DJCO - Daily Journal Corporation

[DollarKing]

Looks like the other Korean stock may well be: ILSUNG PHARMACEUTICAL.

[WneverLOSE]

Looks like the other Korean stock may well be: ILSUNG PHARMACEUTICAL.

 

How are you able to determine this ?

[wabuffo]

Looks like the other Korean stock may well be: ILSUNG PHARMACEUTICAL.

 

Doubt it - the math doesn't look to me like it works when comparing its quarter-end prices (adjusted for KRW/USD FOREX) to the quarter-end fair value of the common stock portfolio (ex-the fair values of the remaining known holdings).

 

wabuffo

[wabuffo]

My own thesis is that DJCO owns some Hyundai preference shares (005389.KS).

 

DJCO holds six common stocks (the 10-K mentions investments in seven companies, but one of the holdings is in a debt security).  Four are listed on a US exchange and disclosed every quarter in DJCO's 13F-HR (WFC, USB, BAC and PKX).  The other two are foreign securities -- one listed in Hong Kong, the other in South Korea.

 

We know that the marketable security listed on the Hong Kong Exchange is 1211.HK (BYD Company).  This can be proved in many ways -- but the easiest is by using the information DJCO provides in its foreign currency risk disclosure from its 10-K.  Since, the cost basis doesn't change, DJCO did not buy or sell any shares over this period.  Thus, by comparing the closing quarter-end fair market values of the holding with the closing quarter-end price of 1211.HK (all converted to HK Dollars) we get a match.  (Another way is to compare the quarter-end fair market value of BRK Energy's holdings of 1211.HK in USD with imputed quarter-end fair market value of DJCO's Hong-Kong listed security - they index identically).

 

                http://i64.tinypic.com/vz7ec5.jpg

 

By using the quarterly fair values for the US-listed stocks from the 13F-HRs and imputing the fair value for DJCO's holding of 1211.HK, we can back into the quarterly fair value of the Korean holding.  As an example here is the imputed value for 6/30/15:

 

                      http://i68.tinypic.com/2l9h637.jpg

 

Here are the quarterly estimated fair market values for the first batch of the Korean security (from 12/31/14 to 9/30/15 - Munger then appears to have purchased more of this Korean security).  I've tried matching the changes in quarter-end values with a number of Korean-listed stocks and I've come up with the best candidate to be Hyundai Motors preference shares (005389.KS). 

 

                      http://i63.tinypic.com/t0kjvc.jpg

 

The differentials are 1% or less in each quarter.  I've tried many other Korean shares and nothing seems to come as close (though there may be some I haven't tried.)  For example, Ilsung Pharm 003120.KS would index at 100%, 102%, 115%, 87% respectively from 12/14 to 9/15. 

 

There's some circumstantial evidence why Munger might own Hyundai.  He's been very complementary of South Korea's rise as a manufacturing power and used examples of their automotive industry's passionate embrace of Statistical Quality Control methods as a key to their success.  In addition, Munger is close to Li Lu of Himalaya Capital.  Lu made a presentation in 2013 highlighting Korean preferreds (they're actually non-voting common equity) and their discount to the underlying common shares of the same company.  Shortly thereafter, Munger makes his investment in this specific Korean "preferred".

 

Of course, this is my theory and I could be wrong or made a math mistake.  Feedback welcome.

 

wabuffo

[wabuffo]

sorry for the long posts....

 

After re-setting the benchmark to 12/31/15 because Munger bought another slug of the Korean marketable security, we can re-run the index using the fair market value at Dec 31st, 2015. 

 

                http://i64.tinypic.com/116p5pi.jpg

 

The Hyundai Motor shares (005389.KS) still track the DJCO Korean investment pretty well, I think.  Munger bought more common stock during the quarter ending 12/31/16 but its too early to make any decisions about that one yet.

 

wabuffo

[wabuffo]

one last post -- I promise  :)

 

In an earlier post, I used a backed-into number for 1211.HK (BYD Company) in order to discern the market value of the Korean marketable security.  I thought I'd offer some additional circumstantial evidence to back up what I think everyone here probably already knows -- that the Hong Kong listed common stock owned by DJCO is BYD.  There was a period after DJCO started to publish its 13Fs starting with the quarter-ending 12/31/13 and continuing until the quarter before Munger made the Korean-listed stock purchase that we can use publicly reported info to backsolve the fair value of the foreign-listed stock.

 

I then indexed the change in value to BRK Energy's public disclosures in its 10-Qs, 10-K for the same period of its market holding of BYD.

 

              http://i64.tinypic.com/2i2g5s.jpg

 

I think that's a pretty good match and using the closing values and stock price, it looks highly likely that DJCO owns approximately 5 million shares of BYD Company shares listed on the Hong Kong exchange. 

 

Sorry if this is old news but its my working assumption that DJCO's six common stock holdings are WFC, USB, PKX, BAC as well as BYD Company in Hong Kong and Hyundai Motor Co Ltd, Pfd Series 3 in South Korea.  Of course I could be wrong.

 

Feedback always welcome,

 

wabuffo

[DollarKing]

Wabuffo -the maths looks spot on. I've got 4.95m BYD too. It's definitely not Ilsung, (I'll save my blushes and not describe the error I'd made.)

Hyundai Motors preference shares do look like the perfect candidate.

Nice work.

 

[SlowAppreciation]

http://minesafetydisclosures.com/blog/2017/7/11/2017-daily-journal-annual-meeting-qa-with-charlie-munger-part-2

[DooDiligence]

Cool story!

 

We should start seeing a lot of new newspapers popping up around the country now?

 

http://dealbreaker.com/2013/08/the-sec-thought-charlie-munger-was-hiding-a-hedge-fund-in-some-newspapers/

[redhots]

10K is out

https://www.sec.gov/Archives/edgar/data/783412/000143774917020645/djco20170930_10k.htm

 

Looks like they bought more BYD at ~43 HKD.

[Cevian]

Anyone going to the meeting? This will be my first year attending so would be good to get together with a few like minded investors ahead of time. Let me know if you're in town on the evening of the 13th.

[AJB96]

I organized a dinner the evening before this year's meeting. It would be great to see all of you there.

 

Tue, February 13th, 2018

5:30 PM – 8:30 PM PST

$37 per person - please come with cash

 

Eat.Drink.Americano

923 East 3rd Street

Los Angeles, CA 90012

 

If you plan to attend the dinner, please RSVP so I can make sure there is enough space for everyone.  The room I rented will have 25 chairs and does not have space for any more. If you show up without having RSVP'd there will not be a chair for you.

 

RSVP:

https://www.eventbrite.com/e/daily-journal-value-investing-dinner-tickets-42948354685

 

Alex

[valueinvesting101]

From latest 10-Q:

 

As of March 31, 2018, the Company performed an evaluation for an equity security with a fair value below cost to determine if the unrealized loss was other-than-temporary. This evaluation considers a number of factors including, but notlimited to, the length of time and extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer and the Company’s ability and intent to hold the security until fair value recovers. The assessment of the ability and intent to hold this security to recovery focuses on liquidity needs, asset/liability management objectives and security portfolio objectives. Based on the result of the evaluation, the Company concluded that as of March 31, 2018, the unrealized loss related to an equity security it owns was temporary.

 

Is it referring to BYD? Does fair value here mean market value?

[wabuffo]

Nope - its the other foreign security (denominated in South Korean Won).  If fair value (ie market value) is persistently below DJCO's cost basis in the security, it must perform this test in order to decide whether to mark down its cost basis (from a GAAP perspective). 

 

That foreign security has been trading below cost basis for almost the entire time that its been in DJCO's portfolio.

 

wabuffo

[Mephistopheles]

Do we know what the foreign security is? Or is that a secret? Not Posco right?

[wabuffo]

Do we know what the foreign security is? Or is that a secret? Not Posco right?

 

Well - DJCO does own a tiny bit of Posco ADRs - that's reported on the 13F-HRs that the Company files.  But that's technically an American listing. 

 

We don't know for sure what the South Korean security is, and the Company hasn't said officially.  It's tricky - but if you use quarter-end closing prices and official USD/KRW quarter-end foreign exchange rates, I think it is a Hyundai Preferred (005389.KS).  Munger's private money is managed by Li Lu who had talked publicly about investing in a basket of Korean Preferreds (technically non-voting common shares) because of their big discounts to the underlying voting common shares.  It might be where Munger got the idea.

 

But that's a guess on my part and I could be wrong.

 

wabuffo

[wabuffo]

With another DJCO 10-K just out yesterday, I added the data from its "foreign currency risk" section on the security owned in South Korean won and updated my table to figure out what Charlie Munger owns.  The math continues to work that it's the stock of Hyundai "Preferred" (005389.KS) on the KSE.

 

 

It has not worked out great for him so far.  He spent $14.8m for his stake over 5-6 years ago - but its only worth $9.4m (as of end of Q3, 2019 - fair value of $9.2m today).

 

wabuffo

[cubsfan]

Thanks for your work Wabuffo - isn't there a large dividend attached with that security?

 

Does your estimate include the accumulated dividend?

 

[wabuffo]

Thanks for your work Wabuffo - isn't there a large dividend attached with that security?

 

I don't follow Hyundai closely.  I think there is a dividend - maybe ~5% yield (?).  Despite the name "preferred" - this security is more similar to a non-voting class of common shares.

 

wabuffo

[kiwing100]

 

DJCO AGM on 12 Feb 2020

 

Q&A session

 

[CorpRaider]

DJCO was discussed in a recent episode of the Aquirer's Podcast: 

 

I found it interesting. 

[spartansaver]

DJCO was discussed in a recent episode of the Aquirer's Podcast: 

 

I found it interesting.

 

Peterson was also in the Fall edition of Graham and Doddsville talking up DJCO. He was also in another interview recently (June) discussing DJCO. He seems to be pounding his fist very hard and marketing away. I've leaned more over time towards ignoring ideas when I hear a person screaming in the streets how great of a deal something is. Not sure if its the right way to lean, but it starts to become promotional. It sounds reasonable, but most pitches sound reasonable.

[CorpRaider]

Interesting thoughts.  Thanks for your reply.  At least in this instance, he was asked to share his thesis on a position he holds.  Based upon your information, I'm going to award him 500 merits for consistency and managing his portfolio for the long-term.

 

Succession is obviously a huge concern here (if you are a mega-bull on USB, WFC, and BAC like I am).

 

 

[spartansaver]

Interesting thoughts.  Thanks for your reply.  At least in this instance, he was asked to share his thesis on a position he holds.  Based upon your information, I'm going to award him 500 merits for consistency and managing his portfolio for the long-term.

 

Succession is obviously the huge concern here (if you are a mega-bull on USB, WFC, and BAC like I am).

 

I guess my issue with these interviews is that the idea given is more of a marketing tool about how cool of research you do, rather than if its a good idea. I haven't listened to the one with Tobias, but I'm guessing it revolves around spending 3 days in a Colorado hotel interviewing customers of DJT products, followed up by hiring an intern who scoured all of the public court databases looking for any information related to if those counties were using DJT product.

 

It sounds cool, and he certainly might be right.

[wabuffo]

Unfortunately DJCO's track record with legal software businesses is a train wreck.  People forget that prior to buying the two newest software businesses (New Dawn and ISD), Salzman tried to build one in-house from 1999-2012 and lost $21m pre-tax plus a writedown of capitalized software costs of $15m for a total of $36m in cum losses.

 

Moving on from that disaster they have spent $30m in acquisitions plus a further $31.5m in cum. operating losses to-date.

 

I know Munger says the business is hard and they are practicing delayed gratification but they've sunk almost $100m in cash into this business for over twenty years with little to show for it.  Imagine Munger had been investing that $100m in DJCO's marketable securities portfolio over that time?  Why do we think Munger and Salzman know anything about building a software business?

 

I suppose Peterson may get lucky and TYL buys them out at a crazy SAAS valuation -- but at this point the software business looks like a rich man's expensive hobby to me.

 

wabuffo