The Digest #183
Daily Journal, Apple, Costco, Moody's, Munger's wisdom, Tesla's narratives, Tim Urban on writing, Rivian, AI's morality, AI bubble?, How James Longstreet defied the South after the war, and more ...
Daily Journal’s 10-K for the fiscal year that ended on September 30, 2023 was released at the end of December which is later than usual, most likely due to Charlie Munger’s death in November. Mr. Munger stepped down as Chairman in 2022. However, he remained on the board and continued to manage the company’s large investment portfolio until his death. There is no possible way for Daily Journal to replace him.
I first wrote about Daily Journal twelve years ago and have followed the company ever since even though I have never owned shares. I published a write-up on Daily Journal in January 2023 for paid subscribers, but it is now freely available for everyone to read:
Daily Journal cautioned shareholders to not expect anyone to take Charlie Munger’s place when it comes to managing the investment portfolio:
Charles T. Munger, the legendary investor of Berkshire Hathaway fame, has been a director of the Company for many decades, and has long managed the Company’s holdings of marketable securities. Mr. Munger passed away on November 28, 2023. Although the Board will work to ensure that the portfolio remains well-managed, it’s impossible to ever replace Mr. Munger. Given the loss of Mr. Munger, the Company does not expect the future financial performance of its marketable securities portfolio to rival its past performance.
For years, Daily Journal has emphasized that it is not a smaller version of Berkshire Hathaway. Of course, this is even more true today:
The Company is not a smaller version of Berkshire Hathaway Inc. Indeed, given the passing of Mr. Munger, the Company does not expect its holdings of marketable securities to generate gains in the future consistent with the past. The Company’s goal is simply to continue to develop a successful and profitable software business, while continuing to enjoy the benefit of its Traditional Business for as long as possible.
Charlie Munger’s legacy at Daily Journal will no doubt continue for many years. In 2022, Mr. Munger donated 3,720 shares of Daily Journal stock worth $1 million to seed a future equity compensation plan for the company. The proxy explains how this gift will be used to start such a plan in the coming year, subject to shareholder approval.
I plan to write an update to my January 2023 write-up for paid subscribers in the near future. A free preview of the article will be sent to all subscribers.
From the Archive: The Quarterly Guidance Trap Bites Apple
Apple shares started the year by falling 4% after Barclays downgraded the stock and cut its price target to $161. The reason for the downgrade was an expectation of weak iPhone sales as well as deceleration in the growth of high margin services revenue. Investors always seem to be nervous about Apple’s results after the holidays. While the brief halt in Apple Watch sales in December is not a material factor in Apple’s results, the legal dispute behind it might have cast a shadow on investor sentiment.
The decline of Apple stock this week brought to mind a similar situation that took place five years ago. On January 2, 2019, Tim Cook released a letter that described difficult conditions during the holiday season. This initially sent shares down nearly 10% before a partial recovery. I wrote an article at the time because I thought that the incident illustrated why providing quarterly guidance to analysts is a bad idea.
My article refers to a Wall Street Journal op-ed, Short-Termism Is Harming the Economy, which was written by Warren Buffett and Jamie Dimon in June 2018. Their article is still relevant today. Providing guidance to analysts invariably focuses management’s attention on quarterly numbers at the expense of taking a longer-term view.
Featured Links, January 2, 2024. This was a great article to read this morning right before my first Costco run of the new year. Although I have only been a Costco member for a little over a year, I have followed the company for many years. For a long time, I was put off by Costco’s relatively low margins, not understanding that management was building an unassailable moat. By putting members and employees first, management ultimately serves shareholders. This article explains Costco’s approach to creating shareholder value very well.
Costco Wholesale Corporation, October 25, 2022. My detailed write-up of Costco, initially for paid subscribers, is now available for everyone to read.
Moody’s: Aaa Business Model, December 27, 2023. 40 minutes. Transcript. “Moody's was founded by John Moody in 1909 with the idea of broadening access to credit information and codifying how people viewed credit statistics by producing manuals of stats related to bonds. In 2000, Moody's was spun off from Dun & Bradstreet as a separately traded public company. Today, it is nearly a $75 billion enterprise business, producing approximately $6 billion in revenue at 45 percent margins.” (Business Breakdowns)
Everything Warren Buffett & Charlie Munger Ever Said on Moody’s. This is a compilation of statements Warren Buffett and Charlie Munger made regarding Moody’s at annual meetings and during interviews. Berkshire Hathaway owned 24,669,778 shares as of September 30, currently worth ~$9.3 billion. (YouTube)
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