The SEC Thought Charlie Munger Was Hiding A Hedge Fund In Some Newspapers
Here’s a neat little story from Bloomberg: Charlie Munger, Warren Buffett’s long-time right-hand man at Berkshire Hathaway, moonlights as the chairman of the board of a wee newspaper company called Daily Journal. Daily Journal owns a collection of newspapers so dull that they “specializ[e] in public notice advertising,” particularly notices of foreclosure sales. It also owns $128 million in marketable securities, virtually all of it ($121mm) in common stocks. This is noteworthy because, one, Charlie Munger is the one picking the stocks, and two, Daily Journal’s total book assets are only $173.8mm, its book equity is $106mm, and its market cap is around $190mm. For every dollar you invest in Daily Journal, you’re getting around 33 cents of foreclosure notices and 67 cents of Charlie Munger’s stock-picking. Charlie Munger’s stock-picking: pretty good, as it happens, and in any case a commodity that some people desire.1
Which led to an amusing exchange with the SEC where:
The reason for the question is that you can’t just go around having a public company whose business is investing in stocks picked by Charlie Munger, or anyone else of course. To be a public company whose business is stock-picking, you need to be a mutual fund, which entails various registrations, restrictions on investments and leverage, disclosure requirements, etc.2 Or of course you could be a hedge fund, which avoids many of those requirements, but at the cost of (1) limiting your fund-raising to accredited investors, which is somewhat liquidity-reducing, and (2) normally, abiding by the custom that hedge fund capital is not locked up permanently the way public equities tend to be....MORE
- the SEC asked Daily Journal, “hey wait are you just a front for a Charlie Munger stock-pickery?,” and
- Daily Journal replied (1) no but (2) the Charlie Munger stock-pickery worked out pretty well for us, huh?