Alibaba’s stock plunge this week spilled over to California, where a small newspaper chain backed by Warren Buffett’s business partner Charlie Munger has a very large stake in a Chinese e-commerce group.

Munger, 98, stepped down as chairman of the Daily Journal last year but continues to lead the publisher’s investment portfolio.

At the company’s annual meeting this year, Munger said, “We’ll deal with it as much as we can, when I’ve had enough.” . . if you have a disability, have someone else do it. “

While there are plenty of billionaires who bought news publishers for fame, influence, or altruistic reasons, Munger’s longstanding stake in and oversight of The Daily Journal stands out.

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

Line chart of daily journal market valuation compared to stock portfolio. Quarterly ($mn) shows that the Daily Journal's stock portfolio matches the company's value.

After the 2008 financial crisis, we increased our revenues for several years by issuing foreclosure notices in the devastated housing markets of California and Arizona. But as the economy picked up, companies tried to hedge by using cash to invest in stocks.

“The board knew it needed to plan for the company’s post-recession operations,” a lawyer for the Daily Journal wrote to the Securities and Exchange Commission after scrutinizing a large investment in 2013. I wrote

“The board believes that this decision is the least risky way to preserve corporate capital for the long-term interest of shareholders, even though interest rates are rising, on government bonds with interest rates near zero. I realized that it goes against the conventional (but questionable) notion of investing in inflation,” wrote a lawyer for the Daily Journal.

The SEC, which asked management to explain why the Daily Journal would not qualify as an investment firm, ultimately took no action after the review.

Investments in Alibaba and other publicly traded companies such as Bank of America, Wells Fargo and Chinese automaker BYD provided sub-donations to the Daily Journal, with dividends alone generating millions of dollars at a time. generating business. When many newspaper companies staked their survival. The returns on that portfolio were so high that on some days the company’s stock price exceeded the value of the company as a whole.

The company reported at the end of June that it had an unrealized gain of $187 million on its $342 million portfolio.

However, this strategy, which involves buying shares with borrowed money, comes with its own risks. This is illustrated by the paper losses the Daily Journal has racked up in Alibaba shares. The company continued to buy up Alibaba shares throughout his 2021, and last December he acquired his 602,060 shares worth nearly $72 million.

The acquisition came despite other investors selling off Alibaba shares as Beijing authorities set their sights on regulating the tech industry. Alibaba’s stock is down 45% this year, and is down 71% since the Daily Journal first disclosed his shares in 2021.

Alibaba’s bet was run by Munger himself. Chief Financial Officer Tu To declined to comment further or say who would oversee the portfolio should Munger leave the company. Munger did not respond to a request for comment.

Even though its investments are the main attraction for shareholders attending the Daily Journal’s annual meeting, its core business has taken a sizable share.

“[Daily Journal] Stephen Brill, founder of The American Lawyer magazine in 1979, said, “All law firms in those days were always making a lot of money because they had to pay a fee because they needed legal notice.” said. .

Brill once tried to buy the Daily Journal from Munger, but said the investor and lawyer had too much personal attachment to give it up.

“I figured it would be easy if I offered him a lot of money. It’s a sleepy law paper in Los Angeles,” Brill said.[But] In case you didn’t know, he didn’t need the money at all. “

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