability of the services of Munger. One problem with great management is that you need good replacements when their services are no longer available to the company.

I believe there is a fair chance Li Lu eventually replaces Munger on the board and Salzman Jr. replaces Salzman Sr. The company has not announced any plans though.

3) New legislation. Public notice advertising is required by law. The law may change.

4) AOC has spent billions since 2000 developing their own software for the courts. In the meantime, they have been installing incremental versions of Sustain as an ”interim solution.” Should AOC succeed in developing a viable alternative, Sustain would lose an important client.

Munger says invert. What are the odds of an unlevered newspaper, a software company plus a portfolio of five Buffett/Munger stocks ending up worth nothing?


1) DJCO trades by appointment only. The bid/ask spread can be meaningful.

2) This company was covered in the book "Damn Right!". In that book, DJCO is described as a "media project" that Munger is not really doing for the money. This perception was supported by the fact that, until 2009, DJCO simply piled up heaps of cash. The recent deployment of that mountain of cash supports the case that management is capable of and willing to create value for shareholders, just like they were doing when they were running a fund. Munger and Guerin are just a bit more patient than most.

3) The newspaper is regarded as profitable but declining while the software business (Sustain) is “too hard” because there are no GAAP earnings. Spend an hour researching Sustain and you’ll find it’s a business with high barriers to entry that is growing like a weed.


This is not a recommendation to buy or sell anything. I own shares of the Daily Journal Corporation. I have no position in any of the other stocks mentioned.

Any and all questions welcome as usual.

Read more:

Ben Comston's excellent analysis of DJCO's investments.

Audit of AOC attempting to create an alternative to Sustain's eCourt software.

Recent 10-k.

Recent Proxy statement with Salzman's compensation scheme. It mentions Salzman Jr. Munger gets 0.

How a bond with a book value of 100m can be worth billions (Fortescue and Leucadia).


About the author:

I define intrinsic value as the price I would gladly pay to own the business outright. With current management in place. For most stocks, that value is 0. I can be reached at batbeer AT hotmail DOT com

Visit batbeer2's Website

Rating: 4.1/5 (48 votes)



Tonysf - 5 years ago    Report SPAM

>I believe there is a fair chance Li Lu eventually replaces Munger on the board and Salzman Jr. replaces Salzman Sr. The company has not announced any plans though.

What is the reason you believe Li Lu will eventually sit on the board?
Batbeer2 premium member - 5 years ago
Hi Tonysf, thanks for your question.

"There is a fair chance" leaves some room for other outcomes. Having said that....

1) Li Lu helped to translate and publish the Chinese version of Poor Charlie’s Almanack. Peter Kaufmann is a member of the board and is the author. Presumably, the two are acquainted.

2) In the 10-k you'll find DJCO recently bought stock of "two foreign manufacturing companies". I'm willing to bet BYD is in there. Munger says BYD was Li Lu's idea.

3) Munger's personal (trust) money is in DJCO and Li Lu manages (some of) Mungers family money. Instead of liquidating DJCO and handing the proceeds to Li Lu to invest, it would be more rational to simply put Li Lu on the board.

Just sharing my speculative thoughts here. I hope this answers your question.

Tonysf - 5 years ago    Report SPAM

Interesting. Thanks
George1357 - 5 years ago    Report SPAM

There is a tax liability for gains to be paid on the portfolio that must be subtracted from the enterprise value of the Company. As the portfolio grows, it accrues a tax liability that must be paid upon sale of the securities that Munger manages (i.e. capital gains). This must be taken into account when netting out the cash from the enterprise value.

Also, DJCO has benefited (almost exclusively) from the California foreclosure market ("public notice advertising"). Notices of foreclosure require a listing by law and DJCO has been a direct beneficiary of this. Depending on one's view of how "one-time" these foreclosure listings are, influences the true long-term "earnings power" of the business. My guess is that without the foreclosure listing requirement, DJCO earnings about $5-$6 million of EBIT a year.... at 6-7x EBIT, that would suggest a total enterpise value as low as $30 million and as high as $42MM. If we add in $70MM of net cash less the tax liability of around $5MM ($65MM net), you get a market cap value of $95MM to $107MM or about where the stock trades today. I wouldn't necessarily assume the property has a gross value of $20MM since most of it is equipment and not land and buildings.
Batbeer2 premium member - 5 years ago
Hi George1357

Thanks for your comment; good points.

Earnings power.

The future is a mystery but it doesn't hurt to ponder the effects of a better housing market going forward. I would expect:

1) Public notice advertising revenue to drop.

2) A greater dividend stream from DJCOs WFC shares.

It is of course entirely possible that the two effects do not coincide.

Backing out the tax liability.

1) In theory, Enterprise value is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. Capital gains taxes don't come into the equation.

Read more: http://www.investopedia.com/terms/e/enterprisevalue.asp#ixzz1kM6eQzDf

2) In practice, there are many ways Munger and Guerin can unlock the value without paying those taxes.

- Loews spun out Lorrilard without taking a huge tax hit.

- Leucadia acquires companies with NOLs to offset the gains.

- Gannet et al. would bid for the Newspaper and ignore the taxes. They have huge NOLs.

- Yes, Buffett did pay taxes when he sold PetroChina. Maybe DJCO will too.... eventually.

In any case, please note $ 70m was the value of the portfolio on September 30 (10-k). Since then WFC has run up some 25%. USB is up a bit too. If I'm right and they did buy BYD, that one has also come up a bit since September. Including the treasuries, I believe that portfolio alone is worth $ 85m today. Excluding the cash they typically rake in at the start of each calendar year.

In short, I believe DJCO is likely to report a somewhat higher liability for capital gains in their next 10-q ;-)

Using gross PP&E

The land has been on the books for decades which is why most of the book value is from the equipement. I have looked up prices of similar properties in that area. $ 20m is probably conservative.
Gusto.duel - 5 years ago    Report SPAM
Dear Batbeer2,

Your article points out an outstanding business model and it was a joy to read it (the "read more" links are worthwhile, too).

I think that one of the specific risks ("AOC succeeding in developing a viable alternative to e-court) is refreshingly mitigated. The odds seem high that CCMS will not be a threat to e-court:

1) - Feb 28, 2011 - the Chair of the Conference Committee on budget recommend cutting off substantially all future funding to the program due to: "program costs are out of control", "CCMS funding jeopardizes the normal operation of the courts" - link .

2) - then in late 2011, Judicial Council approved a possible route to private funding for case management system. AOC executed a letter of intend with the Patrick Soon-Shiong Family Foundation to begin a 12-week discussion and planning period to determine if the parties wish to enter into a collaborative relationship (link).

3) - then an AOC NEWS RELEASE 12/29/11 announces that no deal for funding was reached with the above foundation.

4) The same press release says: "funding for the CCMS project was reduced to $14 million for the fiscal year 2011-2012 during an emergency budget session last July. At that time, the Judicial Council approved a transfer of $56.4 million from CCMS to the Trial Court Trust Fund in order to lessen the impact of the $320 million reduction to the trial courts.... Douglas P. Miller, the chair of the council’s Executive and Planning Committee, which sets the agenda for Judicial Council meetings, said the Council must ratify the cessation of discussions with the foundation on January 24th (yesterday). He said a fuller discussion about CCMS will occur later in the year. “Our internal committee is awaiting a comprehensive, independent financial and deployment analysis from Grant Thornton, a national auditing and consulting firm already familiar with the project. We hope to get that report by March.”

AOC looks for a stamp from Grant Thornton to justify a decision and probably that will come after March (details). ... and it does not look that CCMS is particularly popular with the judges(link details), a summary below:

"The IT project, which has drained hundreds of millions of dollars from the budget for California courts, is often reviled by trial judges whose courts have borne the brunt of legislative budget cuts. At a conference of California judges in Long Beach this summer, they were grabbing t-shirts made by a Los Angeles judge that depicted the Titanic sinking into the Atlantic with the words CCMS emblazoned over the image.

The Soon-Shiong deal was an effort by the bureaucrats and judges who lead the courts to save that system, which has also come under heavy fire in California's Legislature.

In an event that foretold its end, the deal hit a road block last month when state Senator Noreen Evans (D-Santa Rosa) said she was "skeptical," indicating she would not support it. AOC official Christine Patton then reported at the Judicial Council's earlier this month that talks with Soon-Shiong were tied up in legal and ethical issues, after a council session outside the public eye.

5) In their statement Thursday, the Alliance judges said they were pleased that the AOC and Judicial Council "have abandoned the misguided effort to fund with private dollars the troubled California Case Management System."

So maybe, unless:

- Grant Thornton (GT) throws its weigh behind CCMS;

- GT weight is enough to counterbalance the reluctance of spending more money on the "shuttle space budget" (useless) investment which proved to be CCMS;

- something spectacular happens...

... the odds seem high that CCMS will not be a threat to e-court.

Batbeer2 premium member - 5 years ago
Hi Gusto duel,

Thanks for your contribution and kind words.
Rnagarajan - 5 years ago    Report SPAM
I recently wrote about Daily Journal on my site:


I don't find the shares attractive at today's valuation but have kept it on my radar for several years now. One difference between my valuation and this article is that I did not place any positive value on Sustain. The idea that it has significant value could be an upside catalyst but I'm not familiar enough with it to make an assessment.
Batbeer2 premium member - 5 years ago
Hi Ravi

Thanks for the link. Had I been aware of your article, I would have linked to it.

As for Sustain, in the words of Munger, from a recent article by CanadianValue:

· "You need a different checklist and different mental models for different companies. I can never make it easy by saying, 'Here are three things.' You have to derive it yourself to ingrain it in your head for the rest of your life."


· " There are actually businesses, that you will find a few times in a lifetime, where any manager could raise the return enormously just by raising prices - and yet they haven't done it. So they have huge untapped pricing power that they're not using. That is the ultimate no-brainer ...
Rnagarajan - 5 years ago    Report SPAM
I have my doubts about Sustain. It has never been profitable on a sustained basis (no pun intended...) and while this doesn't necessarily preclude "value" from existing in the eyes of an acquirer, I'm not sure how to come up with an estimate. The client list could be worth something for sure and the valuations in the software industry typically make no sense to me (and I come from the software industry having spent around 15 years in it).

Fareastwarriors - 5 years ago    Report SPAM
This is a very interesting article. Thank you.
Batbeer2 premium member - 5 years ago

@ Fareastwarriors

Thanks, it was fun to write.

@ Ravi

1) You can never go wrong passing on a stock.

2) DJCO can quit spending on Sustain any day. They consciously choose not to quit. They know what they are doing. I say this not because of the incredible record but because Charlie Munger is a lawyer from California who often talks about American judges and the judicial system.

3) I would like it more if Sustain did generate cash.

4) Most of Sustain's clients currently use the windows version, it's called "Justice edition" . Meanwhile Sustain, at the office, has developed a new J2EE version. Clients, like AOC, are free to upgrade. The point here is that Sustain has sunk the development cost of a new version.

5) Sustain must have made AOC an offer they could not refuse for AOC to install Sustain as an interim solution while they were developing their own. The development cost is fully expensed at "head-office" and not at client-side.

You can google and find some proposals in this space. Some Courts have public records of the procurement proces. You can see the difference if you take time to read some of the proposals.

6) I find a steady stream of earnings is overrated as a means of identifying a valuable franchise. A great business like KO has a steady stream of earnings so a company with a steady stream of earnings must be great.... that IMHO is Bovine Manure.

I personally turn this line of thought on it's head. If I'm comfortable with the fundamentals , I don't care what the earnings look like.

7) Sustain's main competitor is Tyler's Odyssey.

You can get an idea of the value of contracts in this space. Just one contract like the ones Tyler brags about and Sustain quadruples its reported revenue. Remember, the largest courts use Sustain. It sure looks like Sustain is giving its product away.

The point is:

You cannot expect Sustain to do # 4 and # 5 and also expect # 3.
Batbeer2 premium member - 5 years ago
Hi all,

The 10q is out.

DJCO has now sold the last of its treasuries, just $ 500k remaining. The portfolio, including the treasuries, gained 5m for the quarter. A portfolio Charlie bought for $ 45m.

>> During the first quarter of fiscal 2012, the Company bought shares of common stock of another Fortune 200 company. The investments in marketable securities, which cost approximately $45,166,000 and had a market value of about $76,213,000 at December 31, 2011, generated about $326,000 in dividends and interest income during the three months ended December 31, 2011

I feel richer.

Gusto.duel - 5 years ago    Report SPAM
Batbeer2 premium member - 5 years ago
@ Gusto.duel

Thanks !
Gusto.duel - 5 years ago    Report SPAM
Hi Batbeer,

Some developments that may turn in opportunities for DJCO:

SAN FRANCISCO (CN) - With labor demonstrators chanting outside, the judges on California's governing council for the courts voted unanimously Tuesday afternoon to terminate a controversial IT project that has been in development 10 years, cost the state a half-billion dollars and rent the judiciary of California into opposing camps.

The mood was solemn around the council table as members deliberated over how to dispose of the costly computer software, after a consultant from Grant Thornton admitted it would cost another $700 million to install the system in 11 courts over the next 10 years.....


.. and more here: _ http://www.courts.ca.gov/17308.htm
Batbeer2 premium member - 5 years ago
Thanks for the update !

>> "Why would SLO want to deploy this system at its own expense when there are other case management systems that can be purchased off the shelf that will do the job in SLO for far less ?"

Some interesting comments and reports there. This is good for Sustain's pricing power/bargaining position.

Batbeer2 premium member - 5 years ago

DJCO just released an interesting 10q.

The value of the investments is now reported at $ 97m. Meanwhile the market cap is at $ 110m.

And yes, we have an increase of the deferred capital gains tax.

From the 10q: The investments in marketable securities, which cost approximately $45,166,000 and had a market value of about $97,686,000 at March 31, 2012, generated approximately $843,000 in dividends and interest income during the six months ended March 31, 2012.

I feel richer.
Gusto.duel - 5 years ago    Report SPAM

Batbeer2 premium member - 5 years ago
Interesting news, from the 8-k:

>> On December 4, 2012, Daily Journal Corporation (the “Company”) acquired all of the outstanding stock of New Dawn Technologies, Inc. (“New Dawn”) for $14 million in cash. New Dawn provides case management software systems and related services similar to those provided by the Company’s Sustain Technologies, Inc. subsidiary.

New Dawn has been providing case management software (Justware) for 20 years. Sustain mostly provided a license to AOC who subsequently provided the support to the California courts. That may change. I believe Sustain has mostly a development team whereas New Dawn has a mature support team as well. JustWare is suitable for all sorts of small courts (they depend on New Dawn for support). Very large courts can and do use Sustain (they have their own support personnel).

DJCO paid about 1x revenue for New Dawn.



Looking forward to the 10k this week.
Batbeer2 premium member - 5 years ago
The 10-k is out. All 35 pages of it.

>> The investments in marketable securities, which cost approximately $49,692,000 and had a market value of about $102,156,000 at September 30, 2012, generated approximately $1,967,000 in dividends and interest income, which lowers the effective income tax rate because of the dividends received deduction. As of September 30, 2012, there were unrealized pretax gains of $52,464,000 as compared to $24,532,000 at September 30, 2011. Most of the unrealized gains were in the common stocks. During the first quarter of fiscal 2013, the Company borrowed $14 million to purchase all of the outstanding stock of New Dawn and pledged its marketable securities to obtain favorable financing.

On the operations side, it's clear the income from public notice advertising (foreclosures in California) is in decline. This decrease has been offset somewhat by increased income (dividends and interest) from the investments.

The company now sells for $ 120m, the investments alone are worth $ 102m. The stock has gone up 30% but the thesis still holds.

In short, I feel richer.


The management incentive plan that comes with the 10-k is worth reading. FWIW, it deals with the posibility of an IPO of Sustain. Also, management (Frank A. Felice?) gets paid more if Sustain/New Dawn generates operating income for DJCO.
Batbeer2 premium member - 4 years ago
The 10-q is out.

Thanks to CanadianValue, we have Charlie Munger's own comments on recent events.

I have nothing to add.
Batbeer2 premium member - 4 years ago
Another quarter, another m gain for Munger's portfolio. A portfolio he bought for roughly $45m.

The company now sells for $200m and the investments alone are worth $130m. While DJCO is no longer the bargain it was, it is still one of the cheapest stocks I know of, even after the double.

In hindsight, I should have just parked all my money with Munger and gone fishing. All my other investment efforts have been a waste of time in light of this one's performance.

Still waiting for their software division (now including New Dawn technology) to start bearing fruit though.
Tannor - 4 years ago    Report SPAM
Awesome article and thanks for updating via comments, I shared it via Twitter.
Batbeer2 premium member - 3 years ago

DJCO has finally disclosed some of its holdings. At yearend they owned:

- Bank of America Corp common

- Posco ADR

- US Bancorp common and

- Wells Fargo common

That's $120m worth of holdings out of a total of $150m now accounted for. To me, the surprise here is Posco. Off the top of my head, we are still missing two.

Munger bought six different securities, one of which was a "certain bond".

Varunfriend premium member - 3 years ago


What is your opinion on the current valuation of DJCO?


Batbeer2 premium member - 3 years ago

Hi Varunfriend,

Market cap of $215m with a portfolio of stocks and bonds worth $150m so you're paying $70m for a business earning roughly $5m (after servicing the interest on the debt).

I believe the bonds are likely to be worth at least $20m and not the $7m that is now on the books. If I'm right about that, it could add another $13m to the value of the portfolio.

The business has grown a bit but that hasn't been organic. We'll have to wait and see if the acquisitions will create value going forward.

FWIW, I'm not buying or selling at these prices.

Snowballbuilder - 3 years ago    Report SPAM

Hi batbeer! Well done ! You ve strike a "big fat pitch"!

How much (%) of your portfolio have you invested in djco?

with munger and guerin in charge you can really go fishing and sleep well.

i think that the undiscosed equity position is byd.


Batbeer2 premium member - 3 years ago

>> How much (%) of your portfolio have you invested in djco?

I think I started out at about 20% or so. It's a bit more now.

Thanks for the kind words.

Snowballbuilder - 3 years ago    Report SPAM

Uau !! Compliments!! So you are a rare real focused investor !

How is your asset allocation like ? (% cash , %bond , % equity)

Batbeer2 premium member - 3 years ago

>> How is your asset allocation like ?

I don't own any bonds. At the right price, I would though. To me stocks and bonds are the same asset. They both represent a claim on the future cash flows of a business. I've never given government bonds much thought. In any case, I think the bond market is usually a bit less irrational than the stock market.

Cash/equity..... I don't know. I probably have enough cash to pay the bills for a year or two (I don't want to find out). Other than that, any cash I have left after I've paid the monthly bills is used to buy stock. That is why I'm always looking for new/better ideas. I have to find somewhere to park unspent income.

In short, it's not any investment rationale that determines the cash/equity ratio. That ratio is a result of how I live my life.

>> So you are a rare real focused investor !

That's a matter of opinion. You can get an idea of my portfolio and turnover on my profile here. "Conservative Investments XI" gives you an idea of what I currently own.

But I'm not here to discuss myself. I'm here to discuss companies and their stocks.

Snowballbuilder - 3 years ago    Report SPAM

Thank for answer . I also dont have any bond .

My current AUM is around 15-20% cash (growing) , 80-85% equity (6 stocks).

I actually dont find any bargain around ... But im still look and wait with diligence and patiente.

i will check and study with attention your holding.

Im from italy and my biggest position is recordati (rec.mi) in wich im invested from 2009.


sorry if i ve taken your time and thanks for answer ... I will look carefully and with interest at your future article.

Takecare. Snowballbuilder

Batbeer2 premium member - 3 years ago

Italy is an interesting place. Some terrible stuff but also some terrific world-class companies (especially up north). I'm a fan of Pasquale Natuzzi and I like Brembo and SAES getters.

FIAT industrual (now CNH) too is interesting and IMO well-managed.

Pharma is generally out of my circle of competence.

Raj123456789 - 9 months ago    Report SPAM

Batbeer2, what do you think of doing a tax-free conversion of my WFC holdings to DJCO at todays prices...

Batbeer2 premium member - 9 months ago

>> Batbeer2, what do you think of doing a tax-free conversion of my WFC holdings to DJCO at todays prices...

Hmm.... interesting problem, thanks!

WFC => 1.6x book

DJCO => 2x book

But DJCO has some tax liabilities on book that they are never going to pay. Meanwhile one could argue WFC's liabilities are mainly deposits (non interest-bearing and without due date). I could not make a strong case for swapping one for the other for valuation reasons.

Here's my speculative thoughts though:

- I like the fact that Munger/DJCO has been investing in some other unknown foreign company in recent quarters.

- I suspect at some point DJCO will spin out their WFC (and other) holdings to shareholders. If you swap now you will end up holding WFC shares at some point anyway.

- FWIW I swapped some AXP shares for DJCO shares last month.

Let me say this then, if you swap WFC for DJCO and then WFC takes off like a bottle rocket you are somewhat hedged; you own WFC through DJCO. So if you have any other reason to swap, you can do it without worrying too much that you'll miss out on the upside (if any) of WFC.

One question that may be relevant to your situation: Are you currently reinvesting the dividend WFC pays out? If so, do you have reason to believe you can do it better than Munger?

Raj123456789 - 9 months ago    Report SPAM

Thanks for the reply. DJCO is $270M. DJCO owns 1.59M shares of WFC. So it is 1/3 of DJCO. Another 1/3 is other portfolio. Another 1/3 DJCO is DJCO business. I am willing to swap WFC for WFC of DJCO and DJCO business. I am good with swap idea of 2/3 of DJCO. DJCO is like VC business and I want to risk that with a managing partner like Charlie and Guerin.

But my problem is with 1/3 DJCO - BAC and other portfolio. Munger bought BAC very cheap but if I buy DJCO today, I will be getting BAC not cheap but almost market. Will I swap 2 shares of BAC for one share of WFC - I dont know. Is intrinsic value of $90M portfolio is same as intrinsic value of $90 of WFC.

Batbeer2 premium member - 9 months ago

>> I will be getting BAC not cheap but almost market.

Can't help you there. I like BAC. In my view not expensive at current prices.

Raj123456789 - 9 months ago    Report SPAM

Do you have any idea of future potential for DJCO. Munger said huge market and long runtime. Any idea of not-yet addressed market size for case management software in developed world?

Batbeer2 premium member - 9 months ago

>> Do you have any idea of future potential for DJCO.

Not really; have been looking into it but haven;t got a good handle yet.

The licenses I have seen for DJCO's software are per user (not civil servant but citizen). For example, DJCO takes a small fee per traffic ticket in certain counties. At $2 per ticket that's a $100m addressable market in the US for traffic tickets alone.

Also, it may be worth checking out the SEC filings and annual reports of Tyler tech. They talk a bit more than DJCO/Sustain.

Raj123456789 - 8 months ago    Report SPAM


I think this is one of the finest articles on DJCO. Thanks.

What do you think is moat of journal technologies? Is there moat even for DJCO newspaper? Charlie says this is niche that big boys cannot play. Other than that, is there any advantage?

Batbeer2 premium member - 8 months ago

Hi Softdude,

Thanks for the kind words.

Journal Technologies.... I can talk for many hours about IT and government so you get a looong answer :-)

The moat for journal technologies lies in the fact that the software links the business processes of multiple independent government entities. There is a bit of a network effect.

Take law enforcement. You have regular police and municipal traffic wardens to name just two. They have to coordinate to see whether you've paid all your fines (or not). Specifically in California you have a hugely complex system of prosecutors, courts and law enforcers. All of them like to think they are independent.

Believe you me, central systems interacting with various independent government entities are ex-tre-me-ly sticky.

One example.... imagine a software system where one could instantly query the status of a case accross the police department and the prosecutors office. Some IT guy thinks it might be helpfull to standardize the case number/index accross both entities. For some reason this has never been done. You see, typical police attitide would be that if you can lock the criminal up for a year for his worst offense then that is a good thing. You save time to go catch the next criminal while this one is sittingbehind bars. A prosecutor would prefer to lock that criminal up for 2 months, 7 months and 3 months consecutively for smaller crimes. You see, a prosecutor gets a raise after sucessfully prosecuting an X number of cases; not for keeping as many criminals as possible off the streets.

So now you know why some criminal serving life without parole gets prosecuted for the reckless driving he did as he was going about that robbery is already serving a life sentence for. He probably won't put up a fight and might actually enjoy the day in court (and out of prison). Any prosecutors office will have a software system where they can create a case out of an existing police file without doing any real work.

That is one exapmle of why any software that relies on information from these two entities has to be built so that it can make sense of two incompatible filing systems.

The point here is that you have to get at least two independent and very bureaucratic entities to change their business proces before you can implement anything new and meaningful. Does that sound like resistance to change?

The beauty of Journal technologoes is that they often structure their software licenses so the citizen pays. You, pay a small fee for the convenience of dealing with the bureaucracy through a web interface. This means their software can be implemented without cutting into the sometimes tight budgets of various obscure government entities.

As for the Newspapers that is simpler for me to explain. They are read by a very well defined group. To an advertiser that is worth significant money. Let's say you are selling Togas in Sacramento. Would you rather advertise on facebook, the New York Times or a small newspaper read by all the judges and half the lawyers in Sacramanto. I suspect each individual paper is passed on to multiple lawyers in a given lawfirm. DJCO delivers the paper once at that office and it gets read by 2-12 lawyers. It is a dying but profitable business.

Of course they have an online presence now and to an extent the same applies. It is a very well defined group of people that go there and advertisers like that.

Just some thoughts; long DJCO

The Science of Hitting
The Science of Hitting - 8 months ago    Report SPAM

Great stuff, thanks BatBeer

Raj123456789 - 8 months ago    Report SPAM

Thanks for the reply.

I read presetations from Tyler Tech and DJCO 10k(almost). Browsed Thomas Reuters. Any other source to know more about DJCO?

Batbeer2 premium member - 8 months ago

>> Any other source to know more about DJCO?

Perhaps you do a bit of googling for courts that recently replaced their software. You will find some courts that have disclosed why they wanted to replace the system in the first place (almost always because of lack of technical support for their decades-old system) and why they eventually bought what they bought; (de)merits of Tyler versus DJCO etc.

DJCOshareholder - 1 month ago    Report SPAM

DJCO shareholder, juts wondering if you have any new thoughts? I found Journal Tech (JT) contract for South Australia online a few months back. That looked like a big contract. Do'nt know when it will show up on the income statement but it will change it by a lot. The other thing I noticed is if you play around on google enough, you can find a lot of contracts with dates of 2016, and 2017, that probably have not showed up on the income statement yet. I get the impression in the next year or two the income statement is going to look a lot different, and better, than it currently does.....

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