San Jose Water Company Annual Meeting (2009)

SJW Corp (SJW), otherwise known as San Jose Water Company, held its annual shareholder meeting on May 6, 2009 at its local headquarters. A plate of cookies, coffee, water, and a selection of moist cake slices were offered. About ten shareholders attended, but most of the room was filled with company employees. Most of the shareholders were senior citizens who had probably bought SJW for its consistent dividend. (SJW currently yields 2.8%.)

Norm Mineta, San Jose's former mayor, is on SJW's Board of Directors. It was a pleasure meeting him. If you're ever in downtown San Jose, go to City Hall and go to the second floor (same floor as the Council Chambers). Right outside the elevator is a wall with pictures of San Jose mayors. Mr. Mineta's picture is on the wall of mayors, and it's a fantastic picture, because he looks so young. Mr. Mineta was one of the few government officials who spoke out against racial profiling post-9-11. As a result, many San Joseans--a very diverse lot--are forever grateful to him.

SJW has an enviable business model: one, a captive customer base; two, a product everyone needs, no matter what the business climate; and reasonable government cooperation. With banks and car companies failing left and right, many investors are looking for a stable business. It's worth noting that San Jose Water Company has been around since 1866.

There are some problems, however. The pension is underfunded by around $38 million (See 10K: page 56). With only 324 employees (10K: page 52), that means the pension has a gap of $111,111 per employee. The CFO indicated the pension is less than 80% funded, triggering various IRS rules which activate after various thresholds have been breached. Also, the company is top-heavy--with only 324 employees, it has 101 "executive, administrative or supervisory personnel" (10K: page 53).

The company's CFO addressed some of these issues: first, the $38 million number does not include recent stock market gains; and second, the company recently modified its pension plan, "replacing a defined benefit pension formula with a more portable cash balance formula" (See attachments to letter to shareholders).

I asked whether the company had insurance in case a natural disaster affected operations. The company does not buy insurance--it's too expensive--but has been given permission to set up a fund into which customers will pay for disaster damage through rate increases. SJW's "insurance" is basically its customer base.

I asked whether the company has preferred shares. It does not.

Another shareholder asked why the company was expanding in Texas. (A Board member, Kathleen Armstrong, has been added to assist the company with Texas operations.) The company indicated that Texas was a growing state with a better political climate.

Another shareholder asked whether SJW employees get free water. The company responded that employees within the service district receive discounted--not free--water, and the company only had 324 employees.

Another shareholder talked about accounting problems at a southern California water company. SJW did not want to comment on another company's issues.

It was a short, amiable meeting. I will attend next year to see if I can take a picture with Norman Mineta. I will ask him if the fabled "baseball bat" stories are true. ("Damn government took my bat again" has got to be one of the best quotes ever by a public official.) If SJW has some initiative, it may want to buy a Louisville Slugger and have Mr. Mineta sign it every year at the shareholder meeting. Most companies should be creative when it comes to their shareholder meetings. With a distinguished citizen like Mr. Mineta on its Board, why waste an opportunity to boost company morale?

For more SJW's Q1 2009 earnings call transcript, click here.

Disclosure: I own fewer than 10 SJW shares.

S&P Hits Target

On April 1, 2009, I predicted the S&P would hit 950:

http://willworkforjustice.blogspot.com/2009/04/personal-s-target.html

I later clarified that my prediction was a range between 920 and 950. The S&P hit my range on May 6, 2009. My prediction was correct. From April 1, 2009 to May 6, 2009, the S&P rose 13.3%.

I want to emphasize something. As of May 7, 2009, I am not making any prediction about the future direction of the market. I have no idea what's going to happen. As a result, I am mostly in cash and money market funds, along with some TIPs. I've also opened up two credit union accounts. I'm only earning 1.5% interest there, but it's better than my brokerage's 0.5% rate.

Kudos to the SJ Mercury News

The SJ Mercury News has done a great job exposing excessive government spending--see links below:

http://www.mercurynews.com/news/ci_12116499

http://www.mercurynews.com/business/ci_12119850

Old news, but still worth sharing. I just attended a City Hall event where a Councilmember said that average employee salaries have increased from $78,000 to $117,000.

Charlie Munger on NBR

Here's a recent NBR interview with Charlie Munger (Susie Gharib, May 1, 2009):

http://everythingwarrenbuffett.blogspot.com/2009/05/nightly-business-review-susie-gharib.html

We can't have a modern civilization without strong financial companies. But we don't need them as swashbuckling and as crazy and as venal as they've been.

More here from Munger:  http://willworkforjustice.blogspot.com/2010/05/wisdom-from-charlie-munger.html

Update: I replaced the link below, because it no longer worked: http://www.pbs.org/nbr/site/onair/gharib/charlie_munger_of_berkshire_hathaway_090501/

Resources Lifespan

The New Scientist has a great chart showing the finite span of certain resources. See full chart here.

Environmental implications aside, I'm going to check what SLV is selling for these days.

Munger on Economics

In honor of Berkshire Hathaway's recent meeting, here is a 2003 speech Charlie Munger gave in California: [warning: PDF file]

http://www.tilsonfunds.com/MungerUCSBspeech.pdf

Here's a fun snippet:

I think that economists would be way better off if they paid more attention to Einstein and Sharon Stone. Well, Einstein is easy because Einstein is famous for saying, “Everything should be made as simple as possible, but no more simple.” Now, the saying is a tautology, but it’s very useful, and some economist – it may have been Herb Stein – had a similar tautological saying that I dearly love: “If a thing can’t go on forever, it will eventually stop.”

Sharon Stone contributed to the subject because someone once asked her if she was bothered by penis envy. And she said, “absolutely not, I have more trouble than I can handle with what I’ve got.”

Also, Munger saw our financial problems well in advance:

[Question]: …financial destruction from trading of derivative contracts. Buffett said that the genie’s out of the bottle and the hangover may be proportionate to the binge. Would you speculate for us how that scenario can play out? [The question was garbled, but the person asked about derivatives, which Buffett has called “financial weapons of mass destruction.”]

Munger: Well, of course, catastrophe predictions have always been quite difficult to make with success. But I confidently predict that there are big troubles to come. The system is almost insanely irresponsible. And what people think are fixes aren’t really fixes. It’s so complicated I can’t do it justice here – but you can’t believe the trillions of dollars involved. You can’t believe the complexity. You can’t believe how difficult it is to do the accounting. You can’t believe how big the incentives are to have wishful thinking about values, and wishful thinking about ability to clear.

Running off derivative book is agony and takes time. And you saw what happened when they tried to run off the derivative books at Enron. Its certified net worth vanished. In the derivative books of America there are a lot of reported profits that were never earned and assets that never existed.

If you're interested, my review of Munger's 2008 shareholder meeting is here.

Random Thoughts of the Day: Widows and Signs of the Apocalypse

First, a big thank you to federal Judge Christina A. Snyder. The United States government was attempting to deport foreign-born women who married American men and moved to America. In some cases, these widows had U.S.-born children with their husbands. "60 Minutes" did a story on this potential tragedy several months ago. I wrote a letter to Senator Diane Feinstein's office about this issue. Her office sent me an email a few weeks ago. Senator Feinstein supported the widows. Here is her email:

I want to thank you for writing to share your concerns regarding the so-called "widow penalty," which affects the immigration status of legal permanent resident spouses when the sponsoring U.S. citizen spouse dies.

I have great compassion for foreign nationals whose applications for legal permanent status are put into question when the sponsoring American spouse passes away. Under current immigration laws, an individual may only continue to seek adjustment of legal status if he or she was married for at least two years prior to the U.S. sponsor's death. If a couple is married for less than two years prior to the U.S. citizen sponsor's death, a foreign national cannot continue the adjustment of status process and faces the possibility of deportation.

I am an original co-sponsor of S. 815, which Senator Bill Nelson (D-FL) introduced on April 2, 2009 to ensure that surviving spouses of deceased U.S. citizens are not unfairly penalized. This bill would allow spouses who have been married for less than two years at the time of the U.S. citizen's death to continue to petition for status adjustment as an immediate relative, as long as they can prove that they entered into their marriage in good faith and not for the purpose of obtaining immigration benefits. This legislation has been referred to the Senate Judiciary Committee, on which I serve. It is my hope that this legislation will move forward in this Congress.

Judge Snyder ruled that the Dept of Homeland Security could not reject the foreign-born widows' residency applications merely because the Department failed to process the residency paperwork before the American spouses died. In case America needed more evidence that the Dept of Homeland Security is, in fact, the Dept of Douchebaggery, this story ought to be the nail in the coffin.

I hope Congress passes Senator Nelson's proposed legislation.

Second, did anyone want to slap the homeowners mentioned in this SJ Merc story? ("Sellers of high-end Silicon Valley homes put dreams on hold," 5/2/09)

Basically, a local homeowner is upset that the house she bought decades ago isn't selling for the millions she thinks it's worth. She's lowered the price from $2 million to around $1 million. She wants to move to Puget Sound, and gosh darn it if local homebuyers aren't cooperating with her well-laid plans. So what does she do? She compares her situation with the Great Depression:

"I called my mom and asked her what it was like in the Depression," said Negler, who owns the Victorian. She realized, though, that she "sounded pretty selfish. We stopped looking at ourselves as the center of the universe."

I guess she should get some credit for calling herself "selfish"--it shows she has some self-awareness that her comparison to the Great Depression is off-kilter.