Graham & Doddsville An investment newsletter from the students of Columbia Business School

Inside this issue: Issue XIII Fall 2011 Interview: p1 Lee Cooperman Mario Gabelli — “Think Like an Leon Cooperman — “Buying Owner” Interview: p1 Straw Hats in Mario Gabelli Mario Gabelli ’67, CFA, the Winter” started his career as an Interview: p1 automotive and farm Marty Whitman equipment analyst at Loeb Rhodes & Co. In Alumni Profile p25 1977 he founded GAMCO Investors Student Write- p29 (NYSE: GBL), where he is currently Chairman up: GLDD and CEO, as well as a portfolio manager and Student Write- p31 the company’s largest up: MSG shareholder. GAMCO now manages roughly Editors $36 billion dollars across open and closed-end mu- Anna Baghdasaryan tual funds, institutional Mario Gabelli MBA 2012 and private wealth man- sity and his M.B.A. from Joseph Jaspan Leon Cooperman agement, and invest- ment partnerships. Mr. Columbia Business School. MBA 2012 Leon “Lee” Cooperman ’67, Gabelli earned his B.S. (Continued on page 12)

CFA, began his post- from Fordham Univer- Mike DeBartolo, CFA business school career in MBA 2013 1967 with Goldman Sachs. In addition to holding a Marty Whitman — “Business Skill Jay Hedstrom, CFA number of key positions MBA 2013 within the firm, Mr. Cooper- Critical to Investment Success”

Jake Lubel man was founder, Chairman and Chief Executive Officer Mr. Whitman founded MBA 2013 of Goldman’s Asset Manage- the predecessor to the ment division. In 1991, he Third Avenue Funds in Visit us at: left the firm to launch 1986 and M.J. Whitman, a www.grahamanddodd.com Omega Advisors, Inc., a full service broker-dealer www0.gsb.columbia.edu/students/ value-oriented hedge fund affiliated with Third Ave- organizations/cima/ which now manages roughly nue in 1974. He has man- $5.5 billion. Mr. Cooperman aged the flagship Third earned his B.A. in Science Avenue Value Fund since from Hunter College and his its inception in 1990 and M.B.A. from Columbia Busi- was Third Avenue’s Chief ness School. Mr. Cooper- Investment Officer from man and his wife are signa- its founding through Janu- tories of Warren Buffett’s ary 2010. (Continued on page 20) “Giving Pledge”. (Continued on page 2)

Marty Whitman Page 2 Welcome Back to Graham & Doddsville

We are pleased to present We start off this issue with Our third interview is with you with Issue XIII of Gra- Lee Cooperman ‘67, foun- veteran value investor Marty ham & Doddsville, Columbia der, Chairman and CEO of Whitman, Third Avenue Business School‘s student- Omega Advisors, Inc. Mr. Management‘s Chairman and led investment newsletter, Cooperman reflects on the Portfolio Manager, and an co-sponsored by the Heil- path of his incredibly suc- Adjunct Professor of Dis- Pictured: Bruce Greenwald, brunn Center for Graham & cessful career, describes tress Value Investing at Co- named the ―Guru to Wall Dodd Investing and the Co- how his firm constructs its lumbia Business School. Mr. Street‘s Gurus,‖ at the Colum- lumbia Student Investment portfolio, and outlines the Whitman shares his thoughts bia Student Investment Man- Management Association. theses behind a few of his on some compelling areas of agement Conference in Febru- top investment ideas. investment opportunity, dis- ary 2011. This issue features a trio of cusses his approach to com- legendary value investors, We also had the privilege of pany valuation and describes who honored us with their speaking with Gabelli Asset some of his firm‘s most suc- time and sage advice. One Management (GAMCO In- cessful investments. thing became crystal clear: vestors) founder, Chairman there is no single ―right‖ and CEO Mario Gabelli, Please feel free to contact us way to practice value invest- well-known value investor if you have comments or ing. Each successful value and alum of Columbia Busi- ideas about the newsletter. investor adapts the practice ness School‘s class of 1967. We hope you enjoy reading to his or her own style, Mr. Gabelli provides his Graham & Doddsville as much although Graham & Dodd approach to security analy- as we enjoy putting it to- and their famous disciples sis and discusses his interest gether! remain an inspiration to so in BEAM, National Fuel Gas many of us. and The Madison Square - Editors, Graham & Doddsville Garden Company.

Investor Warren Buffett re- ceives a gift from students on a tal or medical school to- tion, that the school would Heilbrunn-sponsored trip in (Cooperman from page 1) ward your fourth year of be losing revenues for the March 2008. G&D: After graduating college and receive a sepa- next four years and that I from Columbia Business rate degree. I finished my couldn‘t possibly know what School, you began your very science major in the sum- I wanted to do after eight successful career at Gold- mer of 1963, which enabled days. The only person who man. What drew you to the me to enroll in dental really appreciated the signifi- sell-side following business school. After being in den- cance of my decision was school? tal school for about eight the dean of Hunter College. days, I wasn‘t sure that was I went back to Hunter and, LC: Something that I the direction I wanted to since I had finished my ma- should mention, before ad- go. This became quite a jor during the summer, took dressing my time at Colum- traumatic situation. I had to 10 elective courses in eco- bia and Goldman, was my go to the dean of the dental nomics and received 10 A‘s. decision to not pursue a school and tell him I wanted That furthered my interest dental education. This was to matriculate back into the in business. Upon gradua- the most difficult decision I undergraduate school to tion I went to work for had made in my life up to complete my fourth under- Xerox up in Rochester, NY that point. Back in 1963, if graduate year unencum- as a quality control engi- you completed your under- bered. The dean put me on neer. graduate major and minor in a great guilt trip, telling me three years, you could that I had deprived the 101st After about 15 months I count your first year of den- applicant of a dental educa- (Continued on page 3) Issue XIII Page 3

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(Continued from page 2) management that we were decided I wanted to get an making a mistake not being My last day at Goldman was MBA to advance my creden- in the asset management November 30th, 1991 and I tials. I wanted to stay in the business. The firm, being a started Omega the very New York area and I was brokerage house, was next day. Over the past interested in finance, so strongly opposed to what twenty years I‘ve been rais- Columbia was a natural fit. they considered competing ing the money, hiring the With great modesty, I with their client base. Every people, running the money “… there was one would say that I was an at- brokerage firm at the time and setting up the infra- person who had a tractive package coming out was largely in this business. structure. It‘s kind of been of Columbia Business Once Salomon Brothers and non-stop. I‘m getting older profound influence School. I was Beta Gamma some others announced but I‘m still handling it okay. Sigma, had straight A‘s, a 6 their launching of an asset on me. I even have month old child and was a management business, Gold- G&D: Did anyone or any serious person. Wall Street man leadership asked me to investing class at Columbia a letter he sent me was hiring with abandon, a establish one of their own. I Business School have a par- lot of which had to do with left research at that time ticularly significant influence in 1977 hanging on the market cycle. I was and became Chairman and on you? my wall. His name interviewing in 1966, which CEO of Goldman Sachs was a year in which the Asset Management. LC: Yes, there was one was Roger Murray, market was peaking, though person who had a profound no one knew that. I ac- This was the beginning of influence on me. I even Benjamin Graham‟s cepted an offer with Gold- my exit from the firm. They have a letter he sent me in man Sachs, which at the wanted to capture as many 1977 hanging on my wall. successor as the pro- time was not what it would assets as possible because His name was Roger become a decade or two they wanted to build the Murray, Benjamin Graham‘s fessor of security later. This was fortunate business to a scale that successor as the professor analysis at Columbia because I was able to con- would be relevant to a firm of security analysis at Co- tribute, in a small way, to like Goldman Sachs. On the lumbia and, in fact, a subse- and, in fact, a subse- the firm‘s later success. other hand, my motivation quent editor of the book was the proper perform- Security Analysis. Mario quent editor of the I got my MBA on January ance of the assets in my Gabelli, a very dear friend of 31, 1967. I had a six month control. I realized after a mine, also studied under book Security Analy- old child and I had no short time I didn‘t want to him and would probably say sis.” money in the bank so I was be on the road every week, the same thing. As our not in the position to take introducing a new product value investing professor, he the obligatory trip to Hawaii and sourcing new funds. I showed a great deal of ex- or Australia. I started as an wanted to spend my time citement for the subject analyst at Goldman the next visiting companies and find- matter. I would also say day. I then spent close to ing new mispriced stocks. I Warren Buffett influenced 25 glorious years with the wanted to manage money in me tremendously. I‘m an firm. such a way that my interests expert in his writings and and the clients‘ interests his views. Finally, Graham I had a number of different were 100% aligned. I did and Dodd influenced me as roles in the company. For not want to build a big busi- well. Their book Security example I was made Partner ness like Goldman Sachs Analysis is sitting right there in charge of research in wanted me to. I have the on my shelf. 1976 and, at the same time, highest respect for Gold- I was Chairman of the firm‘s man, but it was the firm‘s G&D: How has your ap- investment policy commit- reluctance to go into the proach to investing changed tee. For a number of years, hedge fund business that led (Continued on page 4) I had been telling Goldman to me start Omega. Page 4

Lee Cooperman

(Continued from page 3) buy something that we think perfect, the stock market is since 1991? has a better risk/reward one of the better leading ratio. Finally, the fourth indicators. Some people are LC: Not in an appreciable reason we sell something is wary of the information the fashion. The bulk of our when our market outlook stock market is imparting portfolio is long-term ori- changes. Since I don‘t tend because, they would say, it ented bets. We do a cer- to buy and sell market fu- has priced in 10 out of the tain amount of trading - a tures to an appreciable de- last 7 recessions. In my quarter of our portfolio gree, to effect this macro- opinion, however, that‘s a turns over more actively. I driven repositioning, I have better record than most think the major change was to sell specific securities. economists. Pictured: Benjamin Graham, a result of the drubbing father of value investing. most of us took in 2008. I So I would say the big G&D: What about the de did not do a good job of facto value investing motto controlling losses. I in- that if something you‘ve vested a certain amount of “… there are times liked goes down, buy more responsibility in my associ- and, if it falls further, just ates and they showed, in the when the market buy more? end, an inability to sell. So now I‘m more willing to sell has figured out LC: Well, there are those when things don‘t look like what‟s going on times when you‘ve made a they‘re going in the right fundamental mistake – direction. before you, the you‘ve misjudged the com- pany‘s competitive position, I would sell a security for fundamentalist, you‘ve misjudged the econ- one of four reasons. The omy, you‘ve misjudged the first reason is the highest have figured it out. stock market. I think you quality reason. That is just can‘t afford to say, ―I when you buy something Let‟s face it, know more than the mar- with a price objective. although not ket‖. Of course, it depends When it appreciates to that on the company. There are price objective, and you perfect, the stock certain things you can be think it‘s fully valued, you stubborn on such as when sell it. The second reason is market is one of the you have a big dividend when, based on calls to our yield, a big discount to book companies, their competi- better leading value, an extremely low tors and their suppliers, valuation. But I think, gen- things are not moving along indicators.” erally, you have to respect the originally anticipated the stock market. If you lines so you get out before change is my willingness to don‘t, you‘re going to get you get murdered. It is very sell. This is very difficult for wiped out. hard in this market, which is a value investor because if, choppy and not really going for example, you liked Ford G&D: How do you per- anywhere, to make up for Motor at $20, you should sonally think about valua- big losses so you have to like it more at $18 and even tion? What types of tech- sell before you get creamed. more at $15. But there are niques do you use? A third reason we sell is times when the market has when we find an idea that‘s figured out what‘s going on LC: There are a lot of dif- more attractive than the before you, the fundamen- ferent approaches. We use idea we‘re acting on already. talist, have figured it out. the dividend discount model So we‘ll sell something to Let‘s face it, although not (Continued on page 5) Issue XIII Page 5

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(Continued from page 4) there‘s some combination of to identify undervalued return-on-equity, growth G&D: What are the char- stocks as a screen. Essen- rate, P/E ratio, dividend acteristics of a business that tially, I know what the finan- yield, and asset value that you‘d want to own for a cial statistics are for the S&P makes you act. We have a long period of time? and as a value investor, I‘m diversified group here look- looking for more but for less. ing for attractive ideas, and LC: To me, it‘s free cash I‘m looking for more growth different industries get capi- flow sine qua non because at a lower multiple. I‘m talized in different ways. If that gives you the ability to looking for more yield ver- you want to be a broad- intelligently redeploy your sus what I can get from the based investor you have to money. If you don‘t have Columbia Business School is a S&P. Or, I‘m looking for be willing to embrace differ- the free cash flow, you don‘t leading resource for invest- more asset value. ent approaches. For exam- have anything. Number two ment management profession- ple, although we are value- is a business that has a moat als and the only Ivy League I‘d say a theme that runs orientated investors typi- around it, where it‘s com- business school in New York throughout a lot of our petitively insulated to some City. The School, where value portfolio holdings is the large degree. There are investing originated, is consis- concept of public market very few businesses that tently ranked among the top value versus private market actually have a monopoly programs for finance in the value. About 95% of pub- “I know what the position today. Quality of, world. licly traded companies have and incentives for, manage- two values. One is the auc- financial statistics ment are also very impor- tion market value, which is are for the S&P and tant. We look at manage- the price you and I would ment ownership to see pay for one hundred shares I‟m looking for more whether their interests are of a company. The other is aligned with the sharehold- the so-called private market but for less. I‟m ers‘ interests and we look value, which is the price a for their compensation lev- strategic or financial inves- looking for more els to be reasonable. The tor would pay for the entire compensation levels in cor- business. So one of the growth at a lower porate America are ridicu- approaches I take is to look multiple. I‟m looking lous in my opinion, and this for a stock in the public is a big problem today. market that is selling at a for more yield versus Hedge fund guys are over- significant discount to pri- paid but the good news vate market value where I what I can get from about that is, you don‘t can identify catalysts for a make the money unless you potential change. In the last the S&P. Or I‟m make the money for the year we had four take-overs investor. In corporate in the portfolio. looking for more America, you‘re being paid asset value.” to fail. A lot of times, guys We try to find some set of are kicked out of companies statistics that motivate us to and they leave with $10, act. The analogy I have al- $15 or $20 million checks, ways used is that when you which I think is ridiculous. go into the beer section of cally looking at the tradi- the supermarket, you see 25 tional valuation metrics, we Back to free cash flow; I different brands of beer. do have a technology analyst would obviously weigh-in There‘s something that who is studying things like the growth of the company makes you reach for one rate-of-change and following too. I would love to own a particular brew. In the par- Citrix Systems and Apple, company that has great in- lance of the stock market, which we own. (Continued on page 6) Page 6

Lee Cooperman

(Continued from page 5) how you construct your will tell you that being in the “The next big vestment opportunities in portfolio? right asset class is more which it‘s investing a lot of important than being in any trended opportunity cash. I just want to make LC: My portfolio construc- individual stock in any one sure the money is invested tion is some combination of year. Third, which is the will be being short wisely. A company has a top-down and bottoms-up. bread and butter business number of uses for free We try to make money for where I spend the bulk of U.S. government cash flow. Management our investors in a number of my time, is looking for un- bonds. They don‟t could choose to reinvest in different ways. Stocks are dervalued stocks on the the business through capital high risk financial assets and long side. I have a very belong at 2%. His- expenditures, buy other short term bonds and cash value-oriented approach. businesses, reduce debt are low risk financial assets. Fourth, which has not been torically, the ten loads, or pay out dividends. First, we spend a great deal particularly productive for I just want to make sure of time trying to figure out us, is finding overvalued year U.S. govern- management is channeling whether the market is going stocks on the short side. their cash into the right up or going down because Finally, we take 2-3% of our ment bond yield has opportunities. that will determine both the capital and invest in macro tracked nominal predominant performance strategies. We might be Corporate America has of our portfolio and how long or short the dollar, we GDP...So if the ten been very busy, particularly much exposure we want to might be long or short a in 2008, buying back stock. have to risky assets. The commodity. year government Most of them have not second way we try to make known what they‘re doing. money is looking for the It‘s a small part of what we bond yield was in There‘s been a large amount undervalued asset class. do but I like the macro of money wasted. I gave a We look at government strategies. The returns are that range of 4-6% presentation at the Value bonds versus corporate not necessarily correlated that would not be Investing Congress in 2007 bonds versus high yield to equities and at times you where I said a lot of compa- bonds. We think about get a trend of opportunity unusual.” nies were mispricing what bonds versus stocks, that you can capitalize on. they were buying. I was whether in the U.S. or in In my own opinion, the next highly critical and provided Europe. We‘re trying to big trended opportunity – many examples of this de- look for the straw hats in though we haven‘t put the velopment. the winter. In the winter, trade on just yet – is being people don‘t buy straw hats short U.S. government Analysts tend to be cheer- so they‘re on sale. We‘re bonds. They don‘t belong at leaders for corporate repur- basically looking for what‘s 2%. They‘re just way too chase programs. In my on sale. In 1993, we made a low. Historically, the ten view, these programs only great deal of money in non- year U.S. government bond make sense under one con- dollar bonds because we yield has tracked nominal dition – the company is buy- made a play on interest GDP. If you think we‘re in a ing back shares that are rates that was very right. In world of 2-3% real growth significantly undervalued. 1995 through 1997, we and 2-3% inflation or poten- Most management teams made a great deal of money tially more, that would give have demonstrated the total in the debt of Brazil, Turkey you nominal GDP of 4-6%. inability to understand what and other emerging mar- So if the ten year govern- their businesses are worth. kets. In 2002, we made a ment bond yield was in that They‘re buying back shares lot of money in high yield range of 4-6% that would when the stock is up, and bonds, and the same is true not be unusual. have no courage to buy for 2009 and 2010. So when the stock is down. we‘re looking for the right I would also add that, over asset class. Any study you‘ll the years, our portfolio has G&D: Can you talk about read on portfolio returns (Continued on page 7) IssueVolume XIII I, Issue 2 Page 7

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(Continued from page 6) frustration over the lack of judged the significance of on average been 70% net economic opportunity, par- Lehman. As I mentioned, long, though right now ticularly by the youth, is 2008 was transformative for we‘re about 80% net long. understandable. People are me because, at the time, I We tend to be more in- looking for a scapegoat. I allowed my people to hold vested than most hedge had hoped that Obama onto their positions when I funds. would move more to the should‘ve started kicking center and soften his anti- them out well before we Pictured: Glenn Greenberg at the G&D: So you‘re optimistic wealth and anti-business got into the hole. One Security Analysis 75th Anniver- about the general outlook stance. He doesn‘t seem thing nice about the invest- sary Symposium (Fall 2009), with for the market? capable of doing that and his ment business is that, even Bruce Berkowitz (left) and Tom election underscores the though I‘m 68, I continue to Russo (right). LC: We‘re more optimistic unrest I‘m referring to. The learn. You learn something than most. We don‘t be- largest country in the free every month and every lieve that we‘re going into a world chose as its leader a quarter. recession but rather an en- 48-year-old man who was a vironment of slow growth. community organizer and G&D: Could you describe We don‘t think we‘re an- had never worked in the the process your team goes other Japan. That‘s our business world. His elec- through to generate invest- opinion as well as Jeff tion was a clear result of the ment ideas at the company Immelt‘s and Warren Buf- frustration of the populace. level? fett‘s. Recent auto sales and recent chain store sales G&D: Is your technique LC: When I hire an analyst, suggest a decent economic for shorting mostly valua- we put together a FactSet environment. I also assume tion driven? universe of companies that that the ECB will do for are within their sphere of European financial institu- LC: It‘s valuation driven or expertise and those are the tions what the Fed did for it‘s driven by a belief that companies they follow. I U.S. institutions. In the end, the company‘s competitive monitor and judge their they have no choice and I position is in the process of performance by how well think they‘ll do it. They changing. But if you look at they do penetrating the need to ring-fence Greece the sources of our returns, opportunities that ‗Mr. Mar- though, and make sure the short selling has not been an ket‘ has presented. The mess doesn‘t spread to important part. The bulk of way it works is that the Spain and Italy. our returns have come from analyst proposes an idea. undervalued equities on the The stock selection commit- One of the biggest concerns long side. tee, which consists of four I have is social unrest. The or five senior people at the labor force in America G&D: What have you firm, and me, dispose and grows 1% per annum. Pro- learned from the market debate the idea. This proc- ductivity of the labor force collapses of 2000-2001 or ess represents about 75% of grows 2% per annum. So 2008-2009? the activity of the firm. you need 3% growth to For example, this afternoon, keep the unemployment LC: We made money in we‘re discussing an apparel rate flat and we‘re not 2000 and 2001 because we company that my analyst is growing at that rate. The stuck with value. You only strongly recommending we global unrest and global got creamed if you were buy. He submitted his re- demonstrations – ―Occupy buying these 100x revenues port for our review this Wall Street,‖ the demon- technology companies. So it afternoon. I ask these ana- strations in Zuccotti Park, was really 2008 that was a lysts, who are experts in the Arab Spring, are all rough patch for us and it particular areas, to find about unemployment. The was very simple. We mis- (Continued on page 8) Page 8 “The next big trended opportunity will be being short U.S. government Lee Cooperman

(Continued from page 7) of the day, they have a pipe- person would criticize Jobs things that are going to out- line of products already in but I will criticize the com- perform the market. Later, place that could probably pany for their financial man- we‘ll have a meeting about last several years and they agement. There is no basis the New York Stock Ex- generate something like $15 for sitting on $80 billion in change, which the associ- -$20 billion a year in free cash and not paying a divi- ated analyst is also recom- dend and not buying back mending. Periodically, we‘ll stock. They‘re projecting, Pictured: Heilbrunn Center operate with a shorter term in my opinion, temporary Director Louisa Serene timeframe because we think “To me, „value‟ success. They‘re saying we Schneider at the CSIMA we‘ve developed some in- don‘t know where the busi- conference in February formation that other people means the value ness is heading long term 2011. Louisa leads the Heil- don‘t have and we want to and we want to have this brunn Center with much act on it before it becomes proposition that is financial powerhouse. I‘m skill and grace. commonly known. told by people close to Jobs being offered. A lot that he wanted to do a con- G&D: How do you evalu- tent acquisition, such as ate management teams of companies Disney if it had not been in prior to making an invest- Warren Buffett the theme park business. ment? Regrettably, for the world owns would not be and for him, he‘s not around LC: Benjamin Graham, in to execute that ambition. The Intelligent Investor, said considered value in you evaluate management I think Apple will do fine for twice in the decision-making the classical sense. a few years and we‘ll have process. Once, through the to see after that. Right face-to-face interrogation. A company can be now, the major plus in Ap- You ask them questions and growing at an ple is the valuation. It they respond and you make seems ridiculously low for a a judgment about the quality extremely high rate company growing at its rate. of their responses. In addi- Based on all of the checking tion, the quality of manage- but happens to be I do, the users of the equip- ment also manifests itself in ment at corporations are the numbers: in ROE trading at a very making purchasing decisions (absolute and relative to and the users all want iPads. competitors), return on reasonable They have a phenomenally total capital, growth rate, multiple. Or that high market share of a industry position, trend of growing business that has market share, and profit same company can very high profit margins. I‘m margins. sure one day, Apple will be giving you your have issues but for the next G&D: Regarding the im- few years it looks like clear portance of management, return through a fat sailing. Jobs left behind a with the unfortunate passing financial powerhouse. of Steve Jobs, how do you dividend.” Maybe one change that see Apple - one of your could be constructive is the favored picks - impacted better use of their cash. So going forward? you think eclectically. Apple cash flow on top of $80 has no dividend and no re- LC: You can‘t replace a guy billion in cash and market- purchase program but they like Steve Jobs. At the end able securities. No rational (Continued on page 9) Issue XIII Page 9

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(Continued from page 8) be in the best growth com- Another one I like is Sallie generate gobs of free cash panies but had no regard for Mae (ticker: SLM). Roughly flow and they‘re in the right what they paid. They didn‘t 81% of their loans are guar- business. care if they paid 60x or 70x anteed by the U.S. govern- earnings. During the even- ment and the bulk of the “What you want is G&D: Many in the value tual recession which fol- remaining loans are co- investing community say lowed a surge in interest signed by the student‘s par- some combination that Apple is not a true rates, the prices of these ent. So I think the quality of ―value‖ stock. How would stocks declined 50% or these assets is not bad. I of financial you respond? more. The multiples were think they‘ll earn $1.80 this all wrong. Their philosophy year and the stock is $13, statistics that yell, LC: I think their definition was ―only the right stock at so half of the market multi- of ―value‖ has to be broad- any price‖ whereas my phi- ple. The yield is about 3.5% “Buy me.” It ened. It‘s not just about losophy is ―any stock or and they‘re buying back 5% could be an trading below book value. bond at the right price.‖ of their stock annually To me, ―value‖ means the through the repurchase unusually high value proposition that is being G&D: It would be great if program and we think the offered. A lot of companies we could discuss a couple of assets are worth $20 per growth rate at a Warren Buffett owns would specific stocks that you find share. The company is a not be considered value in compelling today. consolidator of FELP loans. proper multiple or the classical sense. A com- FELP loans are shrinking pany can be growing at an LC: Well, I like KKR Finan- part of all bank balance it could be a extremely high rate but hap- cial (ticker: KFN), where sheets and therefore will pens to be trading at a very the debt management arm slowly be sold as they‘re not return upfront reasonable multiple. Or has the ingredients that I worth the effort to hold. that same company can be look for. Right now their Sallie Mae is one of the few with modest giving you your return dividend yield is 9.75% in a natural buyers in the market through a fat dividend. My world of zero interest rates and is able to achieve attrac- growth. I‟m very analyst thinks Apple can and the dividend is covered tive double digit IRR‘s on earn $40 per share next twice by earnings. They these purchases. In addi- eclectic as an year, which is 9.4x earnings. earn about $1.50-1.60 per tion, the ―sins‖ of Sallie When this was printed, the share and they‘re only pay- Mae‘s past are burning off investor … my S&P was at 11x earnings. So ing $0.72, so they can grow quickly. The amount of is Apple a growth company the business over time. The ―non-standard‖ credit en- philosophy is “any or is it a good value propo- real book value is some- tering repayment is drop- sition? where around $10 and the ping very quickly. 2010 had stock or bond at stock is $7.75. So I‘m buy- $572 million enter repay- What you want is some ing something 20% below ment, 2011 has $320 mil- the right price.” combination of financial book, yielding in the high 9% lion, and next year only statistics that yell, ―Buy me.‖ range – which is competitive $112 million. With 40-50% It could be an unusually high with the equity market‘s loss ratio on these ―non- growth rate at a proper return annually, with moti- standard‖ loans, credit at multiple or it could be a vated management that own SLM will naturally improve. return upfront with modest a decent amount of stock in The company is shareholder growth. I‘m very eclectic as a decent business. KKR friendly. As the FELP port- an investor. In the ‗70s, the Financial is a mezzanine folio generates cash, we dominant investing institu- lender and they have the expect the company to tion was JP Morgan U.S. advantage of being on the complete the previously Trust, which espoused a KKR platform, which sees a announced $300 million philosophy of the ―nifty lot of interesting deals. repurchase program this fifty‖. They only wanted to (Continued on page 10) Page 10 Lee Cooperman

(Continued from page 9) past 24 months. It is a ture, improving profitability, year, and repurchase $500 highly regulated business, selling non-core assets and million in 2012. As financial and as it gets more regu- buying back stock. Multiple institutions struggle for as- lated, it means that the new product cycles are set growth, SLM could be- costs of entering these busi- coming in core franchises come a nice niche acquisi- nesses increase. Utilization (stents, defibrillators, tion target for any large will continue to increase women‘s health), that will bank over the next several with demographics and with drive 500+ bps of operating years in the low $20s range. healthcare reform, we will margin improvement in the likely see more people com- next few years. Bruce Greenwald holds the Robert Heilbrunn Professor- G&D: Could you walk us ing into the system. In spite ship of Finance and Asset through other ideas that of pricing pressure, margins We also like Transocean Management at Columbia you find interesting today? are still very attractive. The (ticker: RIG). The stock is Business School and is the new management is shifting currently around $50 and academic Director of the I also like Boston Scientific its focus on creating share- we believe there is signifi- Heilbrunn Center for Gra- (ticker: BSX). The company holder value in the near cant upside to it. RIG is ham & Dodd Investing. Pro- generates $1 billion a year term, rightsizing cost struc- trading at a very low P/E, P/ fessor Greenwald is an au- in free cash flow, so you‘re CF, and EV/EBITDA multi- thority on value investing getting a free cash flow yield ples, and at a substantial with additional expertise in productivity and the econom- of about 17-18%. They just “BSX‟s private discount to NAV and Tangi- ics of information. achieved an investment ble BV. The offshore drill- grade credit rating so market value is ing market is fast improving, they‘re now in a position to especially in the ultra-deep

take that cash flow and buy much greater than water where RIG has the back stock or do tuck-in largest fleet. The overhang acquisitions to accelerate public market of legal issues from the 2010 growth. Management seems valuation. Financial BP ―Macondo‖ disaster may very motivated to follow- start to be resolved over through. Of course, the buyers could easily the next six months. RIG opportunity to buy cheaply has a $3.16 dividend (6.7% is a result of their deal from pay $9.50/share. If current yield) that we be- hell, that being the acquisi- lieve is sustainable for years, tion of Guidant for nearly the company was so investors are being paid $30 billion. Now we think broken up and sold to wait. Long-term con- they‘re on the way back. tracts on its deepwater fleet Due to the past issues, in- off in pieces or if a will recover most construc- vestors seem unwilling to tion costs and reduce the look at the value of the strategic buyer were basic risk of RIG‘s business. business objectively. Old RIG‘s 2011 EPS reflects low management is gone. BSX‘s to step in, BSX ―revenue efficiency‖: con- private market value is tracted rigs are out of ser- much greater than public could fetch $13/per vice for replacement of market valuation. Financial share based on Blow-Out Preventers. This buyers could easily pay process will continue $9.50/share. If the company public comps or through 2011 but then end, was broken up and sold off so ―revenue efficiency‖ will in pieces or if a strategic transactions done in return to historical 90%+ buyer were to step in, BSX level, from 82% now. Many could fetch $13/per share the past 24 Wall Street analysts don‘t based on public comps or have higher ―revenue effi- months.” transactions done in the (Continued on page 11) Page 11

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(Continued from page 10) try. ciency‖ in their projections. We believe consensus 2012 “It doesn‟t matter G&D: What are the most EPS could rise by $1.00- common errors that you $1.50. whether you are a see analysts make? lion or a gazelle. G&D: Which personal LC: Misjudging a company‘s attribute has contributed When the sun competitive position would the most to your success be one. Making valuation over the years? comes up, you‟d judgments that are wrong is another. Then there are LC: I would attribute my better be macro mistakes, such as success to hard work, sur- underestimating the degree rounding myself with good running… Always of discontent with the banks people, and a fair amount of following the credit crisis, luck. I remind my team of try to surround which is leading to higher this proverb often: ―Every capital charges and an inabil- morning in Africa, a gazelle yourself with the ity for their earnings to wakes up; it knows it must grow. In every sector it‘s run faster than the fastest very best people. different. In technology, lion or it will be killed. you may have overestimated Every morning a lion wakes Don‟t feel the company‘s competitive up; it knows it must outrun position and underestimated the slowest gazelle or it will threatened by the competitive threat from starve to death. It doesn‘t somebody else. You can‘t matter whether you are a good people. You standardize the error. lion or a gazelle. When the sun comes up, you‘d better should feel that G&D: Any parting words be running.‖ In the parlance of wisdom for our readers? of my business, I like to put having them this proverb in my own LC: The best advice I can terms. There are roughly around is to your give anyone is exemplified 10,000 mutual funds that by the following Andrew will manage your money for advantage. Carnegie quote: ―Here lies 1% or less and there are a man who was wise enough roughly 10,000 hedge funds Lastly, no matter to bring into his service men that have the audacity to ask who knew more than he.‖ for 1-2% management fees how rich you Always try to surround and 20% of the profits. Our yourself with the very best clients have a right to ex- become, people. Don‘t feel threat- pect more because they‘re ened by good people. You paying more. So what that arrogance is not a should feel that having them means is that when the mar- luxury you can around is to your advantage. ket‘s high, I have to figure Lastly, no matter how rich out how I can get hedged afford. ” you become, arrogance is and when the market‘s low, not a luxury you can afford. I have to figure out how I can get leveraged to the You come to work with a G&D: Thank you very opportunity. You‘re con- total commitment to the much, Mr. Cooperman. stantly on the balls of your clients‘ interests or you go feet. There‘s no relaxing. to work in a different indus- Page 12

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(Continued from page 1) evolved over the years? it.‖ Why did I do that? I G&D: How did you be- knew if I followed ABC, come interested in invest- MG: I left Columbia on a NBC, and CBS, which were ing? Friday and joined Loeb, in New York, I could con- Rhoades & Co. next Mon- vince everyone that I should MG: I used to hitch hike day, not taking the 3 months follow the movie industry. I from the Bronx and caddy knew this because they at a country club in West- were the program suppliers chester. Later in the after- “It wasn‟t until I had which would get me to LA. noon after the Growing up in the Bronx market closed the specialists Professor Roger you don‘t get a lot of op- would arrive and talk portunities to go to LA. stocks. The other caddies Murray at Columbia I later left Loeb, Rhoades would go home at 4pm but I and went to William D. would stay and listen to that I saw the sun, Witter which merged with what the specialists were Drexel and 90 days later I talking about. This was the moon and the started an institutional re- th maybe when I was in the 7 stars align search firm. This was in grade. I still remember my 1977, and at that time the first stocks, Coca Cola, themselves and knew market had been at 1,000 AT&T, and Beech Aircraft. and started recovering but [investment then quickly declined. The G&D: Can you bridge us key question was how was I from those days to business management] was going to convince individuals and corporations and pen- school? what I wanted to sion plans that they could MG: I was always passion- do.” make money in the stock ately involved in the market market? and would go into high school and read the The At the time, there was a lot Wall Street Journal and Busi- off like a lot of people do of inflation. If you had prop- ness Week religiously. now. I inherited the indus- erty, plant and equipment, When I went to college at tries followed by Michael the replacement cost was Fordham I had some great Steinhardt who had left that significantly higher than professors teaching finance day. Steinhardt went on to what you paid for it. Inter- but it wasn‘t until I had Pro- start one of the most suc- est expense was 12% to fessor Roger Murray at Co- cessful hedge funds. So I 15%, and taxes were not lumbia that I saw the sun, covered farm equipment, predictable. So we came up the moon and the stars align conglomerates, auto parts with the idea: what is the themselves and knew this and automotive. value of the business if was what I wanted to do. Sometime around 1969, one someone is trying to take it Reading Graham and Dodd of the analysts who covered private? We figured out helped me to learn the me- the broadcast and entertain- what was the value of the chanics for how to evaluate ment industries left to start business today, what it stocks. Their approach to his own firm and I walked would likely be worth five stock analysis and valuation into my boss‘s office and years hence and how would made a lot of sense. said ―I quit.‖ He said, one finance it. So we came ―Why, you‘re doing well?‖ up with the notion of pri- G&D: How would you And I said, ―I want to cover vate market value and we describe your approach to the broadcast industry.‖ did this because we were investing and how it has And he said, ―Fine, you got (Continued on page 13) Issue XIII Page 13 Mario Gabelli

“A catalyst could be (Continued from page 12) rigorous discussion today that was not complicated. trying to convince individu- with the analyst covering We are a touchy feely or- as simple as a new als and institutions that this Apple. I love Apple‘s prod- ganization so I drink bour- was a great time to buy ucts, and the company sells bon. It‘s a business we‘ve product stocks. We wrote a re- at about $400 per share and been tracking for a long port on a company called they‘ve had great numbers time and the value was introduction. We Houdaille, and if I recall but it‘s hard for me to see there. Nowadays, Sara Lee correctly, the stock was how financial engineering or is splitting into two parts, have been following around $26 or $28 and a takeover with a catalyst Kraft is splitting into two coffee for 40 years Henry Kravis came around helps to surface increased parts, and there are so and bought the stock at value for them, and that‘s many other examples. Why and coffee wasn‟t about $39 or something how we look at companies. are all of these companies like that and I took out an splitting up? They do so growing. And then ad in the Wall Street Journal. G&D: What do you say to because it is a more tax I said, ―to my friends at people who argue that cata- efficient way to let the value all of a sudden it Houdaille and KKR, thanks lysts are usually already surface and allow someone was November for surfacing the values in priced into companies? to buy pieces. But the key the market.‖ So that was is seeing that value ahead of 1989, the Berlin in 1979 and that‘s how I MG: Nonsense. Let‘s say time and knowing the pieces got to meet Henry. there is a company selling at ahead of time so that you Wall came down $10 and you predict it‘s can take advantage of it. G&D: Can you talk a bit worth $20 based on your For example, would Pepsi and it really helped about how your approach analysis. Will the discount split the company in two differs from the Graham or narrow between the $10 parts so that its snack busi- open the global and $20 so that you can ness and its beverages busi- Buffett methodology? marketplace. ... earn your return? Will the ness can reach a higher pub- MG: It‘s the same thing. company‘s value grow to licly traded value? Would more recently you The analysts are trained to over $30? Will someone CVS do it? There are a lot gather the data and read it come in and buy it? At the of candidates that you could had single serve carefully. These days you time in the 1970s if there identify. can get the data faster. was that sort of gap we coffee introduced in We array the data in our would wonder if someone A catalyst could be as sim- format. Project the data would come in and fire a ple as a new product intro- a number of and then interpret it. In- ―thunderbolt‖ (a tender duction. We have been terpret it in a way that offer). So the difference following coffee for 40 years countries. Another assigns a value and then between the current stock and coffee wasn‘t growing. example is oil and build in a margin of safety. value and the intrinsic value And then all of a sudden it So everything Graham and would lead to an event to was November 1989, the gas and shale Dodd taught in the 1930s unlock the value. Look at Berlin Wall came down and is still applicable today. what‘s happened in the last it really helped open the drilling. So a year. Fortune Brands an- global marketplace. A lot of G&D: Would you say nounced that they were the western companies catalyst can take that your methodology flocked to the Eastern Euro- breaking up. many forms.” works better for some pean and CIS countries to industries than others? G&D: We remember you sell their products, including recommending it on CNBC coffee. And more recently MG: Of course. How do about two years ago when you had single serve coffee you value Facebook or the stock was trading at introduced in a number of how do you buy Apple about $20. countries. Another exam- with an almost $400 billion ple is oil and gas and shale market cap? We had a MG: Well the reason for (Continued on page 14) Page 14 Mario Gabelli

(Continued from page 13) sumers still be willing to compare to a company that drilling. So a catalyst can spend a certain amount of sells widgets that are hot take many forms. their income on a particular but who knows how sus- product? tainable it is, and based on G&D: Conversely, if you relative and fundamental have an investment thesis The ideal thing is to find analysis, try to come up about a company and you‘ve businesses people are loyal with an approximate value held the company for a long to, like alcoholic beverages to put on that business. time and the catalyst isn‘t and coffee. You have to coming to pass, how long do look at who the customers G&D: Was it through you wait? are and how postponable is similar analysis that you the purchase. So if you look found Fortune Brands? MG: One of our oldest at a business like Cable TV, funds, the asset fund, was We look at the pricing incepted in 1985. The turn- power of an industry, such over is 7%, so that‘s what, a as distilled spirits. The 15 year holding period? As global distilled spirits busi- in the movie Waterboy, if the “The ideal thing is ness is about $250 billion. CEO heads for the wrong We know the growth rate goal line, we will try to stop to find businesses for distilled spirits in each him and if they continue to sector (vodka, scotch, te- do it, we will sell. Or, if the people are loyal to quila, etc.). Then we look at stock goes above intrinsic like alcoholic the companies consolidat- value, we will find better ing, such as Pernod in Paris, options out there. beverages and Diageo, Anheuser Busch, etc. We follow the industry G&D: Could you give an coffee. You have to globally, and we have an example of a company you analyst in New York who‘s like and how you valued it? look at who the a Columbia Business School alum as well as one in MG: If you look at the customers are and Shanghai who is following human population there are how postponable is industries in which we have about seven billion people. a core competency, such as One and a half billion people the purchase.” beverages. So we were are too young to drink or following Fortune Brands don‘t do so for philosophi- and we watched what the cal reasons. My first visit to company was doing and the China was in 1981. Two changes in management. things were clear: the cul- you have subscription reve- We could see the potential ture loves to gamble and nues that are predictable for Bourbon. It wasn‘t be- loves to drink. The impor- (albeit with some churn cause we liked Jessica Simp- tant thing to think about is rate) and then you look at son and Dukes of Hazard. which companies had pricing what customers are likely to We were seeing what all of power. What companies want in the next 10 years, the other businesses in For- had businesses that required which is probably speed, tune Brands were doing, the least amount of capital mobility, video, voice. Then how management was allo- expenditures to maintain we try to understand who cating cash, what the under- the brand. Could the Japa- packages it up best and what lying value was and what all nese and Chinese create a can go wrong with the pric- the catalysts were. We vodka and then sell it at a ing power of that service. were buying the stock. lower price? Would con- And how does this business (Continued on page 15) Issue XIII Page 15

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(Continued from page 14) BEAM ticker, is probably nets, which can be very ex- Then Bill Ackman came between $80-$85. Kevin pensive and postponable in along and purchased 11% of Dreyer, Associate Portfolio terms of remodeling and the company, and we knew Manager of Gabelli Asset also things like windows, he was going to push them Fund, has done the work on which you probably don‘t over the goal line. They this and we think the com- replace unless they break. then announced the split. pany is going to be taken So we look at these busi- So now the underlying value over. There are lots of en- nesses and believe you of the individual businesses tities that could do it and really need housing to pick Pictured; Professor Bourbon is a $6 billion cate- up in order for them to do Roger Murray and in- gory. The only thing that well because most people vestor Robert Heil- “We meet with the bothers me is when I watch can put off upgrading their Boardwalk Empire and existing home needs. We brunn with their wives, management and we ―prohibition‖. The other look at what the earnings Agnes Murray and concern is sin taxes. power of the company is at Harriet Heilbrunn. look at various com- 500,000 new homes per G&D: What do you think year. What about petitors and we be- of Fortune‘s other business, 1,000,000? Then we look at the Fortune Brands Home & another of their businesses: lieve five years from Security business, that is so Master Lock. What is the now the distilled busi- tied to the housing industry? earnings power for each How do you approach and business, what will the earn- ness of Fortune value that business? ings power be in five years under a good environment Brands (ticker: MG: There are 90 million or a bad environment and single family houses in the whether there is a margin of BEAM) is probably United States. Starting in safety. Can these busi- 2001 and 2002, Alan Green- nesses survive in another between $80-$85.” span really wanted to get economic contraction? the economy going and low- ered interest rates. Every- The stock started trading one was being sold on the the other day at $11.10 on idea they should own a 155 million shares so it‘s has surfaced. home, and so we built about about a $1.7 billion market 1.6 to 1.8 million homes per cap with about $500 million We look at what will hap- year and everyone benefit- in debt so you‘re paying pen on a reasonably predict- ted from that and in 2007 around $2 billion and you‘ve able basis over the next five that bubble collapsed. Now got about $285 million of years, we look at the cash we are building about base EBITDA. The earnings flows, we look at the multi- 500,000 homes per year. would nearly triple if we get ple we are paying today Eventually we will go back back to 1,000,000 homes. based on enterprise value to the normalized amount EBITDA could reach $500 and EBITDA, and try to of 1 million per year or so. million. evaluate the person that will run the business. We meet So back to Fortune Brands G&D: Could you talk with the management and – they have the Moen brand about a few other stocks we look at various competi- of bathroom and kitchen you like? tors and we believe five products. With Moen you years from now the distilled go into Home Depot and MG: When we went pub- business of Fortune Brands, pay maybe $200 for a fau- lic in 1999, the hot groups now traded under the cet. They also have cabi- (Continued on page 16) Page 16 Mario Gabelli

(Continued from page 15) pay to buy it? What is the MSG and it‘s trading in the were AOL, Yahoo, and pipeline worth? What is low $20s and there is no other dot-coms. We their midstream business debt and they have $300 started a utility fund. As worth? What are some of million in cash. They are we looked around at the their oil holdings in Califor- putting their cash towards utility world, it was some- nia worth? And their raw refurbishing the MSG arena. what in shambles. Enron land? New technology So when I look at the Cable “We‟re owners and went out and said to the comes along and instead of Network associated with utility world, ―You are all drilling vertically down in the company, we put a value we know how to dumb: you‘ve got to go the Marcellus area 10,000 on it, and when we do that, global, you‘ve got to diver- feet below the surface, you we see we are getting two think like owners. If sify, and you‘ve got to do have other options. If you sports teams for free: The you have 80% of the acquisitions.‖ Bottom line, put a well down, it costs Knicks and The Rangers. if you went back and looked about $3 million. If instead There are always super rich vote and 3% of the at utilities, they were rate-of you went down and then people who want to buy -return regulated. If infla- drill laterally it costs about sports teams. I think you economics that tion was going to stay at 2% $5 million. And then hy- could buy those teams for or 3%, they were going to draulic fracking is in the mix. $20 per share, and so the bothers us unless it‟s do well. A company in Buf- And fracking unlocks huge question is should we own falo called National Fuel amounts of oil and gas. this company to participate something like the Gas, which we like today, Now, over the next ten in that upside? Now, the 14th generation of a was a business that sold years, who knows what questions are: is there going home heating gas. They happens with the price of oil to be an NBA season this family.” have 750,000 customers. It and gas? But the company year? We don‘t know. gets cold in Buffalo, so it‘s a has land in an area of the reason to stay in business. world that everyone wants G&D: Isn‘t there also an About 80 years ago, they because of shale. They‘ve issue with the controlling had the McKinsey of their got a midstream business family? time recommend that they that they can transform into go out and buy land. So an MLP and monetize. They MG: They are owned by they bought a million acres also have an oil business the Dolans. I am friends in land mostly from West they could sell. So we try with the Dolans. We voted Virginia to New York. And to find the value of the busi- against Chuck Dolan‘s com- periodically they would go ness over the next ten pany going private four and drill down and put a years. If gas ever goes to $6 years ago at $36 a share gathering system in and get over that time we make a because we thought there gas. Then when the well ton of money, and if your were hidden assets and that was depleted they would IRR is 25% to 35% and you the deal was leaving too use it to store gas. It was a own the mineral rights as much on the table for our nice little company, paying a opposed to leasing, you do clients. They ended up spin- growing dividend, etc. Fast very well. ning off Cablevision and forward to now, it is trading Madison Square Garden and around $55, with 83 million G&D: Is there another AMC Cable. Chuck Dolan‘s shares and $4.6 billion mar- company that you would son Jimmy is doing a better ket cap with about $900 like to tell us about? job running MSG and is be- million debt. Some of the coming more shareholder questions we ask to under- Another company is right friendly and he won‘t sell. stand and evaluate the busi- here in New York City. This is a keeper for him. ness are the following: Cablevision spun off Madi- What is the utility worth son Square Garden. There G&D: So do you in general and what would someone are 75 million shares of (Continued on page 17) Issue XIII Page 17

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(Continued from page 16) creating. Now if you go so we knew the company. like those companies that back to ten years ago, the They tried to go private tend to have high insider only card company we with Goldman Sachs a few ownership? could follow was American years ago. So we looked at Express. We owned it and them and told them not to “If you entrust MG: Well, GAMCO In- still own it. More recently make any more deals and vestors did go public, and I MasterCard and Visa went they sort of pushed back. money to us, we have 98% of the vote. So public and Discover spun They pushed the owner‘s we can‘t preach against A/B out. So now we have four son off the board. So we want to make a shares. We‘re owners and companies we can look at said, ―Our clients own 10%, we know how to think like and we are certainly inter- we should get some board return and also act owners. If you have 80% of ested in the digital wallet. seats.‖ And then during like surrogate the vote and 3% of the eco- Can AXP adapt quickly? that period, Bear Stearns nomics that bothers us Time will tell. went bust and Lehman col- owners. Sometimes unless it‘s something like the lapsed, and the money mar- 14th generation of a family. G&D: You have a history kets shut down. We ran management teams But it‘s hard to paint with of waging proxy battles with out of juice in that instance. one broad brush – it de- some management teams. Are we going to go back? will go in the wrong What are you looking for in We haven‘t made a decision pends on the shareholder. direction. Starting a management teams and yet. Our clients now own G&D: You have had a what makes you advocate 15% and there are two or in about 1987, we long interest in American for change? three other institutions that Express? What do you have been patient and may issued a Magna think of the competitors MG: If you entrust get involved. Why not add Visa and MasterCard? Do money to us, we want to another director who can Carta of you see long term threats make a return and also act add some value? to those companies? like surrogate owners. shareholder rights Sometimes management G&D: To what do you and what we would MG: Of course. There‘s teams will go in the wrong credit your success? always a threat. When I direction. Starting in about vote for and against started in the broadcast 1987, we issued a Magna MG: I do credit a lot to industry, there was very Carta of shareholder rights Columbia and to Roger for our little spent on capital expen- and what we would vote for Murray, my value investing ditures. You could focus on and against for our share- professor. shareholders.” some high growth cyclical holders. We said, if you try company with great cash to put in a poison pill, we G&D: What is it that generation and to buy a TV would vote against it. If it‘s you‘ve done so well that station in a major market already in there, we can live others can‘t replicate? you paid 12 or 13 times with it. cash flow. Today a trade MG: A lot of people have just took place at 7 or 8 G&D: In the case of a replicated what I‘ve done. times cash flow. To buy a company like Myers Indus- Chuck Royce has done a major market newspaper tries, where you‘ve tried to terrific job. Henry Kravis you were paying 25 times advocate for change for has done better than I have back in the day, and that‘s if many years, what do you in the private world, albeit you could even get one. do? with some leverage. Now they are trading at five There‘s clearly a bias to- times cash flow due to tech- MG: In the case of Myers, wards success by following nological change. Sony I started as an auto analyst value investing. I feel like Walkman had the only game and I would go to Ohio re- I‘m not working for a living in town and they stopped ligiously to visit with them, (Continued on page 18) Page 18

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(Continued from page 17) wise become accustomed try relates to other indus- and have the right northern to. tries. And then you need to star. understand the stock. First G&D: Do you have any understand the business and G&D: What are some of advice for novice analysts then understand the stock. the most common errors who tend to get lost in the Those two things don‘t al- that you see young analysts weeds with the wealth of ways go in lockstep. make? information surrounding Pictured: Panelists Mario each company? G&D: When you came to Gabelli ‘67, Charles Brandes, MG: Young analysts – Columbia last year, you pro- Jan Hummel, and David Win- what about me? I still make MG: Yes, and that is that vided handouts of Sara Lee. ters at the ―From Graham to plenty of errors. We you cannot study a company What do you think of their Buffett and Beyond‖ Omaha bought Netflix at $40 and without feedback mecha- businesses now? Dinner in April 2011. sold it at $80. It went to nisms and benchmarks. So $300. the key is to start by getting MG: Sara Lee is a com- pany with many products. G&D: What about in The CEO, Brenda Barnes terms of assessing the fun- parachuted in a few years damentals of the business? “You cannot study ago and started looking at the company and trimming MG: Sometimes the a company without it down and selling various younger analysts get con- businesses such as Hanes- cerned about Mr. Market feedback brands. We knew the food and the events of today, the mechanisms and business because we have a volatility in stocks, especially team that does health and due to all the new ETFs and benchmarks. So the wellness and then we also high frequency trading and follow consumer products the like. Mr. Market is now key is to start by companies so we knew well more volatile than ever. the businesses they were There were reasons the getting to know an involved with. And as we uptick rule was eliminated. are closely following the One of the reasons was industry extremely company, they came up with because it made it easier for well. That gives the single serve coffee, electronic trading. And so, which really took off in there was a group of highly you a great Europe. Then I tried some focused organizations and personally, and it was so individuals that wanted to perspective. “ easy. Just look at the cate- dismember regulatory ele- gories they are in. We ments that had reduced watched the company and volatility to a degree. So to know an industry ex- slowly but surely we‘re add- what happened last year tremely well. That gives ing to it at times where we with the flash crash was you a great perspective. could get the appropriate partially the result of that For example, we have a margin of safety. Now we lobbying group having suc- conference on the auto see the company being split cess at changing the rules of parts industry. Start off by up in two parts and then the game. So analysts need reading everything that‘s once they split, the question to look at intrinsic value and happened in the last 20 is will one company be sold, realize that the antics of Mr. years in an industry. So you or will both be sold? So at Market to the fourth power read all the trade info and $16.70, I‘m still in the camp are creating more volatility then you cross check. Then that I can make 30% on the than they might have other- understand how that indus- (Continued on page 19) Issue XIII Page 19

Mario Gabelli

(Continued from page 18) a $130 million market cap. dots. In World War II, how upside and I think that‘s OK. Because we run a micro cap did the allies find out where fund we can own it there the German V-1 bomb base G&D: Is there anything and also in separate ac- was? An intelligence analyst you wished you knew when counts for our private was reading the social pa- you were getting started in wealth management clients. pers and he was wondering the asset management busi- So we start buying the why all these German gen- ness? stock. It went from $11 to erals were going to this lo- “So the notion of $40 in a year. It then cation in the middle of no- MG: Even though I could dropped back to $28, and where? And he figured out understanding the make money for my clients now we own about 7% of that‘s where they were in 1976, I probably struc- making the bombs and send- first rule of life is tured my business in the ing them to England. So wrong way. I should have gather the data, array the important: don‟t lose data, and then figure out the been in the hedge fund “Everyone should go money. The best world. You can‘t be in the valuation techniques. business of ignoring over shark fishing. When way to learn not to priced securities; you need G&D: Is there anything to be able to short them. I you go shark fishing, you‘d like to leave our read- lose money is to lose also don‘t think I‘d ever ers with? have gone public. The bur- you leave a chum money. Going dens of regulation are too MG: Everyone should go great. line. The sharks shark fishing. When you go through a market smell the chum line shark fishing, you leave a like this is a great G&D: What books or chum line. The sharks smell publications should aspiring and follow it. So if the chum line and follow it. learning experience, investors be reading? So if anything breaks the anything breaks the chum line, you don‘t have because people MG: I read annual reports nearly as much success. So and reading them constantly chum line, you don‟t the notion of understanding realize no matter is simply the best way to the first rule of life is impor- learn about businesses. For have nearly as much tant: don‘t lose money. The how smart they are, example, I got an annual success. best way to learn not to things change very report of a company in lose money is to lose Racine, Wisconsin. The money. Going through a quickly.” company is Twin Disc. I market like this is a great hadn‘t seen the company in learning experience, because a long time but was just the company for our clients. people realize no matter curious about them. And We have an analyst who how smart they are, things then all of a sudden I no- graduated from Columbia change very quickly. ticed they are producing a Business School within the transmission dedicated to last few years following the G&D: Thank you for fracking. Meanwhile, I had company. Now, for the last speaking with us, Mr. been sensitized to the dy- 40 years I‘ve been reading Gabelli. namics of shale because of Variety and Billboard and National Fuel Gas, and here Automotive News and Farm I see a company producing a Income Journal and all sorts critical component. The of other things that give you stock was at $11. They an idea of what‘s going on have approximately 12 mil- around the world. The hard lion shares, and at the time part is to connect all the Page 20 Marty Whitman

(Continued from page 1) G&D: What about any would otherwise have. This Mr. Whitman graduated differences? avails itself to certain types from Syracuse Univer- of institutions – a good ex- sity and holds a masters I don‘t think we can identify ample is integrated electric degree in Economics high quality securities at utilities companies. from The New School discount prices unless we For Social Research. look at things not only as G&D: How do you think Mr. Whitman is Adjunct passive investors, but also about valuation? What met- Professor of Distressed from the point of view of rics do you tend to focus Value Investing at Co- the corporations, manage- on? lumbia Business School. ments, and creditors. So “I don‟t think we instead of primacy of the MW: Earnings are very, can identify high G&D: Can you talk about income account, we ap- very overrated. We can your approach and how it praise companies and man- look at the four ways cor- quality securities at compares to the classic agements in terms of their porate value is created. G&D approach? capabilities as operators. One is cash flow from op- discount prices We look at management erations available for secu- MW: Graham and Dodd, teams as investors and we rity holders, which is rela- unless we look at in my mind, had three great look at management as fi- tively rare. The second is things not only as contributions to investing. nanciers. Between those earnings, with earnings being The first is the focus on things we have a balanced defined as creating wealth passive investors, distinguishing between mar- approach. while consuming cash. Be- ket price and intrinsic value. lieve it or not, it‘s what but also from the This is very important since Graham and Dodd placed most corporations and gov- point of view of the modern capital theory as- great emphasis on dividends. ernments do. In order to sumes a price efficiency and In general, companies have have earnings in the long corporations and ignores intrinsic value. Sec- three uses of cash. They term, you have to remain ond, they preached the im- can expand assets, reduce credit worthy and you have managements. So portance of basing decisions liabilities, or distribute funds to have access to capital on solid facts. They did this to shareholders. The distri- markets to meet cash short- instead of primacy in the 1960s, which was bution of funds to share- falls. The third element of of the income ac- before companies were holders, with one exception, creating corporate value is forced to disclose every- always has to be a residual resource conversion, which count, we appraise thing they have to disclose from the company‘s point of can be massive changes in today. Everything about an view. This distribution can assets, massive changes in companies and investment decision should either take the form of liabilities, and changes of be based on the facts you stock buybacks or dividends. control. This includes managements in know and how reliable the Both have their advantages mergers and acquisitions, terms of their capa- facts are. It is much easier and disadvantages. Graham take-privates, LBOs, MBOs, to do this type of work to- and Dodd had a preference spinoffs. This is a very im- bilities as opera- day than it was when they for dividends; we think buy- portant element. The were doing it. The third backs can be a much more fourth element is having tors.” great contribution of Gra- judicious use of cash some super attractive access to ham and Dodd, in my mind, of the time. The one ex- capital markets. Let‘s say was their idea of investing ception to dividends to you own some income- with a margin of safety. stockholders being the re- producing real estate. Hav- Everything we do at Third sidual is where a regular ing access to long-term non- Avenue is based around increase in dividends im- recourse debt to finance these tenets of the Graham proves the company‘s ac- 70% or more of your pro- and Dodd method. cess to capital markets com- ject, that‘s a value creator. pared to the access they (Continued on page 21) Issue XIII Page 21

Marty Whitman

(Continued from page 20) Graham and Dodd, we are portfolio has a lot of finan- not as concerned with past cials, income-producing real We look at hurdle rates in earnings growth. estate, and a lot of private most of our common stock equity. With these invest- investments. We want to Taking the balance sheet at ments IFRS tends to be get in at a substantial dis- face value is often mislead- more useful than GAAP. count to readily ascertain- ing. For example, let‘s take Under IFRS, income produc- able net asset value. We a mutual fund management ing real estate assets are “GAAP is essential, want at least a 25% dis- company. Assets under carried at appraised value. count. We don‘t go into management, where persis- but it misleads you these types of situations tent, have a ready market G&D: Can you talk about as an analyst in unless we think there are value even through they are one of your favorite new very good prospects that, not a balance sheet asset. investment ideas? some respects. Cash over the next 3-7 years, the There are a lot of liabilities company can increase its that have equity characteris- MW: Cheung Kong Hold- accounting, which is net asset value by no less tics. Take deferred income ings, an enormously suc- than 10% per annum com- taxes for a going concern. cessful private equity and not GAAP, also mis- pounded. We are more Since the company is going real estate development conscious of growth in to reinvest cash savings company, has a net asset leads because it readily ascertainable net when they aren‘t paying value of around HK$140 doesn‟t give you any asset value than we are in taxes in assets which give per share. It is the world‘s earnings per share. This is rise to tax deductions, this largest container port op- measure of wealth unlike Graham and Dodd account is really more like erator with facilities who said value is created by equity than a liability. throughout the world, other creation. GAAP mis- operations. I don‘t think than the United States. Its that‘s real in today‘s world, G&D: In the past you have real estate operations are leads because it fo- in the 21st century. criticized how people use centered in Hong Kong and GAAP. Could you explain mainland China. Cheung cuses on wealth G&D: What about some these criticisms to our read- Kong, through its 50%- creation and buries other differences between ers? owned subsidiary Hutchison the Graham & Dodd ap- Whampoa, has interests in a cash accounting. It proach and your approach? MW: I have criticized how leading integrated oil com- people use GAAP, including pany in Canada; is one of is rules based, not MW: Graham and Dodd Graham and Dodd, who the largest retail store op- loved net-nets. When they thought it was so important erators in Europe and principles based..” invested in them, all they did to find true earnings. GAAP mainland China; and also has was look at classified bal- is essential, but it misleads extensive interests in tele- ance sheets. In my opinion, you as an analyst in some phonic communication in there are real limits to look- respects. Cash accounting, various countries; as well as ing at companies like these which is not GAAP, also utility operations in the so far as there are no cata- misleads because it doesn‘t United Kingdom. The stock lysts. Graham and Dodd give you any measure of cratered recently due to wrote about the unimpor- wealth creation. GAAP fears in Hong Kong regard- tance of the balance sheet. misleads because it focuses ing the company‘s huge From our point of view, if on wealth creation and bur- presence in Europe in ports you want to predict future ies cash accounting. It is and retail. There has been a earnings, one of the tools rules based, not principles lot of panic selling. One of you will use is ROE. We based. However, GAAP is the things about the Hong don‘t believe that you can critical in the USA because Kong stock market is that it just pay attention to past it is the only objective is dominated by ―short term earnings trends. Unlike benchmark you have. Our (Continued on page 22) Issue XIII Page 22

Marty Whitman

(Continued from page 21) ing that period, net asset we sold our position a while -ism.‖ I like to say that Hong values, after adding back ago and I don‘t really follow Kong traders ―don‘t like to dividends, have increased by the company anymore. buy green bananas.‖ more than 15% per year compounded. Results for G&D: Can you talk about G&D: Can you go through 2011 will be very strong. your investment in Brook- a few other holdings? 2012 may be a year of mod- field Asset Management erate recession. (BAM)? MW: Sure thing. Applied Materials, near $11, sells G&D: Can you talk about MW: Brookfield has a net around 10x earnings. It has the characteristics of some asset value of around $40, an extremely strong financial of your most successful in- through it trades near $29 position. It is the world‘s vestments? per share. It has ownership “For us, the key in- leading producer of chip in a large number of Class A manufacturing equipment MW: Some of my best office buildings in Manhat- vestment criteria and, through a China-located investments have been in tan, Toronto, Calgary and subsidiary, a leading manufac- companies that were going Washington, D.C. Equally are a super strong turer of solar panels. through Chapter 11. K- important are its hydroelec- mart was a good example, tric investments in Canada, financial position, Capital Southwest trades at back in 2003. The first thing the U.S. and Brazil. Brook- $84, yet has a net asset value we did was buy out a lot of field controls General buying at a dis- around $140. Investor AB, trade claims from creditors. Growth Properties and has which trades at 125 Swedish Then we kept averaging huge infrastructure, real count, and getting Krona on the Swedish Stock down and we went on the estate and agricultural in- Exchange, has a net asset official creditors committee. vestments in Brazil and Aus- comprehensive dis- value of around 189. Both It was there that we met tralia. Finally, Brookfield is are investment companies Eddie Lampert, who asked if the general partner in highly closure so we can with extremely favorable we would join him in the successful hedge fund in- long-term records for grow- reorganization, which we vestments. understand the ing net asset value and divi- did. Eddie ran everything. dends. To find these types of G&D: How do you think business.” homeruns we really need about the macro when you Last, I want to mention Hang good partners. We are invest? Lung Group and Wheelock & good investors, but not Company. Hang Lung is the great managers. MW: I think the reason holding company for the that such a high percentage leading developer of shop- Unfortunately he‘s tied up of our holdings are in the ping centers in secondary with troubles at Sears now. Far East is that the region cities in mainland China, fol- I think Sears is toast. Eddie has better prospects for lowing its huge success in is very skilled, but I think it NAV growth than any other building and operating two will be very hard to turn part of the world. For us, shopping centers in Shanghai. this thing around. The com- the key investment criteria Wheelock is a holding com- pany has a nice cash posi- are a super strong financial pany for a huge private eq- tion now from realizing the position, buying at a dis- uity and real estate devel- value of the company‘s real count, and getting compre- oper. Both common stocks estate. I don‘t know what‘s hensive disclosure so we sell at substantial discounts left. I have the greatest can understand the business. from net asset value. Third respect for Eddie, and if I think these things are rela- Avenue has been invested in anyone can pull this off, it‘s tively easy to find, but figur- Cheung Kong, Hang Lung and he. I‘m not as close to the ing out the macro is very Wheelock since 2005. Dur- situation as I used to be, as (Continued on page 23) Issue XIII Page 23

Marty Whitman

(Continued from page 22) MW: We like to go where strong financial position. hard. The real thing inves- there are readily ascertain- We really lucked out. tors should be thinking about able asset values at a huge We‘ve dealt with terrific is creditworthiness. Credit- discount. ‗Readily ascertain- managements throughout worthiness, for any eco- able‘ is not rocket science – the world. nomic entity that has to bor- it includes income- row, is a function of three producing real estate, secu- These discounts would “If I can buy these things – the amount of debt, rities and private equity. I never exist if there were the interest rate on the debt, like technology companies. catalysts, especially pros- well capitalized busi- and how productive is the Microsoft (MSFT), Intel pects for change of control. nesses at big dis- use of proceeds. I don‘t (INTC) and AVX (AVX) are Once that existed, they know why everyone doesn‘t companies that have cash wouldn‘t sell at these dis- counts, I‟m not wor- wake up to the fact that in well in excess of book li- counts. If there are no pros- the aggregate, debt is almost abilities. These are very pects for change of control, ried about the mar- never repaid, and doesn‘t profitable businesses gener- there is no reason security have to be. Provided the ating a lot of cash, and they prices ever have to be ra- ket. I just think entity can remain creditwor- have large cash balances. As tional. What we do is Gra- thy, it can refinance, expand such, I feel confident that ham and Dodd on steroids. there are fantastic the amount of debt and con- they will not burn the cash We are looking for growth opportunities in 363s tinue the process forever. that serves as a sizeable in NAV if there are no read- As long as the assets are portion of the asset value. I ily apparent catalysts. One (emergency sale of a used productively, you can‘t think retail is often very of the reasons for the huge call it a Ponzi scheme. prone to distress. Between discounts for securities on company in bank- the banks, the landlords, the the Hong Kong stock ex- G&D: Would you shy away bondholders, and the trade, change is because the rules ruptcy) and in capi- from the equity market given companies are very danger- for change-of-control that what‘s going on in Europe ously financed. It‘s often make it almost impossible tal infusions. You right now? hard to call a bottom on for companies to go private could do very well retailers. I remember what or do a cash merger. You MW: First off, it‘s not going one of my college profes- need a shareholder vote of making capital infu- on in Europe, its going on in sors used to say – 90% of the outside share- parts of Europe. They are ―Everything is unpredictable, holders to approve a going sions like Warren very happy in Scandinavia. especially the future.‖ private transaction. We‘ve I‘m not smart enough to fig- gone to the Hong Kong Buffett has in recent ure out if I can buy things G&D: What is the best Stock Exchange to try to get cheaper than I have. If I can approach to find new ideas them to change the rule so years.” buy these well capitalized that finding companies trad- that companies can go pri- businesses at big discounts, ing at a substantial discount vate with a simple majority. I‘m not worried about the to NAV, but also have a If something like this were market. I just think there are quality business, a quality to happen, the discounts fantastic opportunities in management team, and would not be as ludicrous as 363s (emergency sale of a growth prospects for NAV? they are right now. Mean- company in bankruptcy) and while, the companies we are in capital infusions. You MW: We usually tend to invested in have insiders could do very well making be in bed with managements who continue to make open capital infusions like Warren who don‘t really need the market purchases of their Buffett has in recent years. capital markets. In 2010 stock, despite not being able and 2011 these manage- to do a full transaction. The G&D: What industries are ments were willing to sacri- absence of potential changes you inclined to invest in and fice return on equity for the in control really hurts an why? safety and opportunism of a (Continued on page 24) Issue XIII Page 24

Marty Whitman

(Continued from page 23) an investment? risk. Market risk is just a economy. It breeds manage- random walk. Without ment teams that don‘t use MW: You can be wrong catalysts, any near-term resources well. Japan seems about anything. One of the market prices are a random a good example of this. things that is very important walk. to understand is that diver- On a different note, a good sification is only a surrogate, G&D: Who else in the example of our being disci- and usually a poor surro- industry do you have a lot Bill Ackman and David plined in finding bargains, was gate, for knowledge, con- of respect for? Einhorn at the G&D not chasing things during the trol, and price conscious- Breakfast, 2010. dotcom boom. We never ness. As a non-control in- MW: There is a great ten- really suffered during the vestor you have to have a dency for the best people in period. We had criteria moderate amount of diver- value investing to graduate “One of the things when looking at tech compa- sification, which is not true and to do control investing nies in those days. Cash had as much for control inves- and distressed investing. that is very impor- to be well in excess of book tors. It is very hard to There are a lot of very suc- liabilities. We would never make guarantees. A margin cessful people who will tant to understand pay more than 2x annual of safety usually comes from never make a passive invest- revenue and never pay more buying high quality securities ment. Take my friend Sam is that diversifica- than 10x peak earnings. We at a discount. Secondarily, if Zell for example – he never could meet these criteria you are a passive investor makes an investment where tion is only a surro- with large blue chips, such as you need a moderate he doesn‘t have control. Intel (INTC), AVX (AVX), amount of diversification. Warren Buffett is a control gate, and usually a and Applied Materials This is really a probability investor and also is very (AMAT). business, not a certainty much a distressed investor. poor surrogate, for business. As an outside Bill Ackman, David Einhorn, G&D: How do you get passive investor, you can be and Mario Gabelli come knowledge, control, comfortable investing in Ja- wrong about anything. from the Graham and Dodd pan and Hong Kong when school of passive investing and price con- the catalyst may never actual- G&D: If an analyst comes and are all investors I re- ize? into your office with a new spect. sciousness… It‟s idea, what are the first few MW: I‘m absolutely com- things you would want to G&D: What do you think been more business fortable in most things when know? has made you a successful I can find discounts to NAV investor? skill than invest- of 40%. I was a limited part- MW: What I want to do is ment skill that has ner in Jim Grant‘s Nippon understand the business. I MW: I can spell that out. Partners. They went out and want to know the estimate L…U…C…K. It‘s been helped me through- bought 20 net-nets in Japan of NAV, and can we buy it more business skill than in 1999. On this stuff, I have at a sizeable discount from investment skill that has out my career.” to hope they have the this. We guard against in- helped me throughout my growth in NAV and that the vestment risk, but we pretty career. discount doesn‘t widen. A much ignore market risk, real shortcoming of what we which is different from Gra- G&D: We appreciate you are doing now, and what we ham and Dodd, who were sharing your thoughts with doing then, is a lack of a cata- very conscious of how much us, Mr. Whitman. Thank lyst. you suffer when the price you. goes down. We try and G&D: How do you get train our people that to be comfortable that there is a successful, you need to sufficient margin of safety in guard against investment Page 25

Columbia Business School Alumni Profile: Eli Rabinowich G&D: Tell us a little about cation at Columbia shape We utilize a proprietary your background and your you and how did you de- screening system that iden- current firm? velop as an investor post- tifies stocks that are cheap graduation? on price-to-normalized ER: I did not know what I earnings. The screen takes wanted to do after business ER: Columbia is great in the last 10 years of history school, but I knew Colum- the sense that it is almost a (revenue growth, returns bia was famous for its value practical application on how on capital, and margins) and investing tradition, and to invest. There are a lot of extrapolates future normal- when deciding on schools, I real world practitioners ized earnings five years out. thought that at a minimum I who come in and say ‗here For example we will run the wanted to go to a great is what we do‘. The big screen for our large cap business school and learn difference in what happens portfolio, where the pool of how to invest my own at Columbia and what hap- companies is the 500 largest money. I took all of the pens at other schools is that companies in the U.S. We classes on value investing, Columbia really shapes the will then fish in the cheapest and after the first semester temperament in terms of quintile. The analysts spend figured out that this was buying cheap stocks – at their time doing deep dives what I wanted to do. I Columbia they really drill into the companies that the started the ‗Profiles in In- that into you. But in terms screen identifies and then vesting‘ column at Columbia of how to really think about we will ultimately invest in where I would interview a business, such as what the 30-40 of those 100 names. different value investors. critical drivers are, and how One of the investors I pro- to deal with the emotional G&D: What are some of filed was Rich Pzena, and I volatility of the market, I the biggest challenges in started working at Pzena really learned all of that investing? Investment Management after school. when I graduated. ER: The most challenging G&D: The most difficult thing is having confidence in I am now a portfolio man- part of investing is often just your earning‘s estimates ager for Pzena Investment generating an idea and find- when the market moves Management, where I co- ing mispriced securities – against you. What we do is manage our mid-cap U.S. what is your search process we constantly reevaluate portfolio. and how do you go about our normal earnings and it? position sizes. We do it on When I first started I cov- every major news event and ered property & casualty ER: I fundamentally dis- on every quarterly report. insurance, followed by agree that finding new ideas The analyst will write up pharmaceuticals, medical is the hardest part of invest- what happened and the esti- devices, chemicals and hous- ing. I think ideas are all mated impact on normal- ing. We rotate sector cov- over the place and there are ized earnings. Theoretically, erage here every 3 to 4 many places to look for once we have locked in years. The rotating cover- ideas such as new stocks normalized earnings, stock age model is employed be- hitting 52-week lows, look- price moves should not cause it gives the analyst ing at insider buying trends, impact the normalized earn- exposure to different busi- etc. There certainly are a ings of a company. ness models. From an in- lot of statistically cheap vestment standpoint, it al- stocks most of the time. We have a morning meeting lows the firm to get differ- The hard part is separating every day where analysts ent perspectives on a given what is permanently cheap report on material news, industry. and what is cheap for a tem- where the analysts will give porary reason. an update on their compa- G&D: How did your edu- (Continued on page 26) Issue XIII Page 26

Eli Rabinowich

(Continued from page 25) G&D: What questions do worse. nies. We generally will not analysts have to answer in react to stock prices move- order to figure out if a par- G&D: Could you talk ments, though if something ticular business is a good about a recent investment? happened at the operational business? level, we will sit down and ER: Mohawk Industries discuss whether or not ER: The critical element is (MHK) is an interesting idea. something has changed that understanding what the sus- Mohawk is the second larg- Pictured: Steve Eisman at the fundamentally changes our tainable level of earnings for est manufacturer of carpet Columbia Investment Manage- view of the company and its a company is. We start in the country. The com- ment Conference in February normalized earnings power. with ‗what has the company pany has cyclically depressed 2011. For example, if management historically done‘, and then revenue because the busi- decided to make a large di- ‗is the future likely to be like ness is related to housing,. lutive acquisition that was the history or different from Mohawk has three busi- not in our forecast, we may the history?‘ Where we nesses, each of which is then have to reduce our nor- spend a lot of time is trying about a third of the total mal earnings. to understand what has companies business. These changed to make a stock businesses are carpet, ce- G&D: What is your typical cheap. Typically you have a ramic tiles, and laminate holding period, and how do company that was going flooring. In carpet the big you decide when to sell? along and everything was players are Mohawk and fine, and then somehow it Berkshire Hathaway, which ER: Our typical holding pe- ended up being a cheap together control roughly riod is about three years, but company. For example, we 80% of the market. The our horizon is five years, are finding a lot of opportu- business is characterized by really ten years. Our sell nities in housing-related high returns on capital, good process is fairly mechanical. stocks. Housing stocks are margins, and very stable We buy names in the cheap- cheap because the macro market share, In ceramic est quintile, and we sell when environment for housing tiles, Mohawk is the undis- a names reaches the mid- stinks. -We used to make puted leader with roughly point of fair value. Today, 1.5 million houses a year 35% market share and is the the average stock in the uni- and now we are building only integrated manufac- verse is trading at approxi- fewer than 600 thousand turer and distributor in the mately 11x our normalized houses. The questions then ceramic space. In laminate earnings estimate and we are becomes ‗what is the sus- tiling it has dominate posi- currently buying names that tainable level of housing tioning in Europe. Cur- are trading for 5-7x normal- construction?‘, and ‗are rently the stock has a dou- ized earnings. We will sell these the same companies ble digit free cash flow yield when the name trades at an with the same characteris- and then there is a lot of average multiple. A lot of our tics and same return profile room to improve as the holdings are depressed and it that they have historically macro environment gets takes time for things to work had, but are now just oper- better. Here is a business out. Some are facing some ating in a difficult environ- that has a dominate fran- sort of problem and others ment?‘ Other companies chise in each of its busi- are just disfavored by the could have had a change in nesses, currently generating market. On average it takes the competitive structure, good investment returns, a few years for the market to and then we want to under- with very good long-term come around to our point of stand the competitive dy- prospects, trading at a cycli- view about a stock‘s valua- namics of an industry, and cally depressed valuation. tion. see if they are the same as before of if they have gotten (Continued on page 27) Issue XIII Page 27

Eli Rabinowich

(Continued from page 26) longer, not getting divorced, been very slow. About 15 G&D: How much do you etc. At some point there is years ago, carpet was 70% think about the macro envi- going to be a need for hous- of square footage and since ronment? Is it more of an ing. This is a macro call on then it has trended down to opportunity to buy cheap housing starts as opposed to 60% of square footage. stocks, or is also something call on the general econ- you look at to try forecast? omy. G&D: So where do you think the intrinsic value of “The most challeng- We are not sitting here Mohawk is? saying GDP is going to be ing thing is having up a certain amount, nor do ER: At ~6x our normalized we necessarily want to be earnings estimate of $7.50 confidence in your positioned cyclically or non- we find the stock very at- cyclically – we care about tractive. earning‟s estimates what stocks are the cheap- est. In the current environ- “The critical element when the market ment people are more moves against you.” scared and that generally is understanding means cyclical stocks are probably cheaper right now. what the sustainable What we want to own are ER: We do not spend much companies that have the level of earnings for a time forecasting the macro. wherewithal to make it to company is. We start For a company like Mohawk, the other side and do well. you can look at the level of What‘s great about Mohawk with „what has the housing starts, which is the is that if the economy gets number of houses we create worse, Mohawk actually company historically each year in this country. throws off cash because its Household formation each working capital needs get done‟, and then „is year is a little over 1 million reduced. It then needs cash per year. At a minimum we as it is coming out, but the future likely to be need to have a level of hous- that‘s a good thing and al- like the history?‟ ” ing starts that is commensu- most anyone would be will- rate with household forma- ing to lend to them. tion, plus a little extra when G&D: Can you tell us you factor in teardowns, G&D: Do you think that about another investment second homes and migration there could be a secular idea? patterns. The majority, trend toward less carpet more than 2/3 of sustainable and more hardwood? ER: Abbot Labs (ABT) is a demand, comes from house- diversified healthcare com- hold formation. While we ER: Clearly there is a trend pany. It has some very large overbuilt during the boom away from carpet and to- pharmaceutical products. we are now building below a ward other surfacing, and The company has one prod- sustainable level. At some it‘s been going on for the uct that the market is very point all of these households last 20 years. Mohawk has scared about right now. are going to need a place to seen this, and it is part of Humira, an injectable drug live. What we have seen in the reason that the com- used to treat autoimmune the recession is that house- pany moved into ceramic disorders, accounts for $6.5 hold formations have col- tile and laminate flooring. billion of the company‘s $30 lapsed - people have been The share shift away from billion in revenues. The living with their parents carpet has (Continued on page 28) Issue XIII Page 28

Eli Rabinowich

(Continued from page 27) don‘t think you are going to ferent value investing firms. company also has leading tell your boss ‗that is not It‘s important to find the businesses in stents, nutri- how I would do it‘. You place where your tempera- tion, and cardiovascular. should really be very re- ment and the temperament There is a lot of value in sponsive to how your boss of the firm are in tune. For these businesses, but the me personally, I was looking market is discounting this “In the current envi- for low position turnover right now. The most immi- and low personnel turnover. nent threat to Humira comes ronment people are from potential alternative G&D: What do you think therapies, such as Pfizer‘s more scared and that separates successful value Tofacitinib. The value investors from less success- proposition of these treat- generally means cy- ful ones? ments is easy to understand as they are oral therapies clical stocks are ER: The ability to under- that will be competing in a probably cheaper stand the odds of their rec- category dominated by in- ommendations. Every in- jectable products. Based on right now. What we vestment is essentially a bet our analysis, however, we on, or a prediction of, the believe the market is vastly want to own are future. Being able to make overestimating the potential bets in such a way that you impact of Tofacitinib, and we companies that have make money on the upside think that Humira‘s sales will but don‘t lose much on the likely persist for years. the wherewithal to downside is biggest thing an There are a lot of hurdles for make it to the other investor needs to be suc- Tofacitinib. The drug still cessful. What I have found needs to be approved by the side and do well.” is that people who are in- FDA. Compliance can be a trinsically motivated to find major factor for twice a day thinks about things. Even good investments tend to oral treatments, vs. a once in within value investing there be better long-term per- two week injection for Hu- are many different ways to formers in the industry. mira. In addition, Tofacitinib slice it. You could look at a Over time these people will may not be as successful as range of value investors and separate from others who Humira in certain indications, their portfolios will look are just in the industry be- for example, a recent clinical completely different. It is cause it is a lucrative field to data released in May 2011 important to realize how be in. There will be a lot of indicated that Tofacitinib your firm values companies times when the stress level failed to meet the primary and to think about how they can get pretty high when endpoint in a Crohn‘s disease evaluate businesses. positions start to move study. against you, so if you don‘t G&D: What advice do you really enjoy it you are in for G&D: What is one thing have for newly graduating a tough time. students should know before business school students entering the investment looking for jobs in value G&D: Thank you very world? investing? much, Mr. Rabinowich.

ER: The Applied Value In- ER: When I was interview- vesting program at Columbia ing for positions it stood gives you a great preparation, out to me how the style, but you still have a lot to pace of investing, and tem- learn. When you come in, perament varied across dif- Page 29

Great Lakes Dredge and Dock (GLDD) - Winner of 2011 Sonkin Prize Philip O’Brien

[email protected]

Investment Thesis Philip is a second year MBA I recommend purchasing shares of Great Lakes Dredge and Dock Corporation (―GLDD‖ or the student concentrating in ―Company‖) with a price target of $6.55. GLDD is a business with a 80% margin of safety on an asset Finance & Economics. He reproduction basis at current price levels, a conservative valuation on an earnings power value or free spent the summer interning cash flow basis, impressive barriers to entry and a dominant market position, recurring revenue from with a private equity fund in that smoothes over fluctuations in capital spending project demand and a demonstrated ability to New York City. Prior to make acquisitions at attractive prices. enrolling at Columbia

Business School, he spent Margin of Safety on an Asset Reproduction Basis: The book value dramatically understates (by four years in investment over $1 billion) the fair market value of the Company‘s vessel assets. In addition, the Company has banking and private equity real estate holdings with significant underlying value that is not reflected on its balance sheet due to GAAP accounting conventions. I estimate that the Company‘s net asset reproduction cost would be roughly $24.31 per share. At the company‘s current stock price of $4.91, this implies an 80% margin of safety on the basis of asset value alone.

Trading Significantly Below Conservative Estimate of Earnings Power Value: GLDD exhib- its upside of roughly 33% of its current share price based on a conservative estimate of its earnings power value (following page). Historically, talented, private-equity backed management teams have actually been able to achieve EBIT margins of 11% over the course of several consecutive years (e.g. 1999-2002). If management could improve cost discipline to get back to those levels, then the upside from current price levels would be approximately 94% from the current share price (implied price target of $9.53).

Significant Barriers to Entry: The combination of the Foreign Dredging Act of 1906 and Merchant Marine Act of 1920 prohibits foreign competition in domestic U.S. dredging operations. The Company owns and operates the only two hydraulic dredgers in the U.S., which are particularly important for dredging the Port of Houston and the deepwater ports along the California coast. The Company has a dominant market position with an estimated 46% of the domestic dredging bid market from 2008- 2010, so GLDD is several times the size of its nearest competitors, giving it unique advantages in bidding on large contracts. Finally, the Company estimates the reproduction cost of its fleet at over $1.5 billion versus a book value of $315 million, so any potential entrant would face unattractively high upfront capital expenditures.

Demonstrated Ability to Make Acquisitions at Attractive Prices: GLDD‘s acquisition of Matteson was done at ~3.0x EBITDA versus a GLDD trading multiple of 5.0x 2011E EBITDA. Signifi- cant synergies will likely result in following years as well, as headcount can be removed from the G&A expenditure line (G&A has historically been roughly 7.5% of sales).

Management: The GLDD management team has industry experience and a record of managing the business prudently. Management has also been disciplined in making acquisitions in the past with only one major acquisition in the last ten years, and that one was at an accretive multiple. I would note however, that management‘s incentives are not perfectly aligned with shareholders, since the com- pany‘s executives are expected to target EBITDA for its dredging segment alone rather than consoli- dated EBITDA—giving management incentive to shift overhead costs between segments. IssueIssue XIII XII Page 30

Paul Johnson Great Lakes Dredge and Dock (Continued from previous page)

Cash Flow On an enterprise basis, GLDD generates substantial free cash flow and has low, manageable levels of leverage at 1.8x net debt / 2011E Consensus EBITDA, which is down significantly from 3.7x as of the end of 2008. At a multiple of only 6.3x TEV / (EBITDA—Maintenance CapEx), GLDD represents a unique opportunity to buy a business with a substantial cash flow yield even at a cyclical trough for the industry, with substantial asset coverage buttressing the cashflow valuation.

Business Description “GLDD represents a GLDD is the largest provider of dredging services in the United States. GLDD provides dredging ser- vices in the East, West and Gulf Coasts of the United States and worldwide. The Company also owns a unique opportunity majority interest in NASDI, a demolition services provider in the Boston, MA area. The Company has a 50% interest in Amboy Aggregates, a sand mining operation in NJ. GLDD earned 89% of its FY2010 to buy a business revenue and 103% of its FY2010 operating “ ” income from dredging operations and 11% of (US$ m) with a substantial its FY2010 revenue and (3%) of its operating 2011 Consensus Revenue $651.8 cash flow yield even income from demolition operations. Average EBIT margin (1999-2010) 7.5% Sustainable EBIT $48.9 at a cyclical trough Valuation Average tax rate 38.0% GLDD is an asset intensive business with Normalized NOPAT $30.3 for the industry, with significant swings in margins, primarily tied to Excess depreciation after tax 13.6 swings in the capital project dredging cycle Normalized Earnings $43.9 substantial asset and the overall economy. Therefore, I don‘t WACC 8.0% consider this a franchise business and have Earnings Power Value $549.0 coverage buttressing omitted a discussion of growth from our Net debt (161.5) the cashflow valuation here, since it is unlikely to be EPV Equity $387.4 growth within the franchise. Instead, I looked Current market capitalization $290.6 valuation.” at the earnings power of the business using Upside to current price 33.3% average EBIT margins over the cycle and ad- justing for excess depreciation. Based on my calculations the earnings power of the business, conserva- tively valued, provides a 33% upside to the current share price. While I took the cyclical average margins for the company‘s earnings power value, 2011 consensus revenue estimates are relatively depressed due to a cyclical lull in the level of capital dredging projects, especially abroad. In the past, talented private equity-backed management teams have raised EBIT margins to 11% over several consecutive years, sug- gesting that there is significant potential upside from our earnings power estimates.

Investment Risks/Considerations Economic Slowdown: Although the Company doesn‘t break out its margins by contract type, the capital project (29% of 1H2011 Revenue) dredging margins are significantly higher than the maintenance and nourishment dredging margins and would be especially vulnerable to an economic slowdown.

Labor Costs: GLDD, including Matteson, had 39% of its 2010 employees on salary and the remaining 61% on hourly wages that are largely determined by a handful of union contracts. Union contracts repre- senting over 43% of the Company‘s hourly workforce will reset in 2012.

Bahrain Unrest: Foreign dredging revenue, comprised primarily of revenue derived from contracts in Bahrain, contributed 14% of contract dredging revenue in the first half of 2011. The Company carries insurance on property and personnel but not lost revenue. A significant spike in the unrest against the government of Bahrain could lead to a significant loss of revenue and operating profit.

Contract Risk: The Company faces competitive bidding on most of its government contracts. Con- tracts from the U.S. Government‘s Army Corps of Engineers accounted for 54% of 2010 revenues, al- though it was spread over 47 contracts. Page 31

Madison Square Garden Inc. (MSG) - Winner of 2011 Sonkin Prize Michael Yablon

[email protected]

Madison Square Garden, Inc. (Nasdaq:MSG) FYE 12/31 ($ in millions except per share) FY Ends June 30 2009A 2010A 2011A 2012E(2) 2013E Share Price as of 10/21/11 $25.07 Projections Basic Shares Outstanding 76 Revenue $1,062 $1,157 $1,188 $1,151 $1,270 Options / RSUs 2 %YoY Growth 6% 9% 3% (3%) 10% Total Shares Outstanding 78 EBITDA $106 $217 $208 $191 $346 Market Capitalization $1,961 % Margin 10% 19% 18% 17% 27% Cash and Equivalents $305 EBITDA Multiple 15.6x 7.6x 8.0x 8.7x 4.8x Capital Lease $4 PF for Renovation EBITDA Mult. 22.0x 10.7x 11.2x 12.2x 6.8x Enterprise Value $1,660 FCF $29 $96 $91 $81 $177 MSG Renovation Cap Ex (1) $675 FCF Yield 1% 4% 4% 3% 8% Michael is a second year PF Enterprise Value $2,335 Implied Valuation Using FY2013E EV/EBITDA Multiple PF for Renovation MBA student participating in % of Insider Ownership 21% EBITDA Multiple 8.0x 9.0x 10.0x 11.0x 12.0x 52-Week Low-High $20.28-$30.21 Market Capitalization $2,391 $2,737 $3,082 $3,428 $3,774 the Applied Value Investing Avg. Daily Volume (MM) 0.3 Implied Price Per Share $30.57 $34.99 $39.40 $43.82 $48.24 Program. While at school, Shares Sold Short (MM) 1.0 Implied Annualized Return 12% 22% 31% 39% 47% he has worked at two value- (1) Analysis treats the $710M remaining cap ex to be used to renovate the Garden over the next three years as debt, discounted to present value at 3% oriented hedge funds. Prior (2) All 2012 projections assume NBA misses half the 2011-2012 season to enrolling at Columbia Investment Thesis: Business School, he was an I recommend purchasing shares of Madison Square Garden (―MSG‖). MSG is poised to benefit from investment banker focused improvement in its core business segments and the unrecognized upside in the renovation of the on mergers & acquisitions. Garden. The new Garden will boost earnings, allowing MSG to better harvest returns from an un- Michael holds a BA from derutilized asset. Shares for the entire company, including the Knicks, Rangers and Madison Square Columbia University. Garden Arena, are trading at 4.8x projected 2013 EBITDA while lesser regional sports networks (―RSN‖) without the irreplaceable assets listed above have typically been sold in the 15x-25x EBITDA range. Applying a10x EBITDA multiple gives a target price of $40 per share or a 30% annualized return. A sum of the parts valuation discussed on the next page, which reflects the private market value of MSG‘s unique assets, yields a target price of $50 per share, although a breakup is unlikely. Buying Highly Profitable Regional Sports Network at a Steep Discount to Peers: RSNs are a must- have for cable providers whose subscriber base demands local sports content. Cable providers pay a premium fee of $3.50 per sub with 5% yearly escalators for the MSG Networks. Sports hit key male demographics and are typically watched live with advertisements. MSG and MSG+ are arguably the most valuable RSNs given that they serve the largest market in the US (16M subs), operate at a higher margin due to vertical integration and have teams with dedicated fan bases. RSNs do not trade pub- licly but have historically been acquired in the 15x - 25x range, with an average of 18x for the 37 transactions analyzed from 1994-2009 in DTV's S-4 filed on 6/08/09. Garden Renovation provides Attractive Opportunity: MSG has undertaken a four year ~$850M renovation of Madison Square Garden. The Garden will be closed for three consecutive summers from 2011-2013. The new Garden will increase the number of suites from 89 to 111 and will result in general admission price increases throughout the stadium (prices haven‘t increased for most seats in 8 years but will increase 49% and 23% this year for the Knicks and Rangers, respec- tively). Renovation execution is critical but the market is unduly skeptical of ROI. Garden improve- ments should yield $75M in incremental EBITDA in 2013. MSG has guided to the renovation costing $850MM-$1B. However, Forest City Ratner, the builder of the Barclay Center in Brooklyn that will be home to the Nets has estimated the cost to be $800M for building the new Center from the ground up. Clearly, new construction requires significantly more raw material while the same unions are employed on both projects. If the NBA returns from its lockout and the Knicks continue to im- prove (potential Chris Paul acquisition in 2012) there is a lot of upside to ticket prices driving incre- mental EBITDA beyond 2013. NBA Lock Out Creates Buying Opportunity: The lockout creates a near term catalyst for the stock price upon the work stoppage‘s resolution. Currently, the players and owners have little incen- tive to negotiate in good faith given that neither side feels the impact financially prior to the start of the season. In my opinion, this lockout will follow the pattern of the previous one in 1998 when half a season was missed. Like the previous lockout, owners should prevail and gain better economics that will benefit MSG long-term, while investors can take advantage of the short-term uncertainty. Business Description: Madison Square Garden, Inc. was spun off from Cablevision, owned by the Dolan family, on 2/9/10. MSG business segments include the Knicks and Rangers sports teams, Madi- son Square Garden arena, the MSG regional sports networks, and a series of smaller entertainment businesses, including the Christmas Spectacular at Radio City Music Hall, the Beacon Theatre, Chi- cago Theatre and Wang Theatre in Boston. Issue XIII Page 32

Madison Square Garden (Continued from previous page)

Business Segment Overview: Substantial Value in the Sum of the Parts A sum of the parts/breakup analysis shows significant upside to the current stock price but should not be considered viable given the interlocking nature of the businesses. A potential breakup scenario is the Dolan‘s purchase the entire company and strip away non-core assets, like Fuse, and the MSG entertain- ment business. Minority shareholders would insure full value is reached given the Dolan‘s track record for unsuccessful takeover offers. The Dolan Family owns 70% of the total voting power of the stock. MSG Media: Provides almost the entirety of EBITDA currently and is a strong cash generator with exclusive access to programming for the Knicks, Rangers, NJ Devils, Buffalo Sabres, Liberty and Wolf- pack, along with college sporting events (ACC, Big East, Pac-10). MSG Media showcases these teams on MSG and MSG+. RSNs command premium subscriber fees because many cable subscribers view local Sum of the Parts Summary sports as a necessary feature in any cable package. MSG‘s RSNs warrant a premium valuation due to MSG Media their 35% EBITDA margin and top-tier market presence. By way of comparison, Liberty Sports Group‘s MSG/MSG+ RSNs sold for 13x EBITDA and had 22% EBITDA margins, generated just $45M (vs. MSGs $230M) and EBITDA $228 had far less iconic content. A 12x 2011 EBITDA multiple was used for the sum of the parts valuation. Multiple 12x MSG Entertainment: Primary value is the Radio City Christmas Spectacular, which generates $125M Value $2,736 in revenue and is viewed by 2M people annually. The Spectacular was renovated in 2008 for arena tours, Fuse which resulted in a decline in EBITDA of $25M. The segment has historically been profitable but operat- Subscribers 49 ing profit dipped due to cost associated with the renovation and the economic downturn. Peak EBITDA Per Sub $1 was in 2007 at $50M, so assuming that it returns to 50% of that level, applying a 5x multiple (Live Nation Value $49 trades at 6.3x), the business is worth $125M, plus another $25 for the other theaters. MSG Entertainment MSG Sports: The Knicks and Rangers were purchased in 1997 for $300M and $195M, respectively, and Xmas Spec. / Theaters $150 are accounted for at historical cost on the balance sheet. The Knicks were valued at $655M in January MSG Sports 2011 by Forbes and the Rangers were value at $416M in 2009. While neither team can be sold for two Knicks $655 years post spinout, both teams are significantly undervalued on the balance sheet. Prior to last season, Rangers $400 the Knicks had missed the playoffs for 6 straight seasons, but were ranked #2 in the league in gate re- Other Assets/Liabilities ceipts. The signings of Carmelo Anthony and Amare Stoudemire have rejuvenated the fan base and the MSG Air Rights $250 possibility of signing another big player in 2012 (Chris Paul?) will drive the Knicks to greater success in Live Nation Stake $34 the future. Any improvement with the sports teams has a multiplying effect on earnings throughout the Less: Corp. Cost $108 company – better teams mean playoff ticket sales, more tickets sold in general, higher ticket prices, more Total SOTP $4,166 merchandise and concession revenue and better per-sub affiliate fees and advertising rates for MSG and Plus: Net Cash $301 MSG+. Ticket prices will be raised for the first time (if there is a season, see below) but demand still Less: Renovation NPV $675 greatly exceeds supply. The renovated lower suite level is already sold out and a 10 year sponsorship SOTP Value $3,793 deal with JP Morgan for $300M gives visibility into ROI. This analysis ascribes no value to the Liberty or Price Per Share $48.49 the Wolfpack and the presentation rights for live sporting events that take place at the Garden, which Implied Ann. Return 48% clearly have value. The sports teams are part of the cultural fabric of New York with very loyal fan bases. Air Rights and Venues: MSG owns the land and the buildings on which Madison Square Garden rests and it also possesses the air rights. Gabelli estimates that the air rights are worth $250M at a 50% dis- count to the 4.5M capacity of MSG at $110 per square foot. The sum of the parts does not consider the value of their other tier 1 entertainment venues, which is highly conservative, and values its Live Nation stock at its market price. Investment Risks/Considerations NBA Lockout: In June, the NBA players were locked out after the Collective Bargaining Agreement (CBA) between the players and owners expired. The negotiations are ongoing and the crux of the dis- agreements revolves around the split of Basketball Related Income (―BRI‖) between players and owners and a ―hard‖ salary cap that cannot be exceeded. Under the old agreement, players received 57% of BRI and there was a ―soft‖ cap that allowed owners to exceed the salary cap but pay a penalty. The work- stoppage could have a significant impact on MSG in the near-term. By my calculations, a loss of the whole season could result in a loss of ~$170M in revenue and $85M in incremental EBITDA. Although it is my opinion that the entire season won‘t be lost, the uncertainty is priced into the stock and the nego- tiations will be a net positive for MSG‘s profitability and investors with a longer time horizon. Overhang on Stock Due to Dolan Family Control: The ―Dolan Discount‖ will erode over time as the Dolan‘s look to earn on their $400M position in the common stock. The Dolans have exhibited shareholder friendly activity in the last two years with the spin out of MSG and AMC Networks and the dividend and share repurchase at Cablevision. The typically 10%-20% discount associated with insider control is warranted but the significant discount likely associated with Dolan control is excessive. The Dolan‘s have offered investors in Cablevision numerous potential liquidity events over the years and there has been plenty of speculation that James Dolan would like to take MSG private. I view the Dolan ownership as a 'put' that offers investors downside protection. The Columbia Student Investment Management Association and The Heilbrunn Center for Graham & Dodd Investing are proud to announce the 15th annual CSIMA INVESTMENT MANAGEMENT CONFERENCE

On Friday, February 10th, 2012 Columbia University in New York, NY

The CSIMA conference is structured to be a full-day event with two keynote speeches and three panels.

This year’s conference provides an excellent opportunity to get the perspectives of some of the top names in the investment management business on current events, the global economy and promising new investment trends.

Please check our website for updates on speakers and agenda: http://www0.gsb.columbia.edu/students/organizations/cima/conference.html

Registration Opens: 31st October 2011

General Inquiries to: Cara Majeski Melissa O’Connor [email protected] [email protected]

Tickets priced at $350 (with available discount for CBS alumni and students.)

COLUMBIA STUDENT INVESTMENT MANAGEMENT ASSOCIATION

The Columbia Student Investment Management Association is dedicated to the education and career development of Columbia Business School students interested in working in the investment industry. The club's primary activities include sponsoring guest lectures from industry practitioners, organizing stock-picking contests, and assisting with the recruiting process. http://www0.gsb.columbia.edu/students/organizations/cima/

HEILBRUNN CENTER FOR GRAHAM & DODD INVESTING

The Heilbrunn Center for Graham & Dodd Investing builds on Columbia Business School’s extraordinary tradition of value investing by promoting the study and practice of the principles developed by Benjamin Graham and David Dodd, MS ’21. Established with the generous support of Robert and Harriet Heil- brunn, the center serves as the leading global resource on investing. To learn more, visit www.gsb.columbia.edu/valueinvesting

Get Involved:

To hire a Columbia MBA for an internship or full-time position, contact Bruce Lloyd, assistant director, outreach services, in the Office of MBA Career Services at (212) 854- 8687 or [email protected]. Available positions also may be posted directly on the Columbia Web site at www.gsb.columbia.edu/jobpost.

The Heilbrunn Center for Graham & Alumni Dodd Investing Alumni should sign up via the Alumni Web site. Click here to log in, Columbia Business School (www6.gsb.columbia.edu/alumni/emailList/showCategories.do), then go to the Cen- Uris Hall, Suite 325c 3022 Broadway ters and Institutes category on the E-mail Lists page. New York, NY 10027 212.854.0728 To be added to our newsletter mailing list, receive updates and news about events, or [email protected] volunteer for one of the many opportunities to help and advise current students, please

fill out the form below and send it in an e-mail to [email protected].

Name: ______

Visit us on the Web Company: ______The Heilbrunn Center for Graham & Dodd Investing www.grahamanddodd.com Address: ______Columbia Student Investment Management Association (CSIMA) City: ______State: ______Zip: ______http://www0.gsb.columbia.edu/ students/organizations/cima/ E-mail Address: ______

Business Phone: ______

Would you like to be added to the newsletter mail list? __ Yes __ No Contact us at: [email protected] [email protected] Would you like to receive e-mail updates from the Heilbrunn Center? __ Yes __ No

Please also share with us any suggestions for future issues of Graham and Doddsville:

Graham & Doddsville 2012 / 2013 Editors

Anna Baghdasaryan is a second year MBA student in the Applied Value Investing Program. She is currently working part-time for Clinton Group, a multi-strategy alternative investments firm. Prior to Columbia Business School, Anna worked in strategy and business development, and investment banking. She can be reached at [email protected].

Joe Jaspan is a second year MBA student in the Applied Value Investing Pro- gram. He is currently working part-time for a value-oriented hedge fund in New York. Prior to Columbia Business School, Joe worked in private equity and investment banking. He can be reached at [email protected].