Roy Swisa 谈 $DJCO

With me today, I'm happy to have on for the first time, Roy Swisa. Roy, how's it going?

I'm super excited.

I knew you were, because we were talking before. I knew you were. You've got a new mic and everything. Before we get started, I'm really excited for the podcast today. I've got some really fun questions I want to talk to you about.

But before we get started, I have 2 disclaimers. First, my general disclaimer: Nothing on this podcast is investing advice. Please see the full disclaimer at the end of the show notes, or there's always the legal disclaimer in the show notes if you want to hear that.

And then we have a second disclaimer. Roy, we're going to talk about Daily Journal. The ticker there is DJCO. Longtime Buffett and Munger fans will very much know about the company, but I think you have an added disclaimer on the company that I think is also going to speak to the quality of the podcast. So I'll just toss it over to you.

I was doing research about the company, and it got me a consulting gig with them. I was involved with the latest thing with them and the shareholder meeting that happened this week.

Perfect. I think people can review the filings, and I think they will be very clear there. But obviously, you were doing great work. I think we had a podcast scheduled, and then you said, “Hey, I've got a consulting gig. I don't think I can do this right when I'm in the middle of this.” So that's why we're talking now.

Let's dive into it. Again, longtime Buffett and Munger fans will know about Daily Journal, but I don't know if they'll know what it is. I've looked at it a few times over the years. It has evolved a little bit, and not everyone's a Buffett and Munger fan anymore. Some of the young ones might not have any clue. So why don't we just start with a quick description of what Daily Journal is and why they're so interesting?

I will say I didn't even know what it was. How I got into it was working with a nice PE over the summer. I had a U.S. portfolio, and I was like, “That's an interesting name. That's an interesting market cap, and a very interesting, I will say, EV.”

To the story of what it is, it's actually a 3-legged business. They have Journal Technologies, which is a court case management system. It's the thing that grew; it's the thing that is interesting, I will say.

There's a legacy business, which is the Journal, as you can imagine—a journal for, I will say, the legal newspaper. If you're in the states of California or Arizona, you probably know that. And the third leg, which I think will remind you of a different company that's related to Charlie Munger, is the portfolio business.

Its portfolio is about $500 million. Of course, I'm giving you inaccurate numbers; the idea is to give you an idea. I think it's like $493 million right now, but it was like a $600 million market cap when we started our discussion, so you can have an understanding of, like, “Oh, wow, this is a really interesting business.” That's the way that they at least portrayed it in our—

Yep. Great discussion. I think the thing that excites me to talk about them today is, A, you've got the old Charlie Munger—unfortunately, RIP—and my respect for him grows every year, I guess, as I get older. I sometimes write this straight Munger thing where I'll say, “Hey, something he said that in my 20s I thought sounded silly, and in my 30s I'm like, ‘God damn, this is the smartest guy in history.’”

But you've got the legacy piece, you've got the portfolio piece, and I think you've got interesting questions on those. And then on the Journal Technologies side, it is a software company, right? It is a vertical software company. So I think you get interesting questions on the SaaS side. I want to talk about all of that in our discussion.

But let me start here. I think the reason you thought about this, the reason we wanted to do this podcast, is you thought this was an interesting opportunity. I'll just pause here to say: The market is a competitive place. What are you seeing that the market is missing when you say, “Hey, DJCO is worthy of my time? It's worth going and doing so much work that they reach out to me about a consulting gig? It's worth coming on the podcast”? What are you seeing that the market's missing?

I think what's super interesting—and especially today, to give you context for why this week is super interesting—is that Anthropic was killing, or annihilating, sector by sector. The more niche you go, the more vertical you go, and the more regulatory-heavy it is, the scarier it is, and I think it's more protected.

When you go to places where it's really involved with the heart of the business, and the business cannot change as quickly—think about it like a heart transplant—those are exactly the businesses that I think we need to own in general, because they will be future compounders. It's really hard to switch from them.

I think that JTI, Journal Technologies, is one of them. They have all these characteristics around it, and we can go deep around it—the sector specifically, and then them in particular.

We are investors. We allocate money, but I think the better way to look at it is that we're time allocators, because we don't have all the time in the world. We can do our research, and it's not always translated to, I would say, monetary gains. I think the ones who do it correctly are the ones who know how to monetize their research in the best way.

Can I pause you there for 1 second? I think one of the most unfair things about investing is you can spend hundreds of hours on an investment, and if you are wrong, it doesn't matter if you're wrong for the wrong reasons—like you just completely miss something—or, I mean, I know people who forgot to put the right share count in Excel. It was like, “This is a screaming buy,” and then I review their models: “Dude, if you use the right share count, you're dead.”

Or you are wrong because a meteor literally comes and blows the building up. It doesn't matter. You can spend hundreds of hours on research, and if you are wrong, you got a negative return on your time. I'm sure there are other businesses like that, but it's really hard to think of another business where you can be like, “I did all this work. I worked so hard, and I lost $5 billion on return on investment.”

Well, no, that's truly it. I think that any analyst, when you communicate at least to your PM—or even with yourself—you always need to ask yourself, “Is it worth my time? Is this next hour, this next hour, this week of work worth it?” It goes quickly.

On a first look, when I looked into it, I was like, “Wait a second.” It was summer 2025, and I saw this massive portfolio. The way that I saw it was, like, the downside is super high.

I would say this doesn’t make sense in English, so I’ll repeat it. The cash flow is high, okay? The cash flow is really high, and you have a software business that is transforming from service-oriented to product-oriented. We saw that in the past.

We saw that when this inflection point hits, at least a year—or, I would say, a few business cycles—later, depending on how you look at the business. Not all software companies are the same. The margins go up, the earnings go up, and, of course, the free cash flow goes up. I was like, “Wait a second. Let’s look into these businesses.”

I had the same lens on Cellebrite before that. I was like, “It’s almost the same trick: a highly regulated environment and a switch in the business model,” as in the past with Journal Technologies. I would say it was not cool. When I read that, I was like, “What’s going on here?” The clients used to pay them when they were happy. Have you heard about that? “Pay me when you are satisfied.”

I never heard about that either.

I was like, “This is no way to make a business. This is not the way to be compensated. You have zero alignment of interest. I don’t even know how this could exist.” But they brought in this new CEO, Stephen Miles Jones.

I will not use the word “swamp,” but it was really hard marshland to move through. You need to clean a lot of things. You need to move this company from service-oriented to product-oriented, and you start to see certain signposts.

I was very skeptical. So, over the summer, that’s what I read and that’s what I saw: “We are moving. We are changing.” A few things popped into my mind during the initial research. He said that they were changing, but let’s find evidence of how they were really changing.

To give you a little more context, I used to be a data scientist. I can program, I can use AI, and I can build tools that I think others can only imagine building. But I’m a one-man show, so I need to be very lean but accurate.

What’s so nice about this business is that the RFPs—the requests for proposals—for all these court-case management systems used by prosecutors are public. You can access them. But what is good is that they are siloed; each state has its own. So, I was able to tap into all of that using AI, download it, and start to see why they win and why they lose. I wanted to see whether the criteria and the way they managed their processes were getting better.

Then I found it. I saw Orange County, and I was like, “Wait a second. They have milestones.” They started to have, I would say, an emphasis on budget management in there. You start to see something that did not exist, because before that it was just a random milestone. I was like, “I see the change. I believe the CEO is changing the company. He’s not only saying that.”

In a lot of companies, in general, there are words and there are words. So, I was like, “Okay, let’s leave it at that.” I found evidence that he’s really changing the company. Now, it’s a matter of time before we start to see it moving down to free cash flow. And that’s okay. I can put more time into it.

I like that you kind of check with the actual work, because when you say that, I just think about how many times I’ve been on the phone with CEOs and they’ve been like, “We are so shareholder-focused. All we care about is getting the stock price up, and we’re going to create value in the long term.” Then the next day they announce a deal and the stock is down 50%, and I’m like, “What happened to that shareholder focus?”

They say, “This is going to work in the long run,” and they just keep hitting you over the head with it. But I like that you check the actual work.

So, let me start here. I want to dive into the business, but I do think one of the tough things with Daily Journal—and longtime Daily Journal followers will know this—is that Charlie ran it. He controlled it and ran it, and he traded stocks in it pretty successfully.

I mean, at the end of Q1, they had about $500 million in marketable securities, and they had $340 million in gains on those marketable securities. I do think there were—I can’t remember the specific details—I think there were some issues with margin in 2022 or so. But overall, if you turn $130 million into $500 million, even if it’s over a long time frame, that’s probably pretty damn successful trading.

A lot of people really like Daily Journal for the sum-of-the-parts valuation. I’m probably going to push back a little bit on that for reasons that we’ll describe later, but can you just lay out the sum-of-the-parts base? There are kind of 2 big value drivers here: the core business, and then the cash plus the marketable securities. Do you want to lay that out, and then we’ll go from there?

Sure. Let’s say that we are at a market cap of $650 million. As we start our conversation, everything is moving, so it doesn’t make sense to focus on one specific number. This is a kind of SaaS company, so if Anthropic says they’re coming for legal, it’s $650 million-ish right now. The stock price, as we’re speaking—we’re recording on Friday, February 27—is $500 per share. It could be $300. It could be $900. Who the heck knows in the world of AI? But we’ll start from there and go from there.

Let’s do the math quite quickly. At $650 million, you can subtract the $500 million, but it’s not actually $500 million, because when you liquidate that, you need to pay the taxes, and you have a margin loan of $20 million. That gives you somewhere around $330 million.

Now you have the traditional business. In my perspective, when you do the sum of the parts, you can just put a big, nice X next to it. It is worthy, but it’s not worth your whole time. There is value there. There’s a business and there are buildings. It is interesting, but that’s not why we’re here.

Then you have this sleeve of Journal Technologies. You can look at it as a $150 million-ish enterprise value from the exercise we have done right now. Now you need to ask yourself, how do you value that? I think that the best way to value a software company nowadays is through free cash flow.

In 2025, I think free cash flow was about $13 million. It was a little bit higher than that, but we don’t need to say $13.3 million. If you look at the different comps, you will see that they’re extremely undervalued compared to their growth.

I know that they’re so small that you cannot compare them to Tyler Technologies or Equivant, but let’s put them on the map. You have the TAM—the total addressable market—which is the U.S. court system, including courts, prosecutors, probation, and so on. It’s not only courts. You have the federal system at the top, then the states, then the counties, and what we’ll call the lower ones.

Tyler Technologies, which is not a pure play, sits from the federal level to the state level. That’s what they do. The court case management system that Journal Technologies sells is 15% of its revenue, but it’s not its focus. I would not say that they wake up in the morning saying, “Today we’re going to sell more court-case systems. Let’s focus our team on that. Let’s make the best one and make sure that we’re not losing these deals.”

The way I conducted the research—and I would say that’s the advantage of doing primary research rather than staying behind the Excel spreadsheet or GLG—is that I called systems integrators and third-party vendors that connect to all of that and asked which system was better.

One by one, I kept hearing, “There are several companies, but we really like Journal Technologies.” Let’s go back again to that. You have Tyler Technologies, and you have Equivant, which I would say are almost the same in terms of market share and also, play-wise.

But from my feedback, it was really hard for Equivant to work with something quite patchy. It’s not a unified system. It will be hard for them to grow into different states, because every time you change a state, you change the regulations and the compliance requirements. That requires a lot of work.

For instance, you need to process a ticket right now. Maybe you can create it right now, but you need to go back 3 years, because if this ticket was started in 2022 or 2023, you need to have the same logic from 2022 and 2023. So, it’s also really hard for new entrants to come in. I would say that it does not justify the low multiple, because Journal Technologies is growing about 20%.

I mean, just on the justification, it’s one thing I’ve been thinking about in the SaaS wipeout in general, and I want to talk to you about that later. Local governments are the people who are going to respond to this SaaS and AI wipeout last. You can tell me if I’m wrong, but I believe California’s Daily Journal started by publishing a daily legal journal. One of the reasons it stayed around for so long was that California required certain court announcements to be published in a physical newspaper, until—I think—they got rid of that publication requirement.

You think about things like this. I’m not saying local court cases are the same as nuclear weapons, but you read something like, “Hey, part of our nuclear-weapons program is still run on floppy disks,” or something. Everyone else can go around and fire 98% of their workforce. Everyone else can be running lean with new technology, and local governments are going to come to work and be like, “Hey, guys, is it time to get off Windows 98 right now, or do you think we can let this go for another year?”

I think you're not so remote from the truth, and I was perplexed about that. Yes, they run on really old machines. Let's think about them as 2 places: there are the buyers, and there are the sellers. On the buyer side, these administrative functions—maybe they will do this type of change once in their life. That's what they know, and then they rely on Gartner and external consultants who actually have the knowledge. That's another issue: they are risk-averse.

They're not just risk-averse. No one's holding them to the fire, right? If they go out and make a big systems upgrade, first, they need to get money for it. It's just easier for them to sit on their hands, and then all these lawyers can say, “Hey guys, why are we still using floppy disks?”

They're like, “I don't give a fuck. I don't get paid for this. I don't get any bonuses. If I want to upgrade, it's going to be a headache. What if the system breaks down for a couple of days? Upgrading has no upside and all downside for me. And not upgrading and making your life difficult doesn't matter to me.”

So I just think local governments are like this: at some point, they will upgrade, but they'll upgrade 20 years after everyone else. That's kind of just my opinion. I don't know. Maybe I'm too libertarian here.

So, let's go deep into that. Pause there, because I do want to go deep into that, but I want to come back to the sum of the parts because I think it has floated around some of the questions. Maybe I'm too finance-minded.

What I was hearing from you is that right now the stock price is $400. I'll just give you my numbers: they've got this $480 million portfolio and $20 million of margin debt. Obviously, you need to take that out, and then some taxes. If you do it pre-tax, I have it at $335 per share. If you do it post-tax, I've got it at $275. You can quibble with the numbers. Let's just say that, right?

What value would you put on the core tech, local-government justice business?

I would put it around $250 million.

$250 million. Okay. It's funny you say that, because I actually kind of had it at $215 million, so we're pretty close. I'm going to use your $250 million. If I did that, then I would get to a fair value. The equities are $460 million book value pre-tax, and the tech business is $250 million. I would get to a $700 million market cap, and that would come out to about $516 per share on my numbers.

So that's around today's numbers. I guess my first pushback would be, “Hey, this sounds interesting, but it doesn't seem like there's alpha here,” right? I've got a few further branches I want to dive into, but I just want to pause on that kind of sum of the parts.

I think that's one way, and I agree with you on the sum of the parts. But now let's look at it from a different perspective, a different lens. We've done the sum of the parts, but we also know—and this is the bear case for me—that not all software companies are the same.

We know that there's a change going on right now. There could be a rerating of specialized software as a class. So, these vertical software companies—I will use Veeva as an example. Look at Veeva right now. They did not fundamentally improve themselves, but the way that the market saw them really changed lately.

If you put that lens on, my conservative $250 million is worth a little bit more. If they continue to grow and improve their margin, it's a totally different game.

Well, this actually kind of dives into my second argument, right? You have this company that has this huge equity portfolio that was run by Charlie Munger. I'm not going to argue against a company having a portfolio run by Charlie Munger. That's fine capital allocation to me.

But now you've got this company that is post-Charlie Munger. They have a $700 million market cap, roughly. They've got almost $500 million of pre-tax stock on their balance sheet. And you and I just said the valuation of the core business was $250 million—maybe it's $300 million, maybe it's $350 million, whatever it is. It's less than this equity portfolio.

So I kind of look at this and say, “Hey, this is a stock portfolio with a business attached.” I don't know if I want these guys running the stock portfolio. It feels like there's beta. It feels like there's an extra corporate jet, all this sort of stuff.

I just wonder: is that misallocation, or why should this company have this huge equity balance here? You can tell me it used to be heavily concentrated in a couple of bank stocks and Alibaba. I don't know if they're still disclosing—I didn't see it in the 10-Q, but I could have just missed it.

But if it's super-concentrated, is it still concentrated in what Charlie liked when he died 2 years ago? That's a concern. Are we updating? If it's not what Charlie liked, we're going to see who's making those decisions, who's pulling the trigger.

I worry about that. A lot of times when I've heard people pitch this, including you, I hear that you get the downside protection of the equities with the upside of the business. When I look at it, I say, “Oh, I get the downside of an equity portfolio inside of a corporate wrapper, with no longer perhaps the best stock picker—one of the best stock pickers of all time—running it. Now it's just kind of a group of guys.” I'll pause there and let you respond to that.

I will say that this is a real downside. That's a real debate point. The question is, what is the money for? I don't think that the money is there just to be a nice portfolio. It's not going to be a mini-Berkshire.

The money is there, at least according to Charlie and according to the current CEO, Steven Wells Jones, to help JTI grow. So now you have a platform. They don't need $500 million to grow. I mean, we just said the business as a whole, at $250 million on the conservative mark, may be worth more, but they don't need $500 million in cash—not right now.

But there are so many attractive opportunities to do M&A, buy growth, or bring good people in. And you're right, maybe not all of that, or maybe not right now, but it also gives them protection. Look at it like this: it's really hard to swallow JTI without swallowing this $500 million war chest. You need to bring a lot of guns to the game in order to punch.

Is that good? I'll ask that in another way. This is a very non-Charlie board and company to me. I look at the proxy and I see the CEO doesn't own any stock. I think he owns 600 shares, from memory. The board, now that Charlie's not on it, doesn't really own any stock.

So I guess I'd ask you: you say the big equity balance is good because it lets them do this—and Charlie had argued this before. I remember Marty 10 years ago: “We've got the cash balance and the protection to make that investment. We could push that.”

But now I say, “Hey, nobody around here seems to own any stock in the company.” They're protected by this enormous balance sheet and this enormous equity investment, but I don't see anybody who—I don't know if these guys are all great guys, and Charlie had huge praise for the CEO before he passed—but I look at it and say, “I don't see anybody who's really incentivized.”

If I'm a shareholder, I'm not sure if they're on my side, or if they're on the side of, “Hey, let's just keep running this thing, keep this huge equity balance, and we're completely protected. We can keep cashing those checks until the cows come home.”

I will say that with a little more nuance, let's speak about actions, because they speak a little louder. The debt, or the margin, decreased over time. They used the money to reduce that. According to the last shareholder meeting, they plan to use the money again to improve JTI.

You're right. I will not say that these are not valid points. These are points that I pushed as well. In terms of incentives, I think that's where everything starts—or where everything ends—because when we're both aligned, we both know how the game will end. We both want a bigger pie. We both will push for that.

I'm laughing because I do agree with you. Charlie says, “I've always been a big believer in incentives, and as my life has gone on, I've come to underestimate how important they are.” I completely agree with all that.

Though I am just laughing at how many times I've bought a stock where I'm like, “Dude, the CEO owns 30%. We're aligned. He's here to make money.” And then the business falls apart. I'm like, “Well, we were aligned, but it didn't work out for us.”

And not everything is perfect. I feel that if there's a point that people can literally push against—asking why to hold it—it's definitely that point.

Not all the answers are strong. Sometimes you need to swallow the fish with some skeletons. I agree; that’s not something where I have a different viewpoint. There are tons of companies that highly incentivize in that way, and we also saw that result.

But the way they operate, the way they work, and the way they communicate—that’s something that I find quite interesting. In the shareholder meeting, there was a real Q&A. How many times have you been to one where there were all these sell-side analysts, and then they ask, “Okay, do you have any questions?” The sell-side bankers are asking questions, but none of the actual holders ask anything. They’re all whispering in between, during the coffee breaks or at lunch.

This was a real Q&A, similar to Berkshire, where somebody asks, “Hey, are you planning to sell the building?” and they answer. “What do you plan to do with the cash?” They completely converse with you. It is an odd bird in that way, and clearly there’s a lot to be done to improve that.

But if we go a bit to the big picture, they have a starting point from which they can grow and change, and we’re starting to see the change. It’s not a story of “When will they change?” We’re seeing the margin improving. We’re seeing the free cash flow improving. We’re seeing the way that they interact with their clients improving.

That’s what’s so nice about these niche companies that operate within law enforcement and government. It’s all transparent; you just need to be creative, and you can get it.

I guess, not to belabor the point about the equity, the other thing is this: If we assume the equity portfolio is going to be invested fine—no alpha, it’s just going to be a beta portfolio—that’s fine, and we ignore the drags of holding the equity portfolio in a corporate structure, the other thing that’s tough is that our original numbers were, let’s just round it, $500 million in equity value from the equity portfolio and $250 million from the tech business.

So even if this tech business grows and creates tons of value going forward—if it’s a 3× over the next 5 years or something—the stock as a whole is not even a double at that point, if I’m doing that math in my head correctly, because the equity portfolio so subsumes the tech business. It creates all these weird incentives.

It’s the one thing I think about when I look at it. I’ve had people come and pitch this to me as, “Look at the downside protection.” I’m always just like, “Well, yeah, if Charlie’s going to run this equity portfolio at 25% annualized, that’s awesome. But if it’s just an S&P index fund—or even worse, if it’s a guy who’s not Charlie Munger running the portfolio—you’re making a lot of equity bets. Even if you’re right on the tech, the equity portfolio is what’s ultimately going to matter.”

I’ll pause there because I do want to turn it back to the tech business and talk about some other questions I have, but I’ll pause there if you have any other comments or thoughts on that.

I think that, again, it’s a valid point, and sooner or later they need to use that cash. It will go down to us, the shareholders. It’s either toward the business or through other means. They can do a buyback; it’s legitimate. You can use that, and then you can reduce the risk for us, as you said, of the potential equity downside. It’s all on the table.

It’s funny because one of Buffett’s famous early investments is Sanborn Map, right? Sanborn Map had an investment portfolio greater than the market cap, if I remember correctly. They had maps for fire insurance and everything, and they had a lot of insurance people on their board who owned no stock.

Buffett came in, and I think he basically got them to tender out the investment. The maps business was a nice business, but it had way too much equity. When I think of Sanborn Map, DJCO might be the company that I think is most likely to have a Sanborn Map situation applied to it at some point, right? I could see them coming in and having the company tender shares, even if it’s highly appreciated Bank of America stock, or doing a swap of some form for their own stock, or retiring shares. It’s just funny that I could see that happening at Charlie Munger’s scale.

Let’s go back to the core business. One of the ways you got onto DJCO, when you and I were talking a couple of months ago, was through a lot of primary research. How did you do the primary research? What was your path here? How did you go about sourcing it, and what were you looking to do with it?

When you do primary research, of course you can boil the ocean. The way that I tried to do it was to find the key decision-makers, usually on the client side, and understand how they make the decision, why they say yes, why they say no, and what the process is. I’m trying to understand it as quickly as I can.

For instance, I started to speak with administrators to see how the sales-cycle process goes and what they take into consideration. It’s all public, but why do you put 20% here? Why do you put 10% toward references? The majority of the time, they’ll say, “You know what? It’s the consultant that tells us.”

Then I understood that the consultancies that came in were really important. I would say Gartner. I know people say they’re a thing of the past, but they still have a role. They’re still important.

Can I ask you a question on Gartner real quick? This is obviously in the local-government space for the most part.

You’ve looked at other companies, so if this doesn’t fit your primary research, just tell me. Do you think Gartner is still really strong in sleepier local governments, as we talked about before—maybe a little slower and a little more likely to outsource their thinking—but maybe they’ve really lost their fastball with bigger, faster-moving companies? Would I be wrong to think that? Would I be right? Is that too far afield? You tell me.

It’s not too far afield. I think you’re seeing the same reality that I see. Maybe it’s not a reality; maybe we’re both in the same echo chamber. But clearly, I worry about that all the time, too.

What I was thinking about as well is that when you have deep research right now, you can create all of these things. But there’s a large group of people, and it’s important to point out that we’re so much more advanced. When I say “we,” it’s like we have AlphaSense on our right hand, GLG on our left hand, or Tegus, or whichever it is. We think that the whole world has the same access to this information.

But maybe we’re this 3% to 4%, maybe 1%. The majority of the world—or, I would say, corporations—need somebody to hold their hand and help them make an informed decision, because this is a one-time decision. It’s not a repetitive decision that they make. That opened my eyes to why they still exist and why you need Gartner. Maybe not when you buy your CRM, but there are scenarios where they’re still relevant for these places.

I think a lot of the primary research you did here—and you can correct me if I’m wrong—you did it by calling people directly rather than going through expert networks. Am I thinking about that correctly?

Yes. I think the expert networks are amazing. Sometimes I sit on these expert networks on the other side, and I think it’s something that’s truly important for us as analysts to remember: The other side is highly incentivized to give you this 15-minute block, make sure that you’re there, and feed you with information that they’ll be happy to have cycled so they can reuse the same information over and over.

There’s alpha there, and there’s information there, but in these niche spaces, sometimes the real people are not there. For instance, I’ll give you an example with the Cellebrite research. You cannot source a CIA agent. You cannot ask GLG, “Find someone for me to speak with.” They will not be there. Maybe now it’s changed. When we last checked, that could have changed, but you need to go and earn trust. You need to learn how to have an open conversation, and of course having a compliance mindset is really critical.

That’s maybe the biggest lesson that I learned at Columbia Business School when I was part of the Value Investing Program.

Knowing how to tap into people, speaking with them, and making sure that they understand what you ask them so they can open up and build a relationship—there is, I would say, no replacement for that. That's an art. That's, I think, a main skill that maybe is disappearing, and that's an edge.

No. Look, some of your fellow Columbia Business School students I had on the podcast won the Pershing Square Challenge. I got so many emails after they came on from people who were like, “These guys were amazing. I would offer them a job on the spot just based on this.” One of the things they did was go to a lot of conferences.

One of the things I've talked about is that I think, in the future, alpha is increasingly going to be outside the filings. I think it's already a lot outside the filings. You go to a conference and see the CEO sweating—he's in the corner talking frantically on phone calls the whole time and sweating. That's something AI is not going to have—the thing that you've seen.

The reason I go on these long, rambling stories is that it's one of the things I've been thinking about: the trade-off. There is time, right? You go to a conference, and there's a cost. The dollar costs, when you're doing investments because it scales so much, are not meaningless, but they're low. There is a cost there, but it's really the time, right?

If I go to a conference, there's the flight there, the flight back, staying overnight, and I'm at the conference all day. It's a big investment of time. I've just been weighing the two.

The other reason I ask—I mean, conferences are different from expert calls. I do quite a few expert calls. A friend had me listen with him on one of his expert calls that was kind of off-network, and the person he was talking to blasted the company's CEO in a way that, quite frankly, I've never had anyone blast the CEO in any of my expert calls. It was some language that would not be fit for this podcast.

I was kind of like, “Hey, did he get that because this was off the expert network? Or was this just a really one-time, unique employee?” I'd never had anyone come close to blasting them. I was thinking, “Do these guys dial back when they're on the expert networks just a little bit because they know?” It's the same way that when you're on network TV, if you're a comedian, you don't drop any of the F-bombs or anything because you're on network TV. But if you go see someone in person, they may speak more freely.

So, anyway, if you have any thoughts there, I've been thinking a lot about it, and you struck a nerve. I wanted to think about that.

I agree with you. That's a big thing right now: how you source and how you find these opportunities, because it's like standing on the tip of the toe. You probably know that reference. Everybody has that. You need to find other ways to improve your edge.

I'm not saying somebody sweating says something excellent. It's just sweating. I hope not, because I'm a really sweaty guy a lot of the time. But, from my experience—and I will say I was in the Navy as well—the thing is, in the military, it's not like what you do. It's sometimes what you don't do. I'll give you a real example.

I met with a different company, not related to the Daily Journal at all. I was speaking with the CEO, and the CFO was there. I asked him questions that related directly to the CFO. I knew the CFO had just come to the company. He'd already been there for about 6 months, and it's kind of like after the lovey-dovey stage, when you bring somebody in. He's amazing, you love each other, but there's this little period when you remove the mask and then you can see the real relationship there.

I'm asking the CFO questions. The only thing I wanted to see was whether the CEO would let him finish a sentence, let him answer, or interrupt. I'm actually asking, “Do you trust the CFO?” Can I ask that? “Do you trust the CFO?” Of course I can, but that's a stupid question. By doing that, I see whether he trusts him.

Then I can see, “Oh, you know what? I'm wasting my time here. There's zero trust in the management team.” Hence, it's good. I can conclude it early and communicate it.

I'm laughing so hard because one of the most frequent criticisms I get as a host is that I interrupt my guests a lot and talk a lot. As you were speaking, I was thinking, “Do not interrupt Roy. Do not interrupt Roy. Let him finish this sentence.”

I don't know if I was the CEO and you were my CFO, there might be a lot of trust, but I'm just so eager to talk sometimes.

Let me ask: you mentioned Cellebrite, which is another name you and I have talked about. I've done a great podcast on Cellebrite back in October. You've done Cellebrite. For those who don't know, it's an Israeli company that sells things that basically break open your iPhone—a big seller to the FBI, law enforcement, and all that type of stuff.

But that's another SaaS-ish company. The Daily Journal and these are SaaS companies. They are in the target of AI. I think both of them are unique in SaaS for some of the local-government reasons and other things.

You've done a lot of expert calls. I'd love to ask: when you're talking to people on the ground, whether it's about Cellebrite and the Daily Journal or just other software in general, what are you hearing from people on the ground about SaaS and how they're thinking about this and the AI risk?

I do some, and the views are evolving really quickly in some areas, while the views are slower in others. I'd just love to hear what you're thinking—broad strokes, company-specific, wherever you want to go with it. So, let's start with really broad strokes.

I think we are right now a little bit in an echo chamber. We killed so many companies so quickly. Kind of like this whole conversation, the terminal value right now is dead. It takes time for decision-makers to make a change—the way that they buy and the way that they make their decisions. We're sometimes forgetting that.

Go to the basics and see that the process changes in terms of procurement. I know that there are companies where it may change, and these are, I would say, the ones that are more AI-oriented. I don't know if I should put a name to it, but let's do that. I believe that not everybody understands the hints that I'm giving right now, so I'll be more specific.

Take companies that are mainly UI. They're mainly for you and me. Let's take Monday.com, for instance. This is quite an issue, because maybe you'll have your agent that will do this job. Maybe it will disappear; less of you will do that.

But on the other hand, the question of whether you would build versus buy is legitimate. I think the majority will decide to probably buy, because it's not what makes their business better. But that's my opinion. Maybe we can do—

Yes. I think—I'm not as familiar with Monday.com, but you can tell me if I'm wrong. Wix.com, GoDaddy, and a lot of these things, I think, would fall into similar buckets to what you're saying.

I think you're right that most people will choose to buy versus build, but I think there are 2 issues with it. Number 1, especially for UI and simpler software, you and I could not say to Wix, “I will build this website on my own.” With Monday.com, I'm not as familiar with them, but we could not say, “I will build this on my own.”

Now, even enterprise-level people can increasingly go to Monday.com and say, “Hey, we don't like your pricing. Bring it down, or we're going to hire our 2 software engineers, vibe-code our Monday.com, and they'll maintain it easily.” Now you've got that internal pressure where people can just lean on the buy-versus-build decision to bring their price down.

The other thing, with a Wix or a Base44, is that, yes, maybe they're nice products, but to me, they're very easy to replicate and build. You're just going to have a commodity war, in the same way that all these Instagram ads work. The early returns were great for the people who realized, “Hey, go to Instagram ads.” But then the ad rates get jacked up because everybody sees that, and there's just no barrier.

I'm worried there are going to be 5,000 Wix.coms saying, “Make your website here,” because anyone can vibe-code it with any skills. You're kind of just in a huge price war, whether that's on the actual price side or the customer-acquisition side. I'll pause there. If you agree, disagree, or want to go wherever you want, go ahead.

I'm going back again, because I was trying to describe the ones that are going to be disrupted. I will not use the word “loser pool,” but that's the pool. They have a new one there where you may decide to buy versus build, but that really depends on the person. That's a real threat. These ones are having an issue right now.

On the other hand, you have companies that, I would say, sit on proprietary data that they create themselves. For instance, the transaction data that's being created within the product. Let's take a court-case management system. In order to tap into that data, you need to tap into their API.

You create a new court case; you create it within that. So, there's proprietary data, there's transactional data, and there's a compliance layer. You cannot just come—let's look at it from the outside attacker’s perspective. Somebody will come.

Let’s say that he buys code and gives it to his cousin. His cousin is a super-duper, really smart guy who, in 72 hours, creates this court case management system. It’s good for today, but it’s not backward-compatible. You need to have that backward compatibility. These systems are so protected, compliance-wise—not even regulatory.

Now let’s add the regulatory landscape. In order to compete in these RFPs—and that’s true for Cellebrite, it’s true for Daily Journal, and it’s true for Tyler—if there’s enough money on your balance sheet, is it related to how good your software is? No, it’s not related. But you need to have certain certifications, CJIS, et cetera. If you cater to the federal government, you need to have a reference from a previous product.

I would say not all software companies are the same. These ones that I will repeat again have proprietary data, and in order to access the data, you need to tap into their databases. The data is being created as part of transactions—important transactions within your company. They have this compliance layer plus other layers. They’re worth more, in my opinion.

Can I interrupt you for a second? This doesn’t quite fit for Cellebrite because the FBI budget—whatever; nobody knows. But for Journal Technologies, I would imagine—you can correct me if I’m wrong; you know it better than me—it’s also a very small percentage, a very, very small piece of billable hours, legal—all this pain for the software and everything.

I hate when people say, “Oh, people spend 10% of their revenue on software and 50% on employees, so employees are the biggest.” Well, yeah, but if you can cut that 10% out, they care. But if what you just described is something that is mission-critical and a regulatory nightmare, and then you say, “Hey, this mission-critical regulatory thing costs us, I don’t know, $50,000 a year in the state, and we’re billing $50 million per year,” well, yeah, I’m probably not going to vibe-code that.

You can correct me on anything I just said, whether it’s the numbers, the overall—anything I just said—but that’s kind of how I came to look at it. You tell me where I’m wrong and where I’m right.

To be a bit more specific, in broad strokes, it really depends on the county; it really depends on the size. I would say to you, you know what? It’s also the same for Cellebrite, because not all federal budgets are the same—not all these federal agencies, and not all the counties. There’s something that you can tap into, like special awards or grants, et cetera, and that’s why it’s so interesting.

That’s why you do the primary research. You see, we’re connecting dots from the past. Sitting behind the Excel and all of that, you don’t understand the complexity sometimes. Like, wait a second—actually, now, listeners, this is about Cellebrite right now. The budget is actually coming from a very specific grant, and they secured this grant for 5 years. This grant allows this county to tap into that.

Can I ask you a question on the grant real quick? Tell me if I’m wrong here, but let’s just imagine the Cellebrite budget for the local New Orleans Police Department. They get a grant, and it’s $20,000 per year for the next 5 years. I think those numbers are probably roughly right.

I would imagine if you came with a vibe-code thing that said, “Hey, we’ll sell you this for $500,” they’d be like, “Get the fudge out of here. You’re going to cut our budget by 95%? We’ve got this. We don’t care. We’ve got $20,000. We have to spend it. If we spend $500, we’re just giving $19,500 back. What are we going to do there?”

Tell me if I’m wrong in that, but I think that’s probably right on the grant side.

I don’t know if it’s only on the grant side or not, but they can do that. I think the pushback will be, if I’m hearing you correctly, you’re like, “Wait, they don’t care.” They don’t care.

Wait—that’s it. Say it out loud. And that’s what’s happening in Daily Journal, too, right? You have somebody who—it’s an accountability sinkhole. It’s a government, it’s a nonprofit. They don’t care. The money’s not there. They don’t care about the spend.

I’m not fully in agreement. I wish I could say, “You know what? You’re so right.” They care, but they don’t care as much. That’s not the majority. That’s not where the decision is coming from.

Telling them that this software is reliable—the word “reliable,” and it’s so true for so many things—and then the cost issue comes second or third. You can even see that in the RFP. Look at the data: cost is 20% to 30%. Hence, it’s not as important as reliability, better integration, and teaching and guiding the workers and employees, whichever it is. That’s a data point. It’s not an opinion. Hence, it’s more complicated and more complex. That’s reality.

We’re running up toward the end of our time. I’ve had a lot of fun. I want to ask—we’ve covered a lot. We covered Daily Journal. We covered a little bit of SaaS. Is there anything just top of mind that we should have hit that we didn’t hit, that you want to get off in the last couple of minutes?

The answer can be no, because I always ask this. Sometimes I think people think I mean, if the answer is, “Andrew, you did a great job as a host,” you can just say, “Andrew, you did a great job as a host, and we can wrap it up.”

Andrew, you finally did such an amazing job as a host. You made me feel so welcome here. This has been great.

Roy, where can people reach out to you or find you if they want to follow up, whether it’s on Daily Journal, CEO expert interviews, Cellebrite, or just anything else?

First, my LinkedIn is the way that you hear my name: R-O-Y S-W-I-S-A. Feel free to find me there. I have a Substack. I know it does not carry my name, but it’s kind of an experiment. It’s actually an agent I created to generate these articles. You can find Value the Elephant there.

I should mention—I believe, and you can correct me if I’m wrong, that a couple of funds have even had you on the consulting side. You mentioned your software background and implementing AI and stuff.

Yes. Unfortunately, I cannot say them out loud.

You can just say it. You can say, “Yes, I’ve done consulting for firms.”

Consulting for different firms. Some of them I mentioned, and some of them I have not. I’m here based in New York. Reach out.

Maybe next time we have you on, in a couple of months, we’re going to have to do just an AI overview. It’s one thing I’ve been using, and I know I’m not the best at it. I can also guarantee I’m not the worst at it, but I know I’m not the best at it.

I still hear from investors who are not using it, and I’m like, “Dude, you can be skeptical, but if you’re not using it, you’re just so far behind.” Maybe next time we’ll do “AI for Beginning Value Investors,” or something like that.

Roy, this has been great. I’m going to include a link—make sure you shoot it to me—to your LinkedIn and the Substack in the show notes, so people can find you without me. This has been awesome, and we’ll have to have you back on for the AI chat.

Thank you. Okay, looking forward to it.

A quick disclaimer: Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.