DAILY JOURNAL CORP Fair Value Disclosure
Note 4. Fair value of Financial Instruments
The Company’s financial instruments include marketable securities, cash equivalents are measured at fair value on a recurring basis.
As of September 30, 2025, the Company’s holdings of marketable securities were concentrated in just six companies. These marketable securities consist solely of investments in publicly traded equity securities and do not include any debt securities.
Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
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Level 1 — defined as observable inputs based on unadjusted quoted prices for identical instruments in active markets; |
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Level 2 — defined as inputs other than Level 1 that are either directly or indirectly observable in the marketplace for identical or similar instruments in markets that are not active; and |
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Level 3 — defined as unobservable inputs in which little or no market data exists where valuations are derived from techniques in which one or more significant inputs are unobservable. |
The Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.
The carrying amounts of cash, restricted cash, accounts receivable, accrued liabilities and accounts payable approximate fair value because of the short maturity and high liquidity of these instruments. Marketable securities and cash equivalents, which consist of money market funds, are measured and recorded at fair value on the Company’s consolidated balance sheet using Level 1 inputs. The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments. There were no transfers between Level 1 and Level 2 or transfers in or out of Level 3 during fiscal years 2025 and 2024.
The following table summarizes the fair value hierarchy of the Company’s financial assets measured at fair value as of September 30, 2025 (in thousands):
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Level 1 |
Level 2 |
Level 3 |
Total |
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Assets: |
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Money market funds (cash equivalent) |
$ | 3,335 | $ | — | $ | — | $ | 3,335 | ||||||||
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Marketable securities |
492,995 | — | — | 492,995 | ||||||||||||
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Total Assets at fair value |
$ | 496,330 | $ | — | $ | — | $ | 496,330 | ||||||||
The following table summarizes the fair value hierarchy of financial assets measured at fair value as of September 30, 2024 (in thousands):
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Level 1 |
Level 2 |
Level 3 |
Total |
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Money market funds (cash equivalent) |
$ | 3,945 | $ | — | $ | — | $ | 3,945 | ||||||||
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Marketable securities |
358,691 | — | — | 358,691 | ||||||||||||
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Total Assets at fair value |
$ | 362,636 | $ | — | $ | — | $ | 362,636 | ||||||||
Marketable securities
As of September 30, 2025 and 2024, there were accumulated pretax unrealized gains of marketable securities of $353.9 million and $219.6 million, respectively, recorded in the accompanying consolidated balance sheets.
During the years ended September 30, 2025 and 2024 the Company recorded and included in its net income the net unrealized and realized gains on marketable securities of $134.3 million and $96.1 million, respectively. There were purchases or sales of marketable securities during the fiscal year ending September 30, 2025. In fiscal year 2024, the Company sold part of its marketable securities for approximately $40.6 million, realizing net gains of $14.3 million.
Investments in marketable securities as of September 30, 2025 and September 30, 2024 are summarized below (in thousands).
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September 30, 2025 |
September 30, 2024 |
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Aggregate |
Amortized/ |
Pretax |
Aggregate |
Amortized/ |
Pretax |
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Marketable securities: |
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Common stocks |
$ | 492,995 | $ | 139,094 | $ | 353,901 | $ | 358,691 | $ | 139,094 | $ | 219,597 | ||||||||||||
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.