Notes from 3/25/15 Daily Journal Corporation Shareholder Meeting H/T Whitney Tilson
By Aznaur Midov
Charlie Munger started the meeting with his introduction of the board of directors. He dread three proposals and asked shareholders whether they agree with propositions. He suggested that those who disagreed should disappear, which drew the first serious laugh of the day. The Q&A starts:
Could you please share with us how your vision of Journal Technology has evolved? Also, could you please discuss your milestones for the next 24 months?
Well, that is a very intelligent question. What happened, of course, is that we have a print business, but technology and the culture are changing. Historically, courts and lawyers relied on our printing materials, and for years we were able to raise prices because we had monopoly on legal notices. Now, that source of revenue, just like newspapers, is going away as lawyers want to get their information electronically. Another part of our business that is slowly going away is advertising, which was in the past driven by the law that required certain types of information to be published in newspapers. So, we have a business on the verge of extinction.
Erudition 2. (On DJCO’s software business) This was a venture capital project, which is not the way I used to operate. It wasn’t like shooting-a-fish-in-a-barrel-type thing. By the way, my idea of shooting a fish in a barrel is draining the barrel first.
A lot of newspapers have the same problem: a lot of them died and a lot will die. In DJCO we decided to try to replace our newspaper business with the business of selling software. Coincidentally, we had a boom of foreclosures at that time that generated a lot of cash helping us with purchasing and developing the software business. It was a very unusual experience. Peter Kaufman mentioned “5.11”, the term used in rock climbing, which means that after thorough inspection, you conclude this move is obviously impossible; however, occasionally someone actually accomplishes it. That is what we tried to do here, and the business looks better today than it has ever looked. This was a venture capital project, which is not the way I used to operate. It wasn’t like shooting-a-fish-in-a-barrel-type thing. By the way, my idea of shooting a fish in a barrel is draining the barrel first. If this transition is successful, we will be much bigger; in all over the country courts. This actually makes the world better. The whole government information system is very inefficient and complicated. People in Microsoft hate this kind of business, because it is too hard. But the fact that it is hard to built also means it would be a hard thing to take away, which is a good thing.
Erudition 3. The perfect example of Darwinism is what technology had done to businesses. Look at Kodak, look at General Motors.
You mentioned that Darwin taught you to question your prior ideas. What did you learn from Einstein?
I didn’t know a lot of things until Einstein taught me them. I learned about the idea of relativity. I wasn’t smart enough to figure that one out by myself. Of course things are relative and should compared to one another. One of our directors said simply: «We should identify everything that annoys customers, and eliminate it one by one». That is, of course, the way to conduct a business. That is why we acquired the software business to give our clients something they needed. Let’s talk about Darwin though. The perfect example of Darwinism is what technology had done to businesses. When someone takes their existing business and tries to transform it into something else – they fail. In technology that is often the case. Look at Kodak: it was the dominant imaging company in the world. They did fabulously during the great depression, but then wiped out the shareholders because of technological change. Look at General Motors, which was the most important company in the world when I was young. It wiped out its shareholders. How do you start as a dominant auto company in the world with the other two competitors not even close, and end up wiping out your shareholders? It’s very Darwinian – it’s tough out there. Technological change is one of the toughest things. IBM, on the other hand, dominated the market of «machines», and when business became obsolete, they dominated computers – it was a miracle and rarity.
Erudition 4. I would say that there is a lot of craziness in liberal arts. I don’t know exactly why. I think that technical education is getting better, which is a glory of the world.
What is your opinion on activist investors?
I never liked the old system where a board of directors is absolutely permanent. But, like many things, I like the new system even worse. I don’t think it is a great thing for civilization when people are getting rich by buying shares and pushing for changes. Carl Icahn is a very able man, but he should not run the world.
How would you change education system?
I know some of the smartest people in the world who tried to improve primary and secondary education. I would say that there is a lot of craziness in liberal arts. I don’t know exactly why. I think that technical education is getting better, which is a glory of the world. The other is getting better too, but has some barriers.
Erudition 5. I did not succeed in life by intelligence – I succeeded because I have a long attention span.
How did you balance reading that much and having so many children?
When I want to read something I tune everything else down. I don’t know a wise person who doesn’t read a lot. I think that people who multitask pay a huge price – they can’t think of anything deeply, giving the world an advantage, which they shouldn’t give. I wouldn’t succeed doing it. I did not succeed in life by intelligence – I succeeded because I have a long attention span.
Erudition 6. Over the past 50 years we lived through the best time of human history. It is likely to get worse. I recommend you to prepare for worse, because pleasant surprises are easy to handle.
Is Fed going to return to $0.9 Trillion of balance sheet the current from $6 Trillion?
I remember coffee for 5 cents and brand new automobiles for $600. The value of money will continue to go down. Over the past 50 years we lived through the best time of human history. It is likely to get worse. I recommend you to prepare for worse, because pleasant surprises are easy to handle.