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Graham & Doddsville An investment newsletter from the students of Columbia Business School Inside this issue: Issue XVIII Spring 2013 CSIMA Conference P. 3 Preston Athey Li Lu — Omaha Trek P. 4 — Holding Know What You Winners Longer Don’t Know Moon Lee Prize P. 5 Preston Athey P. 10 Li Lu ’96 is the founder of Himalaya Capital, an invest- Li Lu P. 24 ment partnership focused on both public and private op- Pershing Square portunities in Asia and North Finalist Pitches P. 36 America. Mr. Li grew up in China and was a student Li Lu Paul Isaac P. 46 leader in the 1989 Tianan- men Square protests. Prior to founding Himalaya Capital in 1997, Mr. Li worked in investment bank- ing. He earned his B.A. in economics from Colum- bia College, a J.D. from Columbia Law School, and an M.B.A. from Columbia Business School. Editors Preston Athey Jay Hedstrom, CFA MBA 2013 Preston Athey is a vice (Continued on page 24) president of T. Rowe Jake Lubel Price Group and has led MBA 2013 the $8 billion T. Rowe Paul Isaac — Know Your Style and Price Small-Cap Value Sachee Trivedi Fund since 1991. During Enjoy the Ride MBA 2013 that time, the fund has returned nearly 11.9% per Paul Isaac is the founder Richard Hunt year after fees, making it of Arbiter Partners, a MBA 2014 a superior performer New-York based hedge among its peers. Prior to fund and nephew of Stephen Lieu joining the firm in 1978, noted value investor MBA 2014 he was a contract Walter Schloss. Prior to administrator on Admiral Arbiter, he was the Chief H. G. Rickover’s staff at Investment Officer at the U.S. Atomic Energy Cadogan Management, a Visit us at: Commission. Preston fund of funds. Mr. Isaac www.grahamanddodd.com www.csima.org earned a B.A. in began his career at the economics from Yale Allied International- University and an M.B.A. American Eagle Trading from Stanford University. Corporation. He He has also earned the graduated from Williams Chartered Financial College with Highest Analyst designation and is Paul Isaac Honors in Political a Chartered Investment Economy and was a Counselor. Thomas J. Watson Foundation Fellow. (Continued on page 10) (Continued on page 46) Page 2 Welcome to Graham & Doddsville It is our pleasure to bring you Chinese car manufacturer Doddsville, we want to spend a the 18th edition of Graham & BYD. In reading this interview, brief moment looking back at Doddsville. This student-led we expect you will also have a our time leading this publica- investment publication of Co- sense of Mr. Li’s commitment tion. The many interviews we lumbia Business School is co- to intellectual honesty, some- conducted with successful, sponsored by the Heilbrunn thing he believes is critical to respected and contemplative Center for Graham & Dodd being a successful investor. value investors are some of our Investing and the Columbia Stu- fondest memories of our time Pictured: Professor Bruce dent Investment Management We also had the opportunity at Columbia Business School. Greenwald. The Heilbrunn Association (CSIMA). to sit down with Paul Isaac of It has been an experience we Center sponsors the Ap- Arbiter Partners, who de- have truly appreciated from plied Value Investing pro- Our first interview is with Pres- scribed the experiences and our first day on the “job”. We gram, a rigorous academic ton Athey, the long-tenured influences of growing up in a leave Graham & Doddsville in curriculum for particularly portfolio manager of the T. family closely tied to the value the eminently capable hands of committed students that is Rowe Price Small Cap Value investing community. He also Chris Brigham, Jackson Thies taught by some of the in- fund. Mr. Athey discussed how fielded questions regarding and Jason Yang, and we look dustry’s best practitioners. he thinks about selling stocks, investing internationally - which forward to reading the thought something which so many value included the discussion of a provoking interviews they will investors find to be one of the promising (if illiquid) invest- assemble in next year’s three toughest parts of the profes- ment opportunity among re- editions. We also want to sion. He also walked through gional banks affiliated with share our great appreciation the theses on a couple of stocks Crédit Agricole - and the risks for the diligent efforts of Rich- he currently likes and imparted that potentially face markets ard Hunt and Stephen Lieu. other bits of wisdom gained when the Fed eventually ceases They did an excellent job this from more than 20 successful its extraordinary monetary year and we were lucky to have years as a money manager. operations. them as part of the team. CSIMA will be in good hands Li Lu, founder of Himalaya Cap- Due to popular demand, after a next year with those two at the ital and annual guest lecturer in two issue hiatus, student pitch- helm as co-presidents. Lastly, Professor Greenwald’s value es are back! We are glad to be as always, we thank our great investing course, was gracious able to share with you seven lineup of investor interviewees Pictured: Heilbrunn Center enough to spend time with us great ideas from the 2013 for sharing their time and in- Director Louisa Serene and detail his thoughts on in- Moon Lee Prize Competition sights and we thank you for Schneider. Louisa skillfully vesting. Mr. Li highlighted how and the 2013 Pershing Square reading. leads the Heilbrunn Center, he initially received the value Challenge. cultivating strong relation- investing “inoculation” from G&Dsville Editors ships with some of the Warren Buffett himself as well With this being our last issue as world’s most experienced as his thesis for an investment in editors of Graham & value investors and creating numerous learning oppor- tunities for students inter- ested in value investing. The classes sponsored by the Heilbrunn Center are among the most heavily demanded and highly rated classes at Columbia Busi- ness School. Bill Miller of Legg Mason chats with a Jane Siebels of Green Cay Asset guest at the 2013 CSIMA Conference Management answers questions at the 2013 CSIMA Conference IssueVolume XVIII I, Issue 2 Page 3 2013 CSIMA Conference—February 1, 2013 at Columbia Business School Bruce Greenwald and Seth Klarman Jeremy Grantham speaking with Tom Russo Louisa Schneider presents a tribute to Ben Graham Bruce Berkowitz during Q&A Student conference coordinators Matt Christ, Geoff Jean-Marie Eveillard talks with audience members in Abbott, and Ashley Miller deliver opening remarks between panels Page 4 Columbia Business School Trek to Omaha — Fall 2012 An annual tradition at Columbia Business School, a group of 19 students traveled to Omaha in November 2012. The first event on the agenda was a dinner with Todd Combs ’02, an investment manager at Berkshire Hatha- way. Combs spent time discussing his invest- ment approach and his in-depth research pro- cess, and took questions from students. The following day, along with other schools, CBS students enjoyed an hour-long Q&A session with Warren Buffett ’51, followed by a custom- ary lunch at Piccolo’s. The trip also included a tour of local Berkshire retailers Borsheims and Nebraska Furniture Mart. Warren Buffett speaks to students visiting Omaha Meeting the Oracle of Omaha Shopping at Berkshire-owned Borsheims Dining at Piccolo’s, Warren Buffett’s favorite restaurant Participants pose with “Lulu,” their trusty Omaha bus IssueVolume XVIII I, Issue 2 Page 5 2013 Moon Lee Prize Competition On March 1, 2013, Amici Capital hosted the 4th annual Moon Lee Prize Competition. The prize is given in memoriam of Moon Lee, a dedicated value investor with Amici Capital from 2003 to 2008, who demonstrated a tireless ability to identify and analyze deep-value opportunities that few could see. In his honor, his friends at Amici Capital initiated this competition. Finalists (selected based on pitches submitted by students taking a course in Applied Value Investing) included Andrew Gordon (Crocs), Arjun Bhattacherjee (Precision Castparts), David Magid (Motors Liquidation Company GUC Trust), and Patrick Staub (Groupon). Magid walked away with the $15,000 first-place prize while Bhattacherjee was awarded $5,000 for his second- place finish. Alexander Porter The four finalists Professor Tano Santos The judges listen intently Paul Orlin Page 6 Motors Liquidation Company GUC Trust Units (MTLQU) - Long David Magid [email protected] Investment Thesis: Motors Liquidation Company General Unsecured Creditors (GUC) Trust Units (MTLQU or Trust Units), publicly traded units of the liquidating trust set up to resolve remaining disputed general unsecured claims of the General Motors bankruptcy, currently provide a compelling risk-reward opportunity. The Trust Units, which receive a higher pay-off the more disputed claims are disallowed, are currently pricing in an unrealistically high level of allowed claims. Further, the Trust Units pay out in New GM Securities, which themselves are trading at a compelling valuation. At $22.90/unit, the Units provide 15% - 85% upside, plus a free option on the underlying GM stock price. David Magid David is a second-year MBA student, participant in Columbia’s Applied Value Investing Program and the co-president of CSIMA. All the Pieces in Place for a Mispricing (1) Complex structure and underlying assets: The mechanics Prior to school, he was an of the Trust Units payout is complicated and does not easily lend itself to traditional equity or credit investment banker at Credit analysis. (II) Forced selling: All initial holders of Trust Units receive their stake as a result of the resolu- Suisse and next year will be tion of their previously disputed claims, and the vast majority of these holders are natural sellers.
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