DJCO - Daily Journal Corporation

[BG2008]

Great pushback on these points guys!  I love the CoB board for highlighting opposing views just like this.  I wonder how big of a CoStar versus REIS dynamic is at play here. 

 

I remember when CoStar and REIS market caps were 10 to 1x.  Today, they are likely 100-500 to 1.  Reis was bought if I remember correctly. 

[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 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.

 

He mostly cited the securities including the $~100MM (I think) BYD position and said there's an embedded option on a SAAS bidness.  Also discussed potential upside from the positive aspects of the culture such as being able/willing to delay gratification to get the sign ups.  At least, that's what I took from it. 

 

 

[wabuffo]

On my to do list is to try and figure out how much Kaufman owns.

 

Answer: None

 

 

wabuffo

[CorpRaider]

Thanks.  I didn't see any in a quick scan but was going to look at the proxy. 

 

EDIT: Thanks for below as well.  I saw his sales.  Not immediately obvious who is going to steer the ship in the future.

 

 

[wabuffo]

Salzman is also selling pretty fast and closing in on zero shares.  I think he may have some health issues as well.

 

wabuffo

[benhacker]

I think Wabuffo captured this really well.  It's easy to look at this and say "look, there is a high multiple SAAS/subscription company strapped on this old line firm"... but the problem is that you have to make a determination that the SAAS aspect of this is actually worth anything.  It's been a money losing business, built by a money losing team over years... clearly, by a company with a culture which is unlikely to attract the right team.

 

I would be the first to stand up and say a lot of the crazy valuations ascribed to these kinds of other public companies (TYL, etc) and say statistically how is it that an entire class of businesses can be valued by XYZ metrics, while a whole other class of businesses have very modest valuations???  However, in this case you have two specific businesses (TYL and DJCO's biz specifically)... there is no simple basis to say DJCO has built something that has real R&D asset value which has been written off the P&L but still is meaningfully valuable.  I find the pitches saying the opposite don't address the fact the business hasn't done great despite any customer retention so far... if anything, if history is any guide, I think you need to assume the opposite.

 

i have been short DJCO off and on for 5 years on a sum of parts basis, I closed it earlier this year.  I don't strongly enough (anymore, at current prices) feel that their non-traded assets are worth basically nothing, but it's a huge leap to think they have something of material value - enough to make DJCO equity interesting... no one needs to buy what DJCO has... it may just be that they get steamrolled by TYL and wind this biz down and you are left with a bet on BYD + WFC with corporate overhead.

 

I always get personally caught up and am thus personally skeptical of "value" pitches on growth-y / high valuation businesses.  Growth, incremental customers, and a clear Phil Fisher model is way better to find "good" high valuations businesses... I'm seriously doubtful that DJCO has any elements of that based on corporate culture *and* their track record.

 

My 2 cent... but again, no position right now.

[wabuffo]

For you BYD bulls - it looks like Munger has begun selling some of his BYD holdings in DJCO.  You can infer it from the 10-K.

 

https://www.sec.gov/Archives/edgar/data/783412/000143774920025531/djco20200930_10k.htm

 

During the Q, DJCO sold $16.307m of marketable securities (from the cash flow statement) and realized a gain of $4.193m (income statement).  We know from the recent 13F-HR, that he sold none of his SEC-reportable holdings (WFC, USB, BAC, PKX) - so it has to be one of his foreign holdings. (1211.HK, 005389.KS)

 

He is underwater on Hyundai - so a sale of it would likely not have triggered a gain.  Plus the realized proceeds are greater than the fair market value of the entire Hyundai position.  So its likely he sold a portion of BYD (1211.HK) on which he has a gain.

 

The interesting aspect is that 1211.HK was at 121.40 HKD per H-share at 9/30.  Also - based on my calculations if he had not sold (based on marking his previous position size at 9/30) the portion he sold would've been worth $21.721m (instead of $16.307m) at quarter-end.  Thus - he sold at an average price of $91.10 HKD per share. 

 

Given where 1211.HK is trading now, it would not be hard to believe that he has disposed of more (if not all) of his 1211.HK position at prices that are double the price he already sold at.

 

Of course, its mathematically possible he sold a mix of 1211.HK and 005389.KS - but I can't figure that out yet.  I noticed his foreign currency risk section in the 10-K no longer lists the holdings in terms of how much is held in Hong Kong dollars and how much in South Korean won.  But at the next 10-Q, I should be able to confirm that he has sold only some of his 1211.HK holdings (that is, unless he sells more/all).

 

This also starts to make me wonder what Berkshire Hathaway Energy is doing with its holdings in the December Q.  We'll find out next year, I guess, when their 10-K comes out.

 

wabuffo

[Spekulatius]

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.

 

He mostly cited the securities including the $~100MM (I think) BYD position and said there's an embedded option on a SAAS bidness.  Also discussed potential upside from the positive aspects of the culture such as being able/willing to delay gratification to get the sign ups.  At least, that's what I took from it.

 

How would they attract employees and in particular software engineers with a leadership like this? I don’t think they anybody capable would go there with so many, other opportunities. I do agree this software business looks like a money pit to me that is on the road to nowhere.

[wabuffo]

A fellow COB&Fer PM'ed me and highlighted an importance disclosure in the 10-K:

 

Also, as of September 30, 2020, the Company’s holdings of marketable securities were concentrated in just five companies and included one based in foreign currency

 

That's a pretty significant detail.  There are two conclusions one has to draw from this:

1) One of the two foreign-listed securities was sold in toto.  That would have to be Hyundai Pfd (005389.KS) since $16.3m wouldn't be enough to sell all of BYD (1211.HK).

2) But, $16.3m exceeds the FMV of Hyundai at any point during the Q (and in fact, at any time during the time DJCO has been invested in it) - so clearly Munger also sold some of BYD as well.  I did note in my previous post that this was a possibility.

 

Of course, its mathematically possible he sold a mix of 1211.HK and 005389.KS - but I can't figure that out yet. 

 

It still makes me wonder whether he will continue to sell BYD during the December Q as the price went even higher.

 

wabuffo

 

[formthirteen]

A fellow COB&Fer PM'ed me and highlighted an importance disclosure in the 10-K:

 

Also, as of September 30, 2020, the Company’s holdings of marketable securities were concentrated in just five companies and included one based in foreign currency

 

That's a pretty significant detail.  There are two conclusions one has to draw from this:

1) One of the two foreign-listed securities was sold in toto.  That would have to be Hyundai Pfd (005389.KS) since $16.3m wouldn't be enough to sell all of BYD (1211.HK).

2) But, $16.3m exceeds the FMV of Hyundai at any point during the Q (and in fact, at any time during the time DJCO has been invested in it) - so clearly Munger also sold some of BYD as well.  I did note in my previous post that this was a possibility.

 

Of course, its mathematically possible he sold a mix of 1211.HK and 005389.KS - but I can't figure that out yet. 

 

It still makes me wonder whether he will continue to sell BYD during the December Q as the price went even higher.

 

wabuffo

 

Thank you both for doing the work of True Detectives value investors. I trimmed 1/4th of my position in November. What remains is "free money", but I will continue trimming. I hope the Robinhood crowd doesn't learn about BYD's monorail business while I'm trimming...

[ValueMaven]

Berkshire Hathaway Energy is sitting on a paper-profit of about $6B in BYD - which is a meaningful return (nearly 1Y operating profit).  Given that BYD is 'Charlie's idea' - I do wonder what BHE is doing as well

[manuelbean]

Hi guys, is it just me or this company doesn't have an "Investor Relations" page?

[RadMan24]

A fellow COB&Fer PM'ed me and highlighted an importance disclosure in the 10-K:

 

Also, as of September 30, 2020, the Company’s holdings of marketable securities were concentrated in just five companies and included one based in foreign currency

 

That's a pretty significant detail.  There are two conclusions one has to draw from this:

1) One of the two foreign-listed securities was sold in toto.  That would have to be Hyundai Pfd (005389.KS) since $16.3m wouldn't be enough to sell all of BYD (1211.HK).

2) But, $16.3m exceeds the FMV of Hyundai at any point during the Q (and in fact, at any time during the time DJCO has been invested in it) - so clearly Munger also sold some of BYD as well.  I did note in my previous post that this was a possibility.

 

Of course, its mathematically possible he sold a mix of 1211.HK and 005389.KS - but I can't figure that out yet. 

 

It still makes me wonder whether he will continue to sell BYD during the December Q as the price went even higher.

 

wabuffo

 

It's all speculation, but are you confident it was Hyundai to begin with?

[wabuffo]

It's all speculation, but are you confident it was Hyundai to begin with?

 

Extremely confident.

 

 

(click on image for full-size viewing)

 

wabuffo

[wabuffo]

Long-time CEO Gerald Salzman sells all of his shares ($2.75m worth) down to zero share ownership in one day.

 

https://www.sec.gov/Archives/edgar/data/783412/000120919120064843/xslF345X03/doc4.xml

 

I wonder how to interpret this sale.  He has been selling consistently all year - I think he owned almost 32k shares in June.  He is up there in age and his health has been an issue. With Guerin passing away this year and Salzman's and Munger's advanced age - could be a change is of some sort is coming. 

 

I also note that recently Peter Kaufman filed a 13D indicating he had become the Trustee to a holding of shares (not Kaufman's) - perhaps Ira Marshall's (former Munger partner).  The trust(s) own DJCO shares equal to 9.5% of the Company.

https://www.sec.gov/Archives/edgar/data/783412/000119312520321447/0001193125-20-321447-index.htm

 

One also has to wonder if the large sale of marketable securities (Hyundai, BYD) is also related.  Especially if we see more selling from the portfolio this quarter.

 

wabuffo

[BG2008]

Long-time CEO Gerald Salzman sells all of his shares ($2.75m worth) down to zero share ownership in one day.

 

https://www.sec.gov/Archives/edgar/data/783412/000120919120064843/xslF345X03/doc4.xml

 

I wonder how to interpret this sale.  He has been selling consistently all year - I think he owned almost 32k shares in June.  He is up there in age and his health has been an issue. With Guerin passing away this year and Salzman's and Munger's advanced age - could be a change is of some sort is coming. 

 

I also note that recently Peter Kaufman filed a 13D indicating he had become the Trustee to a holding of shares (not Kaufman's) - perhaps Ira Marshall's (former Munger partner).  The trust(s) own DJCO shares equal to 9.5% of the Company.

https://www.sec.gov/Archives/edgar/data/783412/000119312520321447/0001193125-20-321447-index.htm

 

One also has to wonder if the large sale of marketable securities (Hyundai, BYD) is also related.  Especially if we see more selling from the portfolio this quarter.

 

wabuffo

 

Maybe they are selling off all the securities and generating cash to hire all the young whipper snappers to come work on Journal Technology.  One can hope.

[Scunny Bunny]

appears as though at current price of $332 the Journal Co business is being priced at ~$250million, when accounting for big increase in BYD & banks QTD. Appreciate thoughts on whether this high by recent standards or justified. Certainly not by current/past earnings but am I missing something?

[gfp]

Hey wabuffo - thanks as always for sharing so much of your work on the DJCO securities portfolio.  On those Kaufman trustee shares, those were/are Richard Esbenshade's shares (a founding partner at MT&O).

 

Long-time CEO Gerald Salzman sells all of his shares ($2.75m worth) down to zero share ownership in one day.

 

https://www.sec.gov/Archives/edgar/data/783412/000120919120064843/xslF345X03/doc4.xml

 

I wonder how to interpret this sale.  He has been selling consistently all year - I think he owned almost 32k shares in June.  He is up there in age and his health has been an issue. With Guerin passing away this year and Salzman's and Munger's advanced age - could be a change is of some sort is coming. 

 

I also note that recently Peter Kaufman filed a 13D indicating he had become the Trustee to a holding of shares (not Kaufman's) - perhaps Ira Marshall's (former Munger partner).  The trust(s) own DJCO shares equal to 9.5% of the Company.

https://www.sec.gov/Archives/edgar/data/783412/000119312520321447/0001193125-20-321447-index.htm

 

One also has to wonder if the large sale of marketable securities (Hyundai, BYD) is also related.  Especially if we see more selling from the portfolio this quarter.

 

wabuffo

[wabuffo]

On those Kaufman trustee shares, those were/are Richard Esbenshade's shares (a founding partner at MT&O).

 

Thanks gfp - didn't know who he was.

 

wabuffo

[BG2008]

Is Daily Journal getting acquired? Shares have been hot lately

[wabuffo]

Is Daily Journal getting acquired? Shares have been hot lately

 

It got written up on VIC yesterday with a very bullish take on the legal software biz.  Plus the BYD shares have been flying, so ...

 

wabuffo

[BG2008]

Is Daily Journal getting acquired? Shares have been hot lately

 

It got written up on VIC yesterday with a very bullish take on the legal software biz.  Plus the BYD shares have been flying, so ...

 

wabuffo

 

Thanks.  Just saw that on VIC

[wabuffo]

Thanks.  Just saw that on VIC

 

Not as good a writeup as the first one from 2009  8)

 

wabuffo

 

[Spekulatius]

What’s the success rate of 90 year olds running SAAS business? Asking for a friend.

[BG2008]

What’s the success rate of 90 year olds running SAAS business? Asking for a friend.

 

I heard Munger talk during one of these meetings and he was saying how they are investing for the long run.  If I had to pick a 90 year to lead a SaaS business, it would be those clowns.