Saturday, December 26, 2009

The Daily Journal

Charlie Munger has been Chairman of The Daily Journal (DJCO) since 1977 and his legal firm controls 41% of the company. It is thinly traded but is one of the few profitable news organizations. This article in gives a quick overview of DJCO's success.

The Daily Journal has avoided the problems afflicting other news organizations by targeting niches, such as lawyers and readers in small communities in California. This tactic has lead to a profitable mix that capitalizes on the weak coverage of local news on the Web. The company also provides specialized information and software to courts.

The company's operating results have been phenomenal. Its return on equity of 28% and net margin of 22% leave the New York Times and Washington Post in the dust.

Daily Journal Prints Cash: Under the Radar

So the business is doing well. At least it is in the context of that industry's troubles. What I find even more interesting is that at the start of this year the company had around $ 22 million of cash and equivalents (mostly in US Treasuries). In fact, for most of the past decade the company had remained cautiously positioned with investments. Around March, approximately $ 20 million of those investments in US Treasuries were converted to common stocks. Those equity investments are now worth $ 54 million with another $ 8 million of cash on the balance sheet...and still no debt (~$ 6 million of the $ 8 million of cash currently on the balance sheet as of 9/30/09 is from FCF generated this year). So as of 9/30/09 approximately $ 62 million of the company's $ 80 million market value is represented by cash and stocks.

One could easily argue that of the great investors who've been around a while Charlie and the DJCO team have had the best year.

Also, if you think DJCO has a decent future right now...that $ 5 million+ in FCF DJCO is generating can be bought for around $ 18 million ($ 80 million market value minus $ 62 million in cash and stocks).

Slightly more than 3.5 Price/FCF. I'm guessing that the portfolio is a pretty sound one considering who is in charge. Whether the business has good future prospects is not as clear but the margin of safety appears to be there.


No position in DJCO
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