Module 4: Advance Topics | Blog 4-1: Fundamental Stock Analysis by David S. Krause

In Lesson 4-1: Fundamental Stock Analysis, we paid homage to Warren Buffett; however, we failed to talk about his trusted sidekick, Charlie Munger. He’s been in the background, but he has been instrumental (along with Buffett) in growing Berkshire Hathaway into the colossal firm it is today.

Charlie Munger and Warren Buffett

Charlie Munger and Warren Buffett

Like Buffett, Charlie Munger is from Omaha, Nebraska. He’s an accomplished business mogul, lawyer, investor, and philanthropist. As Vice-Chairman of Berkshire Hathaway, he serves as Buffett’s partner – and close friend. His accomplishments are many, including chairman of Wesco Financial and the Daily Journal – he’s also a director of Costco Wholesale Corporation. He served as inspiration for Rolf Dobelli‘s book, The Art of Thinking Clearly.

Interestingly, Munger has been quietly creating a mini Berkshire Hathaway in the Daily Journal Corporation, a publisher of newspapers in California and Arizona. Since 2009, he has been investing the company’s excess cash in the stock market. Of note, the Daily Journal’s (ticker: DJCO  market value has tripled since Munger began his investing (see following stock chart).

Stock Chart for Daily Journal

Stock Chart for Daily Journal

The firm is relatively tiny compared to Berkshire – its stock market value is less than $200 million, or about 1,000 times smaller – and trading is thin. The Daily Journal’s holdings (which do not have to be disclosed) include common stock in three large companies (including Wells Fargo) and a pair of smaller foreign manufacturing firms.

A detailed and flattering Bloomberg report was recently published on the Daily Journal and Munger, who is 89 years of age and has an estimated net worth in excess of $1 billion. The Omaha native dropped out of the University of Michigan to serve as a meteorologist in the U.S. Army – and he also attended Harvard Law School. The pragmatic fundamental-based investor first met his friend and business partner, Warren Buffett, at a dinner party in 1959.

Charlie_Munger

Charlie Munger

So don’t ever think that age is a limitation – Munger started investing the Daily Journal’s cash when he was in his mid-80’s. He employed the classic fundamental analysis technique employed by Buffett of buying wonderful companies at low prices. The transformation of a sleepy newspaper publisher into a profitable diversified holding company shows how Charlie Munger applied the same principles we discussed in Lesson 4-1 and produced tremendous gains by buying quality companies when others were fearful.

 

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