Charlie Munger’s Daily Journal is still betting on stocks

This week’s sell-off in Alibaba shares rippled all the way to California, where a small newspaper chain backed by Warren Buffett’s business partner Charlie Munger has an outsized stake in the Chinese ecommerce group.

The 98-year-old Munger stepped down as chair of the Daily Journal last year but he continues to direct the publisher’s investment portfolio.

At the company’s annual meeting this year, Munger said he would “handle it as long as we can, and when I’ve gone sufficiently . . . impaired, we’ll get somebody else to do it”.

While there are many billionaires who have bought news publishers for cachet, influence or altruistic reasons, Munger’s longtime stake and oversight of the Daily Journal stands out.

The association dates back to 1977, when an investment fund Munger managed bought the paper for $2.5mn. The company operates a handful of newspapers focused on the legal market and sells software to US courts and probation offices.

After the 2008 financial crisis, revenues were boosted for several years by publishing foreclosure notices in the ravaged housing markets of California and Arizona. However, as the economy recovered, the company sought to hedge itself by using its cash to invest in stocks.

“The board knew that it needed to plan for the company’s post-recession operations,” a lawyer for the Daily Journal wrote to the Securities and Exchange Commission in 2013, after drawing scrutiny over its large investments.

“The board recognised that this decision would be contrary to the conventional (but questionable) notion that the least risky way to preserve corporate capital for the long-term benefit of stockholders is to invest it in government bonds at interest rates approximating zero, notwithstanding rising inflation,” counsel for the Daily Journal wrote.

The SEC, which had asked executives to explain why the Daily Journal did not qualify as an investment company, ultimately did not take action following its review.

The investment in Alibaba and a handful of other publicly traded companies, such as Bank of America, Wells Fargo and Chinese carmaker BYD, has provided the Daily Journal with a quasi-endowment, with dividends alone generating millions of dollars for the business at a time when many newspaper publishers have struggled for survival. The gains on its portfolio have been so large that the company’s stocks on some days have overtaken the value of the entire company.

At the end of June, the company reported it was sitting on $187mn of unrealised gains on a $342mn portfolio.

But the strategy — including buying stocks with borrowed money — carries its own risks, as shown by the paper losses the Daily Journal has racked up on its stake in Alibaba. The company went on a buying spree of Alibaba stock throughout 2021, amassing 602,060 of the shares worth nearly $72mn last December.

The purchases were made even as other investors were dumping shares of Alibaba as authorities in Beijing set their sights on regulating the technology industry. Alibaba stock has declined 45 per cent this year, and is down 71 per cent since the Daily Journal first disclosed a stake in 2021. The Daily Journal’s own stock has fallen 26 per cent this year, giving it a market capitalisation of $365mn.

The Alibaba bet was executed by Munger himself. Chief financial officer Tu To declined to comment further or say who would oversee the portfolio if Munger departed the company. Munger did not respond to a request for comment.

Even as its investments have become the principal attraction to shareholders attending Daily Journal annual meetings, the core business has found its fair share of suitors.

“[Daily Journal] never had much of an editorial presence, but always made a lot of money because in those days, every law firm had to pay whatever they were charging, because they needed legal notices,” said Steven Brill, who founded The American Lawyer magazine in 1979.

Brill said he once tried to buy the Daily Journal from Munger, but the investor and lawyer was too personally attached to give it up.

“I figured if I offer him a lot of money, it’s going to be easy — it’s a sleepy legal paper in Los Angeles”, Brill said. “[But] in case you didn’t know, he didn’t quite need the money.”