“The board recognized 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,” an attorney for Los Angeles-based Daily Journal wrote in a March 18 letter made public today.
The U.S. Securities and Exchange Commission in February questioned why the publisher shouldn’t be considered an investment company given the “high percentage” of total assets that were in marketable securities. Such a designation could subject the publisher of California Lawyer magazine and 10 newspapers to some of the regulations imposed on mutual funds.
Munger, 89, best known as Warren Buffett’s longtime business partner, helped triple Daily Journal’s value since 2008 by reallocating the company’s investments. The publisher initially benefited from the housing slump and deepest U.S. recession since the 1930s because it earned revenue from publishing foreclosure notices, the company said in its letter.
Still, the board recognized that Daily Journal needed a long-term plan to protect the company from deterioration in its newspaper publishing business, provide an asset base for future takeovers and build a net worth that would allow its software unit to bid on government contracts, according to the letter.
“Two of the company’s directors, Charles Munger and J.P. Guerin, selected the securities which, given their experience and knowledge of investing, required very little time,” Daily Journal said in the letter. “Also, there have been only purchases and no sales, so no time has been spent trading or ‘managing’ these marketable securities.” Guerin is the company’s vice chairman.
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