The Digest #183

Published on January 3, 2024

Daily Journal

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.

Read The Quarterly Guidance Trap Bites Apple

Featured Links

The Last Shall Be First: Costco’s Counterintuitive (But Profitable) Approach to Shareholders by Kingswell, 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)

Articles

Charlie Munger’s 100 Years of Wisdom by John Huber, January 1, 2024. “Today marks the day that Charlie Munger would have hit the century mark. I was thinking about his life this morning and it prompted me to reread a few of the journal entries that had Charlie’s name tagged, and thought I might send out a few links of articles here on Base Hit Investing that were inspired by Charlie’s wisdom.” (Base Hit Investing)

Avoid the Hype by Matt Franz and Dan Shuart, December 30, 2023. “Risk is always a function of price paid. Every asset is a good deal at one price and a bad deal at another. Investors could be entirely correct that EVs will dominate the auto market and still fail to make money if they over pay. Correct predictions don’t automatically produce profitable investments.” (Eagle Point Capital)

24 Rules for 2024 by Jonathan Clements, December 30, 2023. One of the rules is to be skeptical, which is never a problem for me! “We live in a treacherous world full of self-interested storytellers. Their stories are often financial, such as dire warnings of an economic Apocalypse, or predictions that this stock or that market will soar. But the stories might also deal with politics, health care or social issues. Whatever the topic, rest assured: The storytellers have an agenda, whether it’s self-promotion, self-enrichment or sowing discord in U.S. society. Listen at your peril.” (Humble Dollar)

What is Tesla? by Herb Greenberg, January 1, 2024. Elon Musk recently said that Tesla is an “AI/robotics company” but the business description of Tesla’s 10-K says that it is primarily a manufacturer of electric cars. Which is it? (On the Street)

This is the Word I’m Trying to Live By This Year by Ryan Holiday, December 27, 2023. “At the end of 2022 … my wife and I picked a word we were going to use as our lodestar for the year. We picked ‘less’ because we felt like we were too busy, too overwhelmed, too stressed, too frustrated. I was just exhausted as December ended and I felt like my health, my family, and my quality of life could not face another year of the same.” (RyanHoliday.net)

Podcasts

Tim Urban: Stop Procrastinating and Make Your Writing Fun, January 3, 2024. 1 hour, 12 minutes. Video. “Tim Urban used to hate writing because he thought it was boring. Now, he has 600,000+ newsletter subscribers, 811,000+ Twitter followers, and one of the most unforgettable (and hilarious) writing styles on the Internet.” (How I Write)

  • The Tail End, published in 2015, is my favorite article by Tim Urban. It’s timeless. Here is what I wrote about it recently in an essay titled Wealth Clarifies: “Tim Urban vividly illustrates why time is the scarcest resource of all. Particularly when it comes to family, time is the most important currency. For individuals without financial independence, there are always reasons to not spend time with family and to prioritize everything else under the sun. But wealth puts a spotlight on allocation of time.”

Charging Up the Electric Vehicle Market, December 28, 2023. 35 minutes. “Rivian’s all-electric vehicles have been in high demand thanks to their unique look and handy features. But soon after hitting the market, a series of supply chain snarls led to a backlog of orders and a retreat by key investors. Undeterred, Rivian CEO RJ Scaringe has focused on ramping up production and has big plans for the company’s future — including the release of a new mid-size SUV in 2026.” (How I Built This)

Can Artificial Intelligence Be Moral?, December 25, 2023. 1 hour, 3 minutes. Transcript. Video. “It seems obvious that moral artificial intelligence would be better than the alternative. But psychologist Paul Bloom of the University of Toronto thinks moral AI is not just a meaningless goal but a bad one. Listen as Bloom and EconTalk’s Russ Roberts have a wide-ranging conversation about the nature of AI, the nature of morality, and the value of ensuring that we mortals can keep doing stupid or terrible things.” (EconTalk)

Stock Market History & The AI Bubble, December 28, 2023. 1 hour, 2 minutes. Transcript. “On today’s episode, Clay is joined by financial history expert, Jamie Catherwood, to discuss market forecasting, interest rates, and the efficiency of markets from a historical perspective.” (We Study Billionaires)

James Longstreet: The Confederate General Who Defied The South And Was Scapegoated for Its Loss, January 2, 2024. 47 minutes. “… After the war Longstreet moved to New Orleans, where he dramatically changed course. He supported black voting and joined the newly elected, integrated postwar government in Louisiana. When white supremacists took up arms to oust that government, Longstreet, leading the interracial state militia, did battle against former Confederates. His defiance ignited a firestorm of controversy, as white Southerners branded him a race traitor and blamed him retroactively for the South’s defeat in the Civil War.” (History Unplugged)

The Louvre, Winter Sunshine

The Louvre, Winter Sunshine, Camille Pissarro, 1900 (public domain)

Copyright, Disclosures, and Privacy Information

Nothing in this article constitutes investment advice and all content is subject to the copyright and disclaimer policy of The Rational Walk LLC.  The Rational Walk is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

The Digest #183
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