Value Investing

Charlie Munger Speaks at the 2017 Daily Journal Corporation Annual Meeting

Charlie Munger Speaks at the 2017 Daily Journal Corporation Annual Meeting by John Szramiak was originally published on Vintage Value Investing

Daily Journal Corporation (NASDAQ: DJCO)’s most recent annual meeting was held on February 15, 2017.

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Daily Journal Corporation is a publishing company headquartered in Los Angeles that publishes newspapers and websites that cover legal affairs in California and Arizona. Daily Journal Corporation also has a subsidiary, Journal Technologies, that supplies case management software systems and related products to courts and other justice agencies, including administrative law organizations, county governments, and bar associations. Daily Journal Corporation’s largest publications are the Los Angeles Daily Journal and the San Francisco Daily Journal.

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The chairman of Daily Journal Corporation is none other than Berkshire Hathaway vice chairman Charlie Munger (which is a perfect fit, as he was a lawyer and actually established the law firm of Munger, Tolles & Olson – which is a very prominent law firm today – before he became an investor).

Munger, now 93, runs a bit of a mini-Berkshire Hathaway shareholder meeting at the Daily Journal. Here is him speaking at the 2017 Daily Journal Corporation Annual Meeting:

Here are some of the main takeaways:

Mellow on Donald Trump

Last year, Charlie Munger said that his fellow Republican Donald Trump was not morally qualified for the White House. At the 2017 Daily Journal Annual Meeting, Munger said:

“Well, I’ve gotten more mellow. He’s not wrong on everything. Just roll with it. If there’s a little danger, what the hell, you’re not going to live forever anyway.”

A Reversal on Technology and Airlines

Berkshire Hathaway recently revealed multi-billion dollar stakes in Apple and the four biggest U.S. carriers: American Airlines, Delta, Southwest, and United Continental.

This marks a huge reversal in Buffett’s and Munger’s longstanding aversion to investing in the technology sector (which was deemed outside their “circle of competence“) and in the airline industry (an industry that both have had very harsh words for in the past – Buffett has called it a “gruesome” industry and Munger once called it a “joke”). Now, Berkshire is Apple’s fifth largest investor and is the largest or second largest investor in the four airlines.

At the meeting, Munger said:

“The nice thing about the game we’re in is that we can keep learning.”

Speaking of Buffett, Munger said:

“He’s changed when he’s buying airlines, and he’s changed when he’s buying Apple.”
“I don’t think we’ve gone crazy. I think we’re adapting.”

Wells Fargo’s Biggest Problem Was Its Reaction to the Scandal

Munger downplayed the impact of the recent scandal at Wells Fargo, in which Berkshire Hathaway is the largest investor with a ~10% stake. Wells Fargo was caught flat-footed by the public outcry after it settled regulatory charges that employees created as many as 2 million fake customer accounts to meet sales goals. The scandal cost longtime Chief Executive John Stumpf his job.

According to Munger, the biggest problem for the company was not its sales culture, but how it reacted to the scandal:

“The mistake there was that when the bad news came, they didn’t recognize it. I don’t think that impairs the future of Wells Fargo.”

Uncertainty Around American Express

Charlie Munger was less sure about the outlook for American Express, another large Berkshire Hathaway holding, saying people would be in a “state of delusion” for thinking they could project the state of the payments system in a decade.

Still Critical of Valeant Pharmaceuticals

Charlie Munger also defended is early criticism of Valeant Pharmaceuticals business practices, including the Canadian drug company’s model of acquiring rights to drugs and riving prices higher. Criticism and regulatory probes have caused Valeant’s growth plant to unravel, and its share price to plunge more than 93% in a year-and-a-half.

“It was really interesting how many high-grade people that took in. It was too good to be true.”

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