Most newspapers are going to perish. It's just a question of when.
That's the dour view of one of the smartest investors in the world and it bodes poorly for the purveyors of print.
The prognosis was delivered by Charlie Munger at the latest Daily Journal Corp. annual meeting last month. As the chairman of the firm's board of directors, he knows about the newspaper business because the firm has been publishing newspapers for lawyers in California for decades.
These days, the Los Angeles-based company's operations are split into two segments. The print segment publishes 10 newspapers. The more promising technology segment focuses on case-management software and related services for courts and other justice agencies.
Most people don't know Mr. Munger as the chief executive of the relatively tiny Daily Journal. Rather they know him as Warren Buffett's long-term sidekick at the much larger Berkshire Hathaway (disclosure: I own a few of Berkshire's B-class shares). While the duo is famous for answering questions at Berkshire Hathaway's annual meeting, those seeking a pure shot of Mr. Munger attend the Daily Journal meeting. This year, the 94-year-old talked for a couple of hours to his merry band of investment nerds.
While Mr. Munger isn't enthusiastic about the prospects for the Daily Journal's traditional print business, its software business is expected to fare better over the long term.
But the firm's day-to-day operations have become something of a sideshow for shareholders due to a fateful decision in 2009 to use its cash reserves (some US$20-million) to buy a handful of stocks. Today, its holdings include Bank of America, Posco, U.S. Bancorp and Wells Fargo & Co. (Those keen on benefiting from Mr. Munger's stock-picking expertise should think about buying the stocks directly because doing so will likely be more tax-efficient than buying shares of the Daily Journal itself.)
Before the move to stocks, the firm closed its fiscal year on Sept. 30, 2008, with total assets of US$46-million and a shareholders' equity of US$30-million. It generated US$40-million in revenue in fiscal 2009 and US$8-million in earnings. It wasn't a big concern.
The firm's total assets swelled to US$280-million by the end of its latest fiscal year and its shareholders' equity climbed to US$160-million thanks largely to its stock portfolio. On the operational front, its revenue was little changed at US$41-million and it posted a net loss of US$1-million.
Despite the flagging operations, the Daily Journal's shareholders are a happy bunch because the firm's stock shot up to US$230 a share by the end of 2017 from US$41 a share at the end of 2007 thanks in large part to its stock portfolio.
I can't help but compare the Daily Journal's recent experience with that of a local publisher whose time may be close to an end. Here I'm talking about Torstar Corp., which is the proud publisher of the Toronto Star along with a slew of other newspapers and websites. Back in September, 2008, the company was much larger than the Daily Journal. Torstar had $50-million in cash, $2-billion in total assets and $910-million of shareholders' equity. The firm's revenue clocked in at $1.5-billion over the prior 12 months; earnings were $79.6-million.
Fast forward to the latest data from Dec. 31, 2017, and the situation is less than rosy. The firm's total assets collapsed to $481-million and its shareholders' equity fell to $246-million. Revenue for the year came in at $616-million and it posted a loss of $29-million.
Torstar's stock tells the sorry tale. At the close of 2007, it changed hands near $19 a share and then plummeted to $1.71 a share by the end of 2017. After weakening further, it bounced back to $1.62 a share after recently releasing its aforementioned year-end results.
Unfortunately, Torstar didn't have a Mr. Munger around to invest its money.
Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.