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Turtle Bay

@72types

Feb 15

Munger's Daily Journal AGM Info:

Date: Today (2/15)
Time: 1 PM (ET)

Here's some Daily Journal history…

In 1976, the California Newspaper Service Bureau, a mutually-owned public notice ad sales agency, settled a restraint-of-trade lawsuit. The settlement terms required that they (a) pay the plaintiff $1.5M and (b) sell their 100% interest in the Daily Journal Corp ("DJCO").

Munger's New America Fund ("NAF") bought the DJCO for $2.2M in 1977. DJCO had circulation of 18,000 and $4M of revenues, making it:

- The US's largest legal publisher
- SoCal's dominant legal daily

The purchase price? $2.2M (7x net profits)

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Turtle Bay

@72types

Feb 7

Munger's first buyout attempt:

The Cincinnati Enquirer ("CE")

In 1971, Munger's Blue Chip Stamps ("BCS") agreed to buy CE for $29M. That purchase price was a big commitment for BCS, amounting to:

- 30% of liquid assets
- 80% of shareholders' equity

Here's the story…

CE was Cincinnati's largest newspaper. Scripps, a newspaper chain, bought the paper in 1956. But there was a problem: Cincinnati was one of the last "two-newspaper towns," and Scripps controlled both papers. This led to an antitrust suit and DOJ-imposed sale of CE to Munger.

Why'd Munger bid on CE?

Consider the newspaper economics:

→ More content → More readers
→ More readers → More advertisers
→ More advertisers → Higher ad rates
→ Higher ad rates → More content

This feedback loop led to what Buffett called "survival of the fattest."

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Turtle Bay

@72types

Jan 13

Buffett's BPL results:

- 30% a year
- 28X total return

Even more impressive: No down years

How'd he do it? Arbitrage

Arbitrage investments produced:

- Market-neutral results
- +20% unleveraged returns

Here's a thread on an arbitrage deal from Buffett's PA:

Bayuk Cigars

Buffett invested in Bayuk in March 1982. At the time, the company had two assets:
- $3M EBIT cigar business*
- $15M net cash & investments

They also announced a plan to:
- Sell the cigar business
- Liquidate & dissolve the company

———
*Bayuk's brands:
- Garcia + Vega
- Phillies

Why'd Buffett invest?

In early March 1982, Bayuk:
- Sold Garcia + Vega for $10M
- Declared full liquidation by YE1986
- Disclosed $15 per share liquidation NAV

Bayuk's mid-march stock price:

~ $13.50 per share

Read 8 tweets

Turtle Bay

@72types

Jan 3

KKR's first deal: Vapor Corp

In 1972, Jerry Kohlberg, Henry Kravis and George Roberts bought Vapor for Bear Stearns. Despite closing on the eve of a recession, the deal worked so well that they used it as a template for future buyouts.

See below to learn why...

Bear bought Vapor from Singer Corp (sewing). The company had three divisions:

- Mass transit equipment
- Oil & gas valves and pumps
- Industrial process control parts

Think these were low-return cyclical businesses? They weren't.

Vapor:
- Earned +20% ROIC
- Grew every year

Why was Vapor such a good business?

Vapor's products:
- Were proprietary
- Had high aftermarket sales

Vapor, for example, sold mass-transit bus systems that:
- Ran under harsh conditions
- Required sole-source replacement parts

The result:
- Pricing power
- Steady demand

Read 8 tweets

Turtle Bay

@72types

Dec 21, 2022

Another 1960s Berkshire tech investment:

Rank Organization

Rank was a cheap way to buy Xerox. It owned a 50% interest in Rank-Xerox, which controlled the non-US rights to xerography. Berkshire paid just ~15x for Rank. Xerox Corp, on the other hand, traded at a ~60x multiple.

Rank invested $1.7 million into Rank-Xerox. Yet by the time of Berkshire's investment in late 1966, Rank-Xerox:

- Grew revenues to $125 million
- Produced 40% operating margins
- Earned a 30% return on equity

Rank-Xerox accounted for 60% of Rank's 1966 consolidated net profits.

How'd Berkshire's Rank investment turn out? Over the next few years, Rank-Xerox grew revenues by ~35% a year and increased profits by 3x. Rank Organization's multiple also increased from 15x to 30x.

The result: Berkshire's two-year investment produced a 3.6x MOIC and 90% IRR.

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Turtle Bay

@72types

Dec 13, 2022

Buffett's first private investment was…

A tech startup?

That's right. In 1960 Buffett invested $60K (20% of his net worth) into Data Documents.

Data Documents:
- Started by Buffett's friend in 1959
- Made IBM tabcards
- Grew by +70% a year
- Produced a 1-year payback on capex

Buffett held his investment and remained chairman of the board for over 14 years. Over that time, Data Documents:
- Grew sales by ~30% a year
- Increased profits from $4K to $3M
- Earned +20% ROEs

The result: Buffett's Data Documents investment returned 170x (33% a year)

Buffett remained chairman of Data Documents' board for 18 years. Also on the board:
- Bill Ruane — Sequoia Fund
- Fred Stanback — Buffett's longtime friend
- Robert Malott — CEO of FMC

[Note: FMC was the only outside investor Buffett agreed to manage money for post-BPL]

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