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

Inside this issue: Issue XI1 Spring 2011

Pershing Square P. 2 “It Is The Judgment That Counts” — Michael Price Capital Challenge Mr. Price began his ca- had small amounts of stock. We could not influence Motorola P. 22 reer in 1973 when he joined Max Heine at Mu- proxy fights. We always had Solutions tual Series. In 2001, he value and we always had left the firm to begin his situations involving corpo- Quest P. 24 own fund, MFP Investors, rate control. When the Diagnostics LLC. He earned a funds got bigger, we realized Bachelor in Business Ad- that we could use our signifi- 2010 Graham & P. 26 cant influence for the better- ministration from Uni- Michael Price Dodd Breakfast versity of Oklahoma. ment of our position, and that of all the other share- don‟t take controlled posi- G&D: You have been in- holders. We did that for a tions. We don‟t try and while, and then I got out of force things to happen any- volved in distressed and spe- cial situation investing for a the fund business. Now I am more. long time. How has your back to a small, family office Editors: strategy evolved and what is kind of fund, where we don‟t G&D: Activism is the new the mix today? have that clout, but we try buzzword. What do you Garrett Jones and influence directors and think about it? MBA 2011 Michael Price (MP): It officers just because of our Daniel Kaskawits has evolved indeed. As a point of view that we think is MP: There is nothing new well thought out. That is MBA 2011 small mutual fund at Mutual under the sun. We used Series, we had no say. We how it has evolved. We (Continued on page 4) Anna Baghdasaryan MBA 2012 “Big Companies In Small Industries” — Paul Johnson Joseph Jaspan MBA 2012 Paul Johnson manages G&D: Tell us a little about Nicusa Capital, a long- your background and how term concentrated fun- you got into value investing. Contact us at: damental value hedge [email protected] fund. He began his ca- Paul Johnson (PJ): In the Visit us at: reer as a sell-side analyst early part of my career, I was www.grahamanddodd.com at several Wall Street a sell-side technology analyst. www0.gsb.columbia.edu/students/ firms. He has previously I worked for various firms organizations/cima/ taught Security Analysis on Wall Street for twenty and Value Investing at years. I was one of the sen- Columbia Business ior technology analysts on School as an adjunct pro- the Street during the tech fessor. bubble of the late '90s and Paul Johnson watched that market crash, Mr. Johnson holds a B.A. which had a big impact on ultimate performance of a from UC Berkeley and my thinking. That experi- stock. One can try to play an M.B.A. from Whar- ence reinforced how critical the game of outguessing ton. the intrinsic value of the un- where a stock price is going, derlying company is to the (Continued on page 13) Page 2 Welcome to Graham & Doddsville

We are pleased to present investing career, shares his investment ideas that are you with Issue XII of Gra- perspective on activist in- relevant today. The current ham & Doddsville, Columbia vesting and gives us insight issue includes two invest- Business School‟s student- into a few of his fund‟s posi- ment ideas by student led investment newsletter tions. teams, who were the finalist co-sponsored by the Heil- and the runner up of the brunn Center for Graham & The issue also features an Pershing Square Capital Pictured: Bruce Greenwald, Dodd Investing and the Co- interview with Paul Johnson, Challenge. named the “Guru to Wall lumbia Investment Manage- who manages Nicusa Capi- Street‟s Gurus,” at the Columbia Investment Management Con- ment Association. tal. Mr. Johnson describes Please feel free to contact ference in February 2011. his value-focused, research us if you have comments or This issue features an inter- intensive approach and gives ideas about the newsletter view with Michael Price, some examples of recent as we continue to refine this portfolio manager of MFP investments. publication for future edi- Investors. Mr. Price de- tions. Enjoy! scribes the evolution of his We aim to offer specific

Pershing Square Value Investing and Philanthropy Challenge in Pictures Page 3

Pershing Square Value Investing and Philanthropy Challenge

Students and alumni gath- pared presentation of the ered on April 8, 2011 for idea that they had chosen, the Fourth Annual Pershing followed by 20 minutes of Square Value Investing and Q&A with the finalists. Philanthropy Challenge, a value oriented stock pitch The five finalists were se- competition, co-sponsored lected from a pool of 33 by the Heillbrunn Center of teams, which enrolled in the Value Investing at Columbia Applied Security Analysis Business School and Per- class at Columbia Business shing Square Capital Man- School. The course was agement. The competition taught by Professors An- is anchored by their com- drew Brenner (Morgan of investment management Our deepest gratitude to mitment to produce tal- Stanley), Daniel Yarsky firms which provided feed- them all for their sup- ented, knowledgeable indi- (Morgan Stanley) and back and suggested further port of Columbia Busi- viduals ready to take on Naveen Bhatia (Keffi areas of research. ness School. leadership roles as value Group). Students were Pershing Square Challenge Finalists investors. taught various search and valuation strategies based First Place Cristiano Amoruso'12 Long Rick Carew'12 Motorola Solutions (MSI) In a surprise but welcomed on the Graham & Dodd Matthew Robinson'12 move, Pershing Square in- value framework. Runner-up Anuj Aggarwal'12 Long creased the cash prize for Rahul Lulla'12 Quest Diagnostics (DGX) First place was awarded to the competition to Josh Saltman'11 $100,000, half of which is the team of Cristiano Allen Choi'11 Long directed to the school for Amoruso (‟12), Rick Stanley Fourteau'12 Aéropostale (ARO) philanthropic purposes, and Carew (‟12) and Matt Kyoo Lee'11 the remainder to the win- Robinson (‟11) who pre- Robert Bergan'12 Long ning team. The prize struc- sented Motorola Solutions Joseph Jaspan'12 Lender Processing Services (LPS) Adam Kramer'12 ture supports the goals for (MSI). The judges were impressed by the clarity of Peter Lawrence'11 Long value investors of doing well Melissa O'Connor'12 Marsh & McLennan (MMC) their thesis, depth of re- and doing good. Grant Smith'12 search, and strong under- Bill Ackman, of Pershing standing of the underlying Square, kicked off the com- business (see write-up on Judges petition by introducing the page 22). William Ackman Pershing Square Capital Management team of judges. Each team Paul Hilal '92 Pershing Square Capital Management Practitioners in the invest- then gave ten minute pre- Anand Desai Eton Park ment management industry Daniel Schuchman MSD Capital generously donated their time and worked closely Craig Nerenberg Brenner West Capital Partners LP with the teams to prepare David Berkowitz Ziff Brothers Investments them for the competition. Mick McGuire Marcato Capital Throughout the semester, Scott Pearl Seneca Capital each team had multiple chances to present in front Issue XII Page 4

Michael Price

(Continued from page 1) (which goes up from 5% to weather a bad market very activism at Mutual Series to 25-30% depending on the well. The key in the busi- represent our interests and opportunities available), and ness is weathering the bear it turned out to be a good special situations, such as markets, not outperforming marketing mechanism. If we pre or post-bankruptcy in- the bull markets. That would get active in a situa- vestments, spinoffs, merg- structure that has been in tion and the New York ers, liquidations, etc. Those place since the mid 1970‟s, Times or Fortune or Forbes assets tend to move with which I learned from Max would write about it, it the situation, not with the Heine, has held up very would bring money to the market, and cash will not well, other than 2008, when fund because we were doing move with the market. If we went down with every- interesting things. People you have 40% of your port- one else but came right have now realized that ac- folio that doesn‟t move with back. Our portfolio went tivism is good for the the market. The other 60% down less than the market, money management busi- is in very carefully selected but never in my career had ness, but activism is not a value stocks, and if you buy my portfolio ever been business strategy. You them right, with a big dis- down 30%. The most I was should only get active when count to intrinsic value, they down was 5 or 6% - only you have a position that twice in 35 years. The port- someone else is trying to folio with that structure will take advantage of and then “The business is do well in a bear market you stick up for your rights. and not as well in a bull Some of these new hedge really about market, but over a long pe- fund managers who brag buying companies riod of time, it should com- about how they made some pound at 15%. It used to computer company sell out cheaply, and compound at almost 20%. are not real activists. The That is the goal, to com- business is really about buy- letting the pound at 15%. ing companies cheaply, and letting the management and management and G&D: Has it become more board run it. If they do difficult to cultivate informa- something really against board run it. If tion sources that are not your interests, you get ac- they do widely held over the course tive. But you don‟t buy a of your career, with regula- position just to get active. something really tion FD or the advent of the internet? G&D: Can you talk about against your how you construct your MP: No. You get that sort portfolio? interests, you get of information from com- petitors, customers, former MP: Our portfolio is 60% active. But you executives who have long value, skewed toward small- don‟t buy a since gone and are not privy and mid-cap companies, and to inside information, and 40% cash and special situa- position just to other people who know the tions. We own some Pfizer, company. The internet is, we own some other big cap get active.” however, a huge source of companies. But analysts can information about products, learn much more about companies, markets and small- and mid-cap compa- can move less than the mar- consumer preferences and nies, because Wall Street ket. all sorts of stuff. We do a doesn‟t follow them well. lot of our original informa- The other 40% is cash That portfolio should (Continued on page 5) Page 5

Michael Price

(Continued from page 4) months old. Bloomberg, just like every tion gathering on the phone other SEC filing. It is the and a lot on the internet, G&D: Do you find the judgment after you read for free. opposite problem, that that 10Q that you need. there is too much informa- G&D: Do you think other tion to absorb? G&D: Do you think there investors take advantage of is a lot lost in the younger Pictured: Tom Russo and Jean- that as well? MP: Yes, then it comes to generation that is so reliant Marie Eveillard at the Graham your judgment as to what to to all these modern tools, and Dodd Breakfast in 2010. MP: Yes, they do. We do with the information. like Excel? used to have a system in Back in 1975 and today in mid to late 1980s called 2011, you still need the MP: In the class I taught at Lexus-Nexus, owned by judgment. In 1975, you had Columbia Business School Mead, a paper company. In last week, I gave an example the corner of my office, I of the split up of ITT. I would have a black box with showed the class my back-of a red top, and I used to type “You can get lost in -the-envelope calculation on in a keyword on a little key- the valuation of the three board and they would the spreadsheets. pieces of the company on charge me a nickel for every the morning of the an- time the keyword hit in the You can‟t rely on nouncement of the split. I search. In a minute or two, the projections that also showed the class our I would have a ream of pa- Excel spreadsheets one per with some interesting you put in the month after the announce- sources from where I would ment, where we had refined make some calls. Today, spreadsheets alone. the numbers. Basically, the instead of paying a nickel, I two valuations were the pay nothing, and we have You have got to same. But it was the back- our computers set up to do of-the-envelope judgment automatic searches all the step back. that got us started in the time on our positions, on Spreadsheets are position, and made us work our company‟s products, harder on the position. You their geographies, all sorts only one part of the have to do both. It is more of stuff, for free. It is amaz- than just the spreadsheet. ing what is out there, and whole equation of You can get lost in the getting better all the time. spreadsheets. You can‟t We are involved in an arbi- whether you want rely on the projections that tration related to a frozen you put in the spreadsheets yogurt company, where a to own a stock.” alone. You have got to step company was taken over for back. Spreadsheets are only a much too low valuation, one part of the whole equa- and we are making the case to buy a roll of dimes to tion of whether you want to that the company is worth make a copy of a 10Q at the own a stock. much more. There is so NYSE‟s Library, on the much information on frozen fourth or fifth floor of 20 G&D: What advice do you yogurt consumer trends in Broad Street. I would walk have for young analysts who the past five years on the over there with a roll of find themselves stuck in the internet. It could be a dimes to get the 10Q, make weeds? $3,000 trade group report a copy and bring it back to and you can pull them up the office. Now, it takes a MP: You have got to re- for free because they are six second to pull it up on (Continued on page 6) Issue XII Page 6

Michael Price

(Continued from page 5) what the major factors are investing is, what is it worth, duce the analysis to its sim- that could influence the cy- and what am I paying for it? plest form and understand cle, better than 2007-2008. Intrinsic value is what a what the question in front And these factors are in our businessman would pay for of you is. Of course, in face too, but sometimes we total control of the business value investing, the question don‟t notice them. I re- with full due diligence and a is, is it a cheap stock? You member being at a friend‟s big bank line. The French need to reduce the question Adirondack camp in sum- executives at Schneider who to whether the stock is mer of 2007 or 2008, and I might be bidding for Tyco, worth $30, and if is trading was making a fire in the fire- haven‟t done all their due for $20 or less. You have place with an old Wall diligence yet, but they are Columbia Business School is a to know how to ask the Street Journal. I grabbed it saying the business is worth leading resource for invest- question. First, when you and looked at what was on $30 billion. We do our sum ment management profession- are looking at a stock, re- the front page - I think it -of-the-parts at Tyco and als and the only Ivy League duce it to a question, and was roughly nine months we get there as well. The business school in New York then, without the noise of biggest indicator to me is City. The School, where value Wall Street, answer the where the fully controlled investing originated, is consis- question. That means doing “The key question position trades, not where tently ranked among the top segment analysis, sum of the the market trades it or programs for finance in the parts analysis, a judgment on in investing is, what where the stock trades rela- world. the integrity of management, is it worth, and tive to comparables. Com- and a judgment on the over- parables are interesting, but all economy, etc., etc. what am I paying they are only one data point. Discounted free cash G&D: Could you illustrate for it? Intrinsic flows or replacement value that through an example? are other such single data value is what a points. But when someone MP: For instance, we own writes a check for the con- J.C. Penney. If the economy businessman would trol of a business, like it does well, J.C. Penney stock pay for total happened with Genzyme will do well, and if the econ- (Sanofi is acquiring it for omy doesn‟t do well, it will control of the $20 billion), that tells you be tough. The economy what the business is worth. matters to a mass retailer, business with full That to me is intrinsic value. so you have to think about what really matters for each due diligence and a G&D: How do you think company. If you are work- about adjusting intrinsic ing really hard on a J.C. Pen- big bank line.” value for the context of ney spreadsheet and you Private Equity firms acquir- don‟t think about GDP, you before the huge mess in ing businesses? are missing a big piece. You mortgages, and there it was, can‟t ignore the macro pic- on the front page of the MP: Amongst private eq- ture. Of course, the macro WSJ, that these subprime uity firms, there are some questions are the hardest mortgages were a big prob- that add value. For exam- ones to figure out. I am not lem. These macroeconomic ple, at Carlyle, they have trained to be an economist, factors are always in our real businessmen who really and I don‟t think economists face, we just don‟t see them. practice it and have other get it anyway. I am left with businesses in industries that the bottoms-up, 10Q by G&D: How do you think are related, that gives them 10Q analysis, and hope I about intrinsic value? insight. There are others have enough sense of where who are financial engineers we are in the cycle, and MP: The key question in (Continued on page 7) Page 7

Michael Price

(Continued from page 6) walked away from this deal have a much better defini- and should not exist, they and the stock went back to tion of their business, so are just enriching them- the low 50s, they would be Wall Street analysts will be selves. They are not adding under intense pressure to able to cover and under- any value to these busi- sell the companies. The stand each of the businesses nesses. When PE firm con- upside is quite large with better. This is the second tracts to buy a company, any of these three pieces, time ITT did it in my career. and they are levering up which will probably trade at We bought it the day of the cash flows, and financing $5-7 billion each. It is much announcement and almost with 25% equity and 75% every day after that, so it is debt (like Del Monte which “ITT is dividing one of our bigger positions. closed about a month ago), I think the risk reward is that is an interesting marker into three pieces. good, down 4% and up 10%, for the back-of-the- and it is going to happen. envelope calculation for the The stock is trad- LBO value of a business. ing at roughly $59. G&D: Was it a similar But that is a dangerous story last time around? marker to use in trying to The shareholders compute intrinsic value, MP: Yes, different assets of because a lot of these com- are going to get 75 course. ITT back then had panies can‟t be taken over hotels, big insurance and by LBO firms, because they cents in dividends telecom holdings, and edu- don‟t have enough equity to cation and healthcare busi- put up during industry cy- and three stocks nesses. Another example is cles. It is dangerous to use that will probably Williams Companies, which the KKR multiple against is splitting into two pieces. any business. I would much be worth between Inside of Williams, there is rather have a strategic something called APCO Oil buyer multiple for a compa- $65 - $72 by year- and Gas. We owned APCO rable business. Oil and Gas in 1975. Then end.” they spun out their Argen- G&D: Could you please tine subsidiary, which Wil- talk us through an invest- easier to buy a $5-7 billion liams owned half of, and we ment that you own? business, than an $18 billion owned and traded it until business. The chance of the late 1980s, and now we MP: ITT is dividing into one or two of the three are getting it back. As a three pieces. The stock is pieces getting taken over is value guy who works on trading at roughly $59. The double the probability of all spinoffs and restructurings, shareholders are going to of ITT getting taken over you wind up owning compa- get 75 cents in dividends prior to the split announce- nies numerous times, as and three stocks that will ment. they are bought and sold probably be worth between ITT has a distinct water and spun off. I have owned $65 - $72 by year-end. If business, a distinct defense some value stocks five times you pick $67, a mid-range, electronics business, and a at different levels, and there you are going to make 15% distinct industrial business. are others that have been in 7-8 months, which annu- Wall Street will give it bet- recapitalized, so you wind alizes to 20%. Underneath ter PEs due to the elimina- up with them again and you have a floor on the tion of the conglomerate again. GenCorp that has a stock, because they were discount. These three busi- defense business and Sacra- pushed by Relational Inves- nesses will all have strong mento, California real es- tors, large shareholders to balance sheets. They will all tate, came out of RKO Gen- bring out the values. If they pay dividends. They will all (Continued on page 8) IssueVolume XII I, Issue 2 Page 8

Michael Price

(Continued from page 7) in dollar terms. The stock out the CEO of a major eral back in the 1970s. We had underperformed in the pharmaceutical company owned it with Mario Gabelli, past few years as Pfizer without a backup plan. It and we still own it. They bought Wyeth two years signaled that they could have sold off businesses, bring a great new guy in, they have tried to develop they could do asset sales, or real estate, they have run they could buy back stock. the defense business better, By throwing the CEO out, Pictured: Glenn Greenberg at the and now they are just de- “After watching the board signaled that they Security Analysis 75th Anniver- fense and real estate. At were willing to look out for sary Symposium (Fall 2009), with some point, someone will Pfizer underperform the shareholders. I bought Bruce Berkowitz (left) and Tom buy the defense business, the stock. I hadn‟t done a Russo (right). and we‟ll see what happens for years, to read sum-of-the-parts of Pfizer, with the real estate. but I knew what was there that headline told because I had followed it G&D: What are some of you that something over time. I am not a phar- the differences between maceutical analyst, but I saw running a large mutual fund else had to give. that the Company yielded and the fund you are run- 5% at $16. ning now? The board would It had some terrific busi- MP: Running this fund is not throw out the nesses that could be spun much easier. At Mutual out at very high multiples, Series, we basically wagged CEO of a major and you would be left with slowly from no money to pharmaceutical the worry over this patent $15-20 billion. Then we cliff, but you also had the went very quickly to $33 company without a pipeline that you were pay- billion. That is when I sold ing next to nothing for. We Mutual Series and retired. backup plan … By bought some stock, and Then we started this fund sure enough, the stock went with a few hundred million throwing the CEO to ~$19.50, and I started dollars and now it is almost selling the stock. Then, I a billion. It is much easier out, the board read an Alliance Bernstein to move positions around, signaled that they report. I read the sell side in and out. You don‟t have reports, but I don‟t trade the say in the proxy proc- were willing to look based on what they are say- esses like you did before, ing. But they basically put but you can still talk to out for the the numbers in black and other holders. For rates of white as to what the values return, smaller is better. shareholders.” of the pieces that they could Returning excess returns at sell or spin off were, and $20-$30 billion is not so they got to $24. This re- easy. port focused me more than ago, and then the company I was before. I immediately G&D: Is there another had to cut the dividend. reversed my sale, bought investment that you cur- Then, all of a sudden, the back what I sold and then rently own and could talk board threw out the CEO. tripled my position. Now through with our readers? After watching Pfizer under- the stock is $20.50 and they perform for years, to read have already sold one divi- MP: Pfizer was a $16 stock that headline told you that sion for almost 3x sales. with 8 billion shares. The something else had to give. They have four or five busi- move to $20 was very large The board would not throw (Continued on page 9) Page 9

Michael Price

(Continued from page 8) River Labs, that did some- nesses that they could get thing really stupid a year MP: While I was in high big realizations of value for. ago, and the shareholders school, very early on. I was The balance sheet is fine, shot them down. Caché, is very lucky. I wanted to be a and they have interesting a small retailer and is con- doctor, and then I got into products. The Street con- trolled by the Chairman. the stock market and sensus is that there is $24- He‟s not going to do some- thought it was very interest- 25 of value in this company, thing stupid. This was his ing. My dad had a friend and they are going to realize family business for many who had worked in Drexel that, and maybe they will years. He is not going to Burnham Lambert‟s arbi- also get lucky in the pipe- take this cash and spend it. trage department. It was line. He is more likely to run it fascinating to me. Basically, better. He just spent from senior year of high G&D: What about the money hiring some people. school on, I read the WSJ small- cap space? The Company is going to every day. I would clip out earn money this year, not articles on mergers and MP: I prefer the small-caps lose it, so the cash is going acquisitions. Then I got that no one is working on. to build. You have to think lucky enough to get a job Everybody works on Pfizer, about who owns it. Is it with my dad‟s broker who but I want to get involved in their money or is it some- was partners with Max a retailer like Caché that has one else‟s money? You Heine, who had this little $250 million in sales, 13 have to think through who mutual fund. I liked the million shares and $30 mil- merger and acquisition side lion in net cash. This com- of the business, understand- pany has almost $3 in cash, “I learned ing why companies were and the stock trades at $4, bought and sold. Max, who so I am paying a dollar per bankruptcy from was a great value investor, share or $13 million for Hans, I learned sat next to a guy named $250 million in sales. They Hans Jacobson, who was a haven‟t made any money for value investing from railroad bond expert, and all a year or two, but they are the railroads were in bank- starting to make money. Max, and I had my ruptcy. I learned bank- They have new manage- ruptcy from Hans, I learned ment, new merchandisers, own interests in the value investing from Max, hot new products in the and I had my own interests stores. What is my risk if I M&A business, so in the M&A business, so have $3 in cash and the those are the three those are the three parts of stock is $4? I am risking a the portfolio. dollar. parts of the G&D: What were the G&D: What if you take a portfolio.” some of the best pieces of position in a medium-size or advice you got from Max small company and then you Heine? see the management do is involved. That is the judg- something that you think is ment side of it. MP: It wasn‟t so much ad- foolish? vice. It was how he was G&D: At what point in with people, and how he MP: First you have to get a your life did you realize that thought about things. He sense of the management. investing was what you didn‟t like debt on balance Now, there are manage- wanted to do for your ca- sheets, he didn‟t like good- ments like that at Charles reer? (Continued on page 10) Issue XII Page 10

Michael Price

(Continued from page 9) that made wheel barrels and much on the Excel spread- will. He just was a clear wood products that every- sheet and forecast of dis- thinker. He didn‟t like the one forgot about. But those counted cash flows is an- Wall Street machine. He are the ones that don‟t other big mistake. It is not wouldn‟t play the IPO game, move with the market. really the approach. We where everyone rushes to Those are the ones that used the discounted cash “… there is no one flip IPOs. He would never have clean balances sheets flows in our frozen yogurt do that. He had a great and do okay. case as one of the several valuation approach nose for value. In the approaches to look at it, but that works for all 1930s, he was given $1,000 G&D: What do you wish there is no one valuation to buy furniture for their someone had told you when approach that works for all companies and apartment as a wedding gift you were starting out in the companies and industries. from an uncle. Instead of business? You have to look at many industries. You buying furniture, he went valuation approaches and out and bought ten thou- MP: I could not have had a pick the one that makes the have to look at sand dollars worth of bank- better runway. What hap- most sense. Capital inten- rupt railroad bonds at ten- pened to me was a once in a sive business should be very many valuation cents on the dollar, which lifetime thing - no one is different from ones that do approaches and then went up five times in going to have that happen not need a lot of capital. value. He was a value guy again. Getting to Mutual in pick the one that from day one and trying to the middle of 1970s when G&D: How do you think find cheap stocks through all stocks were too cheap was has the investment business makes the most the nooks and crannies of perfect. A good time to changed over time? Wall Street. start in this business is when sense. Capital markets are terrible, like in MP: It has changed for the Max had his own network 2008 when everything was worse. The last worst intensive business of brokers, friends and coming apart. It felt similar change has been high-speed should be very bankers, who were in the to when I started in the trading. The ability to exe- flow of dealing in cheap business - 1974 was a really cute sizeable orders now is different from ones stocks, like Tweedy horrendous year, but I rode not good. It used to be that Browne, Carr Securities, it and learned, when we brokers would provide that do not need a First Manhattan and other were still small and had in- much more liquidity to buy individuals, all descendants fluence over the portfolio and sell stock. If you lot of capital.” of Benjamin Graham. We right away, because Max wanted to buy 200,000 had our little niche, and you was a sharing guy. There shares, you could have a took that niche and com- really wasn‟t anything that broker sell you 50,000 and bined it with special situa- could be better. It was work on buying the remain- tions, and it really worked ideal. der later. Today, you can‟t well. We would come up show any size, or else the with these little stocks that G&D: What correctable high-speed traders run in nobody owned, nobody mistakes do you see young front of your order. Trad- followed and we had this analysts make? ing large orders has really performance at Mutual Se- become very difficult to ries that was terrific. Peo- MP: Staying away from execute. On the other ple would write us up and debt is the main one. hand, the technology has look at the portfolio and say Stocks with A and B shares brought big improvements how strange and different it are another one, because to buy side trading, like Liq- looked from all the other you may not get a say for uidnet, which is an elec- portfolios out there, filled your shares with that struc- tronic marketplace for buy- with bankrupt Penn Central ture. You have to have vot- side to buy-side trading, bonds, and little companies ing stock. Depending too (Continued on page 11) Page 11 Michael Price

(Continued from page 10) Now I have noticed in the that real estate should be where there is no broker 2000s, it has been mid- bought for a third less than involved. That is very effi- teens. It has gotten the underlying value of the cient and it has been the tougher. Whether it is the buildings, land, warehouses, best innovation in the last low rates, the information, whatever that happens to 10-15 years. SEC and the or more people in the busi- be. I would have no inter- regulations have been bad. ness, it is tougher. est in a REIT with that divi- By and large, the media has dend yield. The day that not been helpful. There are G&D: In terms of capital REIT comes out and cuts some shows, like Tom allocation for a company, that dividend or omits that Professor Bruce Keene‟s show on what is your view for divi- dividend because they have Greenwald at the 2009 Bloomberg, that are terrific, dends versus share buy- lost tenants, the stock will G&D Breakfast but there are some total backs? trade down from $20 to

jokes. $13. That is when I come in Bruce C. N. Greenwald MP: I would rather own a because I can then get my holds the Robert Heil- G&D: Does it create even company not paying divi- intrinsic value. That is pre- brunn Professorship of more opportunity for you? dends. Dividends tend to cisely what we did in 2008 Finance and Asset Man- in the real estate space. We agement at Columbia Busi- MP: Sure. I don‟t mind looked at REITs with divi- ness School and is the competition at all. What dend omissions. academic Director of the you need in order to be in Heilbrunn Center for Gra- “I would rather own this business is capital. First A dividend tends to keep ham & Dodd Investing. you have to raise capital or a company not that stock close to its intrin- Described by the New work with someone who sic value. I don‟t own Bris- York Times as a “Guru to has capital. Then it is the paying dividends. tol Myers. Why? It pays a Wall Street‟s Gurus,” brains, but a lot of people big dividend. But Pfizer had Greenwald is an authority Dividends tend to have the brains. It is the both a 4% dividend and at on value investing with judgment with the brains $16, it was trading at a third additional expertise in raise the stock‟s that matters, and that less than its intrinsic value. productivity and the eco- comes with experience and price, so if I am a That was a beautiful thing. nomics of information. from thinking about things A lot of managements want in the right way. value buyer, I want to pay dividends, and the tax on dividends right now G&D: Why is 15% returns to buy that stock as is not bad, but still it is dou- the target for the fund now, cheaply as I can.” ble taxation, and it does not instead of the 20% before? make sense. I would tell management not to pay a MP: I think all this massive dividend, and since their information has made it raise the stock‟s price, so if I stock would be cheaper tougher. Lower interest am a value buyer, I want to because of the lack of divi- rates have lowered the bar buy that stock as cheaply as dend, buy the stock back, too. It should be some I can. An extreme case and shrink the capitalization. spread above a basic three would be a real estate trust Dividends are very tax inef- or five-year treasury rate. that yields seven percent to ficient, because the corpo- In the Mutual Series from mostly retail shareholders in rate tax rates are so high, 1975 to 1990, we did com- this very low interest rate even if the individual tax pound close to 20%. We environment. This will rates on dividends are low. had a down year in 1990, make the investment trade like 5%, then we did once at or above its intrinsic G&D: Any parting words again compound in the high- value. But real estate is a of wisdom? teens through the nineties. very illiquid asset. I believe (Continued on page 12) Page 12 Michael Price

(Continued from page 11) whether you really have the MP: The really important fire and the ability for the thing is to eliminate the MP: I am a big believer in business. You should be Wall Street consensus, the having practitioners teach, honest with yourself and ask Wall Street research. Start and therefore I do that at the question, do you really with the quarterly or annual Columbia Business School. I like this business? Then, report of a company. Think have hired close to 10 Co- after a couple of years of about the business, think lumbia students in the exposure, that fire will about what you see without Bill Ackman and David course of my career. I like come out in interviews. any input from Wall Street, Einhorn at the G&D practitioners teaching, The fire will come out in the and think about how you Breakfast, 2010. which is why I do it and I daily work. are going to understand that like schools that do that. I company, the business val- Columbia students have think it is important for G&D: How do you lever- ues and the management. the privilege to hear from people who have this ex- age your junior people? You need to understand experienced practitioners perience to pass it on. how you are going to in value investing, who When I was at University of MP: That is exactly what benchmark them. You need frequently give guest lec- Oklahoma, I remember we do. I have people here to understand where the tures at the school. hearing economist John to leverage my time. This is company is in the world and Kenneth Galbraith speak. the time of year when new what the competition is for For me, it was a really big annual reports come in. the products, whether the thing. I loved it. I hadn‟t We receive nearly 100 re- products are any good, and been interested in econom- ports a day. Every day we whether or not the com- ics before then. When I have a list of what we get in, pany has any pricing power support business schools and I circle the ones that I or barriers to entry. How now, I make sure that they want to look at for what- are you going to figure bring business people in. I ever reason, and I will skim these questions out, without think that is very important. them, read the CEO‟s let- any input from Wall Street ter, maybe look at some of research or any road G&D: What advice do you the details that I am inter- shows? Start calling around have for someone who can‟t ested in. Then the next to people who use their find their ideal opportunity morning I will tell my ana- products, to competitors, to upon graduation? lysts to look at the details trade associations. Using and lay out for me the seg- the press is fine. Regional MP: Foot in the door is the ment analysis, evaluate what or local newspapers where most important thing. It the real estate is worth, etc. the company operates will doesn‟t matter what the pay The analyst will do that for often have a good sense of is. Sure, if you are married two or three days, and will the management. If you are with two kids, it is tough. come back to me and pre- going to use a medical prod- But ideally, you don‟t have sent me with a preliminary ucts company, talk to the those burdens, so you get valuation, and if the stock is doctors who use their prod- your foot in the door in a twenty dollars and the ucts. I never used any of shop, big or small, that does valuation says it is worth the consulting sources, be- things in the areas you are thirty dollars, then we will cause I couldn‟t control who interested in. You get ex- start to do more analysis on they were and what they posed to it for a couple of it. That leverages my time. did. Make your own phone years. There is nothing like calls and do primary re- the real world experience, G&D: For a young analyst, search. building the rolodex, and what do you recommend understanding what goes on. they do with the first four G&D: Thank you very Getting your foot in the hours of looking at a stock? much, Mr. Price. door is key to figuring out Page 13 Paul Johnson

(Continued from page 1) the quality of the business. at what Professor but in the end, the market is We then look at the balance Greenwald has pioneered: going to gravitate to the sheet to make sure there is the notion of the business‟s intrinsic value of the busi- consistency. The balance competitive advantage. We ness. If you do not have a sheet can uncover issues look for barriers to entry, good handle on the eco- which may preclude an in- economies of scale, and nomic value of the company vestment, but a balance consumer captivity. Our in which you are invested, sheet will not make an in- goal is to buy great busi- you really are just playing a vestment for us. We focus nesses that are undervalued. bit of a carnival game. I had on the operating results. There are two components also been an adjunct profes- We're long term investors, to our approach: finding a sor at Columbia Business so we're looking at the long great business and one that School teaching Security is undervalued. For a com- Pictured: Howard Marks at the Analysis and Value Investing pany to qualify as great to Columbia Investment Manage- “For a company to ment Conference in February for over ten years. The us, we want it to be growing 2011. teaching experience forced qualify as great to faster than GDP in a defen- me to think deeply about sible market where that what investing is really us, we want it to be growth is coming from about, as opposed to just within that franchise. We being an analyst on Wall growing faster than want the barriers to entry Street. Because of these to be large and defensible, experiences, I was drawn to GDP in a defensible and the company should the notion of intrinsic value- market where that have some sort of scale based investing, which economics because that's draws one into the value growth is coming where the excess returns investing world. come from. On the valua- from within that tion side, we take the com- G&D: How would you pany apart and look at the describe the investment franchise. We want cash generation of the busi- ness as if we owned the strategy at Nicusa? the barriers to entry whole company and could PJ: By definition, nearly to be large and take the cash home every everyone who is a long- year and re-deploy it. We term investor trying to buy defensible, and the look at how much we have things at less than intrinsic to pay for those cash flows value is a “value investor.” company should versus the quality of the The phrase that we use business. In general, we most often is that we are have some sort of stick to a hurdle rate of “fundamental” investors. about 10%, meaning we We try to find the funda- scale economics want a business that we can mental value of the operat- because that's buy at a 10% cash yield or ing business. We are much an enterprise value multiple more drawn to income where the excess of ten times free cash flow. statements than we are to balance sheets; balance returns come from.” G&D: How does that com- sheets are important and pare to the profile of an can harpoon an investment, -term cash flow of a busi- ideal short candidate? but we do not start with the ness, which means that we balance sheet. We start are looking at the quality of PJ: Shorts are very much with the income statements, the business. To evaluate the mirror image of that, the business prospects and that quality, we are looking (Continued on page 14) Issue XII Page 14

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(Continued from page 13) tions when constructing a cap stocks tend to have with one exception. When portfolio. First, is the port- fewer participants, which a short position goes against folio going to be concen- lends itself to a more ineffi- you, it becomes a bigger trated or diversified? Diver- ciently-priced security. Be- part of your portfolio, and sified is somewhere be- cause we are a relatively therefore we hold smaller tween 50 and 200 names. small fund, we have the abil- short positions. Shorts have Concentrated can be as few ity to go into smaller-cap what a lot of people refer to as 4 or 5 names. We have names. As we get bigger, as “infinite upside.” They settled in the range of 10-12 some of that will go away, do not really have infinite names, with each position and when we got started we upside, but they have higher roughly the same size when could look at even smaller upside than downside. Also, we initiate it, although as companies than we do to- whereas in a long we want a time progresses that balance day. We can go down to solid balance sheet, on a tends to move around. The $50-100 million market cap “We can go down short we want a company next question is the holding companies, and that part of that is losing money and has period. Because we are the market tends to be less to $50-100 million a minimal amount of cash looking at the fundamental efficiently priced, so we on their balance sheet rela- economics of the business think that there is more market cap tive to the cash drain. We we tend to be longer-term opportunity for excess re- then look at the company investors. Because we want turns. companies, and and decide if we want to bet to make bets on specific against the long-term quality companies, we are concen- G&D: You said that you that part of the of the business. On a long trated. However, the fewer target buying at an enter- market tends to be we look for barriers to en- positions in the portfolio, prise value of around 10 try, and on a short we want the more the long-term times free cash flow. How less efficiently no barriers to entry. We performance will ride on do you think about the want a company where even the success of each invest- process of valuation? Some priced, so we think if they reach their full po- ment. As a consequence, people are very disparaging tential, it will still be an un- the moment the portfolio is of DCF. What do you that there is more interesting business. We concentrated, the better think? opportunity for want a company with low you must know the true gross margins, no customer intrinsic value of a compa- PJ: It's taken me a long excess returns.” captivity, no natural econo- nies invested. We are re- time to get my hands mies of scale, and low barri- search-intensive. Our port- around this issue, and I do ers to entry. Ideally, we folio is concentrated in 10- think that this is the most want a company that is los- 12 names, with a holding challenging part of investing: ing money, a balance sheet period of roughly 2-3 years. what is something worth? with some financial pressure For a fundamental investor, on it, and a company with a G&D: You tend to look at it's either the assets that low probability of develop- smaller and even micro-cap represent the intrinsic value, ing into a great business. companies. Why focus your which orients the analysis to We think those conditions efforts there? the balance sheet, or it's the make for an interesting cash flows from the ongoing short. PJ: Market efficiency tends business that determine the to be correlated with the intrinsic value, which sends G&D: How do you think number of market partici- the analysis to the income about building a portfolio of pants in a stock. The larger statement. We're very longs and shorts? the market cap, the greater much interested in the op- the number of people look- erating value of these com- PJ: One needs to ask a ing at a name. We have panies, being sensitive to the couple fundamental ques- found that smaller market (Continued on page 15) Page 15 Paul Johnson

(Continued from page 14) depreciation usually is not a is the excess cash that the risks associated with the large number in many of our Company has at the end of balance sheet. investments, we still need to the day, the month, or the understand all of the capital quarter that can be re- Once you start to look at needs of operating the busi- moved from the business the economic value of the because it is not needed to operations, you are really generate future cash flows. concerned with the eco- “Growth is a critical To value those free cash nomic earnings of the busi- flows we use a simplified, no ness, not the accounting component of value growth DCF model, which earnings. It is the cash the essentially is a simple multi- business generates that cre- creation for ple. When we started we ates its value. However, used a complicated DCF you have to be careful with shareholders. There model, but we quickly found this analysis. It is not the that it is nearly impossible operating cash you are after, are important to accurately forecast cash but the free cash flow that subtleties to growth flows far enough into the can either be invested back future to complete the DCF in the business or rede- of course, but if you analysis. In our analysis, we ployed in some other op- use current free cash flows, portunity. We are very are not paying for scrubbed of any accounting careful about cash flows. anomalies and normalized to We make adjustments to growth then it is a make sure they accurately the true cash expenses of depict the ongoing cash running the business to get free option, and if generation of the business. to a real operating cash that company Our cash flow calculation flow. We try to look at it usually contains little or no as if we were running the delivers growth, growth. Throughout the business. We care about analysis we are concerned the cash coming into the that will be part of with the quality of the busi- business and the cash ex- ness and the duration of penses going out. Taxes are your excess return. those cash flows. A com- important, because they pany with low technology have to be paid, so we do It has to be risk and high barriers tends not look at EBITDA because profitable and to have a longer duration that's really only halfway than a technology company through the process. You defensible growth, with high technology change also need to think about and low barriers. depreciation and capital which means it has spending. Depreciation is G&D: Even though you an accounting estimate of to be within their don't pay for growth, it the economic erosion of a sounds like one of the crite- company‟s assets. If it's a franchise.” ria you're looking for in an bad estimate, then we need investment. to find a better estimate of ness. the true economic cost of PJ: Growth is a critical operating the assets. We Once we have done all of component of value crea- like businesses that are capi- those calculations, we get to tion for shareholders. tal-light, and therefore that what we define as free cash There are important subtle- part of the analysis is gener- flow. In simple terms, our ties to growth of course, ally not critical. Although definition of free cash flow (Continued on page 16) Issue XII Page 16

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(Continued from page 15) boards do what we think is things that are not in the but if you are not paying for in the best interest of long- interest of long-term share- growth then it is a free op- term shareholders, then we holders, we get a bit more tion, and if that company are going to stay in that active in the traditional delivers growth, that will be sense. We will call or write part of your excess return. “We tend to have letters letting them know It has to be profitable and that their actions are not defensible growth, which an active dialogue serving shareholders and we means it has to be within with the company have found that those con- their franchise. You cannot versations usually result in a pay for acquisition growth, regarding their fairly constructive dialogue. because that generally does If the behavior continues to not generate economic corporate strategy, be a problem or manage- Pictured: Steve Eisman at the value for the acquiring com- ment continues to do things Columbia Investment Manage- pany. You cannot pay for investor relations, that we do not think are in ment Conference in February growth outside of their the interest of shareholders, 2011. franchise because that tends capital allocation we will become much more not to generate excess prof- and compensation, active. In terms of pure its. In all of these cases, you activism we have dealt with may get revenue growth, although we do not two specific situations. but you are not going to get However, even when we excess cash flow growth get involved in the get aggressive, we still try to (beyond what was paid for) maintain a friendly approach. and you are certainly not daily operations of We have been forced to going to get an increase in become more aggressive the economic value of the the business. If the with two companies over business. company starts the last few years. In terms of friendly activism, we do G&D: You are typically a doing things that that with all of our compa- significant shareholder, given nies. the small companies you are not in the target and your long-term We do not go into any in- horizon. How involved do interest of long- vestment with the thought you tend to get with the that we will get them to term shareholders, companies? change their operating pro- we get a bit more cedure or their business PJ: We have become in- strategy because of our in- creasingly active in our com- active in the vestment. We are not ac- panies. We believe there tive on day one. We go in are two kinds of activism, traditional sense.” with the intention of invest- the more traditional activ- ing in a friendly position. ism and what we call friendly activist role. We Over time we may encour- friendly activism. We start tend to have an active dia- age management to make every relationship with logue with the company certain strategic changes, friendly activism. We in- regarding their corporate but we always do it in a form the company that we strategy, investor relations, friendly manner. It's only are now a 2% or 7% share- capital allocation and com- after they have proven that holder, letting them know pensation, although we do they need some external who we are, how we think, not get involved in the daily pressure that we become and why we are invested. operations of the business. more assertive. As long as managements and If the company starts doing (Continued on page 17) Page 17 Paul Johnson

(Continued from page 16) and we presented that in- free cash flow is a 15% cash formation to the Board. In yield. We were getting 3- G&D: Could you walk April 2010 the old Board 5% growth on a 15% cash through how that's turned resigned and a new Board yield. Given that return, I out in a past investment? was put in place. The new would want to own the Board rehired the former stock for as long as I knew PJ: We were a 5-6% share- CEO, the company was that the Company‟s free holder in a company called unleashed from the con- cash flow would continue, Metropolitan Health Net- straints of the old Board, regardless of other inves- works based in Florida. We and management started to tors‟ opinions about the first got involved with the execute on their business Company. The quality of company when the stock plan in a much more aggres- the business was important, was at 79 cents and then sive way. but the valuation was very bought some more at 83 attractive, and we never cents. Over time the Com- With settlement in Wash- found ourselves at a point pany performed well. We ington over the future of where we thought the stock thought the stock continued the healthcare bill, many of was fully valued. to be cheap as the Com- the issues overhanging the pany‟s financial performance industry were settled and We were happy with some- grew faster than the stock the Company‟s financial thing that some people price. The Company then performance improved im- thought was correctly val- went through a period of pressively. The stock was in ued but had such a high cash stagnation both in business the $2 range in early 2010 yield because of our assess- activity and the stock price. and ended the year at ment of the quality of the There were some internal roughly $4.50. The new business. The Company battles between the man- Board is much better quali- provides all the services for agement and the board re- fied and more in sync with Humana in certain parts of garding strategy. As we got management, and we believe Florida. If you are a Hu- to understand the dispute it contributed to the stock mana customer in this area more clearly, we were very doubling last year. This was of Florida, you are being much on management‟s side. a case where escalating our served by Metropolitan In December 2009, out of involvement and doing what Health. Some investors do the blue, the Company an- was in the best interests of not like the fact that MDF is nounced that the CEO was shareholders served us well. captive to Humana, since resigning. We found this Humana could, in theory, disturbing because we were G&D: Why did you decide terminate its relationship very much in his camp and it was worth it to get in- with MDF with only short not very fond of the Board. volved rather than sell the notification. On the other In early January of 2010, we position and move on? hand, Humana has no other wrote a letter to the Board place to put these custom- expressing those concerns PJ: Two aspects of the ers. Because each provider and requesting that the company kept us in it. One, must have contracts with CEO be reinstated, which is it was a cheap stock all the doctors, labs, and hospitals, an unusual position to take. way through. I do not think there are natural local Several large shareholders at any point it traded at economies of scale in the approached us and it be- more than six or seven business. Metropolitan came clear that they also times free cash flow. Per- dominates several of these supported the CEO. We haps that is what some peo- markets and Humana has no believed that we had enough ple think the business is choice but to work with shareholders to force a worth. However, if you do them. proxy battle if we wanted the math, six or seven times (Continued on page 18) Page 18 Paul Johnson

(Continued from page 17) invest in an adjacent busi- extra-tight filter to get ness that we did not feel through, and until the new There had been a lot of had the same attractive eco- business starts performing, controversy in the health- nomics. We felt that the management should be con- care industry and that had core business was valuable strained in their ability to dampened overall valua- enough that we could live make additional large capital tions. There were concerns with management‟s new deployments. BioClinica that the current administra- strategy, but in hindsight, also has a poison pill in tion wanted to eliminate that was a mistake. We place, which serves to pro- Pictured: Tom Russo at the Co- health plans like that of Hu- should have sold the stock, tect management but not lumbia Investment Management mana, causing many inves- but we stuck it out. It has shareholders. We have Conference in February 2011. tors to avoid the area. We taken management nearly actively pushed to have it thought this was a business three years to get the new removed and to hold the that would be difficult to business up and running. In Board accountable for what replace and the controver- we believe to be overly gen- sies were fairly easy for us erous management compen- to get our hands around. sation. The proxy vote is in May, so we'll see how other G&D: Can you share an- “We are interested shareholders vote. We other example? were attracted to the core in companies that business, but management PJ: On the activism side, began doing things that we we are involved in a com- are undermanaged did not think were in the pany called BioClinica. The best interests of sharehold- Company‟s historical busi- and getting new ers, and we made our views ness is image management. very clear. The stock is If a pharmaceutical or bio- management trading where we bought tech company is conducting because new the shares three or four a drug trial and trying to years ago and the jury is still evaluate tumor shrinkage by leadership is out how successful this in- using an image to prove vestment will turn out to efficacy, the company needs typically a catalyst, be. to get those images through the FDA process. The drug particularly when G&D: You mentioned that company needs to provide these active situations are evidence that there has they begin to cut rare. Can you share a more been a physical reaction to costs and typical investment? the drug and the images become critical to the proc- accelerate growth.” PJ: We are invested in a ess. BioClinica emerged as company called Accelrys, one of the largest compa- which we started buying a nies in managing the image little bit over a year ago. side of drug trials. They The Company makes soft- have economies of scale. the last eight months, we ware for computational We like that business. The have been much more as- chemists and biologists, spe- Company has repeat cus- sertive in our communica- cifically aimed at pharma- tomers and strong cash tions with the Board, mak- ceutical and biotech compa- flow. ing sure that they hold man- nies. The software assists agement accountable for with data management dur- However, a few years ago their execution. Any new ing the R&D process. The management decided to acquisition should have an (Continued on page 19) Page 19 Paul Johnson

(Continued from page 18) results are starting to come Wall Street in various roles Company has a strong set of through. The opportunity since the early 80's. products, but had been un- for the Company over the dermanaged for a number of next two years will be very G&D: What do you think years before new manage- high. If the company is suc- are the advantages of one ment came in 2009 and cessful, it will support a high role over the other? 2010. We are interested in valuation. It has upside both companies that are under- in growth and valuation. It's PJ: I have worked in two managed and getting new specific roles in my career. management because new I was a sell-side analyst for leadership is typically a cata- 20 years and have run my lyst, particularly when they “A PM's job is very hedge fund for the past begin to cut costs and accel- eight. The two jobs are erate growth. different. It's all very different. A sell-side analyst's job is to follow a Accelrys‟s valuation was about portfolio specific industry and to be attractive. We began our construction, perceived as one of the ex- research in late 2009 and perts in that industry. Stock started buying the stock in position sizing, buy -picking ability is not nearly early 2010. In mid-2010, as important as knowing Accelrys announced that and sell disciplines, your industry and compa- they were merging with nies well. Sell-side analysts Symyx, a company in the and risk need to have industry ex- same business but with pertise, access to manage- complementary products. management at the ment, detailed financial The two companies would individual and models, a sense of the his- have a broader product tory of businesses and offering and greater econo- portfolio level. The where the industry is in its mies of scale. We usually business and growth cycle, hate betting on operating PM‟s job is to and an understanding of the synergies, but we were competitive pressures be- comfortable that manage- produce tween companies. There is ment would be able to com- a lot of marketing and in- bine the two products and performance by vestment banking involved emerge as the dominant building a portfolio in that role as well. In com- vendor in their market. We parison, a buy-side analyst‟s evaluated the combined correctly.” job is to understand the company as if it was a new companies they follow and investment. Again, we to be able to find opportuni- found the economics attrac- ties where there is a mis- tive and believe that the one of my favorite names in match in value and price. companies would be the portfolio because we Buy-side analysts have to be stronger together than can get multiple expansion able to find companies that stand-alone. The valuation as well as cash flow growth. are mispriced, do the work of the merged entity looked to gain confidence in their as attractive as our original G&D: So you've been do- analysis, and then convince investment and we stuck ing this for around... the PM to put the stock in with our position. Our av- the portfolio. erage cost is roughly $6 per PJ: I have been running the share, and the stock is cur- fund for a little over eight rently trading near $8. The years and I have been on (Continued on page 20) Page 20 Paul Johnson

(Continued from page 19) G&D: Many students find to do it all again. By the A PM's job is very different. time management to be one third week, you start to It's all about portfolio con- of the most difficult aspects filter what you need to do struction, position sizing, of working on the buy side. and what you don't. You buy and sell disciplines, and How do you go about allo- try a few things and the risk management at the indi- cating your time day-to-day? ones that work you do vidual and portfolio level. again, those that don't work, The PM‟s job is to produce PJ: Time management is you eliminate. In any job, performance by building a the biggest challenge we all the most important activity portfolio correctly. In addi- face, not just professionally, you want to accomplish is tion to being a PM, I also am what your boss wants you charged with running the to do. Very often people business side of the hedge think, “I'm smarter than my fund. In that role, I have to boss, he wants me to do all deal with investors, and these things that I don‟t administrative issues and need to do!” I encourage payroll. To be successful in people to do what their running a hedge fund, one boss asks them. needs to do many things “… high quality well. Second, you want to learn research is going to think outside the norm. G&D: What do you wish You want to look at situa- someone had told you when to be crucial to tions differently in a way you first opened the door? surviving in the that creates opportunity. You look for investment PJ: There are lots of things ideas that make money; the that someone should have business going individuals who are most told me, although it is forward. The successful in the business probably a good thing they are the ones who quickly did not because I may not markets are very gravitate to this notion of have opened the door. The finding investment opportu- hardest parts of the new competitive and nities. Sometimes ugly role for me to learn have stocks make money, some- been portfolio construction crowded.” times beautiful stocks make and risk management. I was money. Peter Lynch used an analyst for a long time; to say that he thought one analyzing companies was a of his great advantages in fairly straightforward proc- the business was that he ess. I did a lot of rigorous came to work with no pre- analysis when I was a sell- conceived notions and no side analyst, and that helped natural biases. He might when I moved to the buy make money in airlines one side. However, being a but in our personal lives as day and autos the next. He portfolio manager is tricky. well. In the job, the hard did not say “I hate autos” or Portfolio construction has a part is to learn the things “I hate airlines”; it all came lot of subtlety, and risk you do not have to do. I down to opportunity. management has even more. suspect most business There might be times where The tricky part is putting it school students were like you want to hate the autos all together. me: the first week in the because they're overpriced, program, you try to do it all, or hate the airlines for the and the next week you try (Continued on page 21) Page 21 Paul Johnson

(Continued from page 20) pragmatic, realistic, and en- cal nature and there are same reason. But you do trepreneurial. However, opportunities to exploit the not want to have any pre- while their theories may two disciplines. conceived convictions; open work well in practice, they -mindedness helps. You do not have the robustness There‟s an old joke about always want to be looking two economics professors for opportunities. Third, walking on the street. One high quality research is going sees a ten dollar bill laying to be crucial to surviving in “When you find on the ground, but does not the business going forward. pick it up because if it were The markets are very com- inefficiency, move real someone would have petitive and crowded. Eve- picked it up already. The ryone has access to to exploit it and practitioners would pick it Bloomberg and the Wall up and have a laugh as they Street Journal, so you have possibly try to enjoyed a few pints of beer. access to those sources just That's the idea: the market to stay even. You have to understand why is efficient except when it's be creative in finding ways not. When it's not, you to make money where no- the opportunity should exploit the opportu- body is looking. Clarity nity. When it is, you should matters because there is a exists. For remain patient. Under- finite amount of time and standing the academic side you will need to allocate instance, when of what makes a market your time efficiently to find efficient gives you a leg up in those opportunities. Think markets get this business. When you of it as a riddle and a puzzle, find inefficiency, move to and you're trying to figure chaotic, the exploit it and possibly try to out the pieces. understand why the oppor- academics try to tunity exists. For instance, G&D: You've also taught at when markets get chaotic, Columbia as an adjunct pro- figure out why, the academics try to figure fessor. What do you think out why, while the practitio- is the most interesting gap while the ners are exploiting the between academics and anomalies. I have felt for a practitioners? practitioners are long time that there is a gray area between the two. PJ: I think that there's a exploiting the When I teach, we spend huge gap between the two, time on theory not because and I think that's unfortu- anomalies.” I love it but because it gives nate because we can learn a structure to think about from each other. The aca- finance problems. At the demics think in an evidence- needed to impress the aca- end of the day, though, you based, bigger-picture way demics. When I teach, I try need to go out into the and are criticized that to balance the two. There market and produce results. they've lost the forest for is a lot to learn from theo- the trees. Practitioners say retical finance. Is it perfect? G&D: Thank you for speak- their theorems do not de- Absolutely not. There are ing with us. scribe the real world and big flaws in it, but I think that what they say has little there‟s a lot to learn from practical value. Practitio- the historical evidence. ners, on the other hand, are Combine that with a practi- Page 22 Motorola Solutions (NYSE: MSI) Cristiano Amoruso1 Rick Carew Matthew Robinson

[email protected] [email protected] [email protected]

Total Enterprise Value Calculation Trading Multiples Shares Outstanding (m) 335.65 2010 2011e 2012e Fully Diluted Shares outstanding 338.10 EBITDA 1,105 1,389 1,691 Stock Price (April 6 Close) $44.26 Adj. TEV/EBITDA 10.9x 8.6x 7.1x Equity Market Value ($m) 14,966 Adj. TEV/(EBITDA-Capex) (3) 12.4x 9.7x 7.8x Plus: Total Debt 2,729 Adj. TEV/Sales 1.5x 1.4x 1.4x Plus: Pension Liabilities (Post Tax) 1,170 P/Cash Earnings 16.3x 11.6x 9.0x Less: Cash & Equivalents (1) (5,733) TEV/FCF yield 5.5% 8.1% 10.3% Less: Cash from Sale of Networks (975) P/LFCF yield 5.7% 10.1% 13.6% Cristiano is a first year Less: Accounts Receivable Run Off (2) (150) P/B 2.6x MBA student. Prior to TEV 12,007 Short interest 1.7% Notes: enrolling at Columbia (1) Including Sigma Fund and $1.35bn of post tax proceeds from sale of Network Business to Nokia Siemens. Business School, he (2) Motorola Solutions is keeping $150m of receivables from the network business. (3) Maintenance capex assumed average of 2007-2010 capex (post Symbol acquisition) worked in macro investing and Private Equity. Motorola Solutions Background MSI is what remains of Motorola, Inc. after it spun off Motorola Mobility (the mobile phone business) on January 4th 2011. This spin-off was advocated by Carl Icahn, a long-term Motorola shareholder. Mo- torola Solutions has been the cash cow funding the Motorola Mobility sinkhole, which has disappointed over the years. Today Motorola Solutions is the largest US franchise in communications hardware (mostly radios) for public safety and data collection/management. It operates in two segments:  Government (65% of total revenues) selling to governments, state agencies, and municipalities (i.e. fire and police) radio and video surveillance systems. $3.1bn of total revenue is generated in the US, for an estimated US market share of 70-80%.  Enterprise (35% of total revenues) selling to enterprises around the globe barcode scanners, inven- tory tracking devices and systems for an estimated Global market share of 30-35%.

Rationale for Investment Rick is a first year MBA Boring, difficult to understand, and disappointing: this is Motorola Solutions (MSI): student. Prior to enrolling  Trading below intrinsic value and comparables on both Cash P/E and TEV multiples: forward 11.6x at Columbia Business P/cash E vs. Comps of 15x and forward 8.6x TEV EBITDA vs. Comps of 10x EV. Additional cash School, he was a WSJ earnings come from large tax loss carry forwards from the legacy mobility business, giving MSI a 7- reporter and columnist. He is the forthcoming author of year 20% effective cash tax rate All The Emperor’s Money.  Yields 8-10% unlevered free cash yield  Low leverage (Gross 1.5x EBITDA)  Catalysts for realizing return: 1. Normalization of earnings to 16% Operating Earnings margin (management target by 2011 end) as removal of legacy costs from Motorola Mobility takes place over the next three quarters (30% upside) 2. Dividend Initiation and/or Buyback (40+% upside) by using the excess cash balance  All of the above on the backdrop of huge margin of safety given by over $6bn ($17 per share) of gross cash on balance sheet, unmatched barriers to entry and strong resiliency to economic cycle.

Return Scenarios Base Case (p>=30%) Upside (p>=60%) Downside (p>=10%) - 30% upside - 50+% upside - Loss of ~15% - P/normalised cash earnings at - $4.2bn buyback at current lever- Matt is a second year MBA - Government sales down 15% yoy student. He was a summer comps multiple of 15x age, repo at $48ps - OE Margin down 100bps to 12.5% - OE Margin improvement to - $30m outperformance in margin associate at Goldman Sachs. improvement and 2011 sales Prior to school, he spent 16% - 2011 sales growth of 6% (3% growth of 7% several years in consulting. government 12% enterprise) - TEV/EBITDA to 9x

- Scenario Price: $37 - Scenario Price: $55

Barriers to Entry/Franchise: MSI has high barriers to entry driven by customer captivity and resiliency to economic cycle. This is underpinned by the a) long term nature of contracts (generally 5-10 years if not longer), and contract size/timing diversification - the biggest cluster of customers is the US Federal Government (8% of total revenue.), which includes government agencies. Diversification of customer base also benefits revenue recognition – there is no cluster of renewals/upgrades that make the company particularly vulnerable in the near future, as the chart below shows for the last 8 years. Page 23

MSI (Continued from previous page)

Government Segment Revenue

Source: MSI Management

Enterprise Segment Revenue Buyback and Dividend Initiation “MSI has almost MSI has almost a third of its $15bn market cap ($17 per share) in cash and has negative net debt of ~4bn. We think the company has the potential to distribute this cash and to initiate a dividend using the FCF it a third of its produces every year (~$900m - $1bn). This could lead to a one time buyback/dividend of approximately $4.3bn ($3.5bn of cash on BS+800m of cash generated over the year) and an ongoing dividend/buyback in $15bn market the vicinity of $400m annually. By keeping the leverage at current levels (gross 1.5x EBITDA), and assum- ing no change in adjusted trading cap ($17 per (US$ in millions unless otherwise stated) multiple (8.5x TEV/EBITDA) implied Share Buyback Analysis share price is $62 per share: share) in cash 2011 Adj. EBITDA 1,389.1 2012e EBITDA 1,691.0 Leverage Turns (of EBITDA) (1) 1.5x 2012 EBITDA Multiple 8.5x Total Target Leverage 2,083.6 TEV 14,373.8 Less: 2011e Debt (2,129.0) Plus: Cash Available Pre Buyback 7,480.7 and has negative Plus: 2011 Cash Generated (LFCF) 818.1 Less: Cash used for Buyback (4,272.7) Additional Leverage 772.7 Less: Debt (2,083.6) Plus: Available Cash Used (2) 3,500.0 Equity Value Post Buyback 15,498.2 Bought Back 4,272.7 net debt of ~4bn. Net Debt After Cash use (1,124) Shares Outstanding Post Buyback 249.1 Blended Buyback Price $48.00 Earnings Per Share $4.48 We think the Buyback Shares (m) 89 Share Price $62.22 New Outstanding (m) 249.1 Implied P/Cash Earnings ratio multiple 12.3x

Notes: company has the (1) Excluding cash generated in the year. (2) Cash on balance sheet includes $1.1bn expected from closing of Network Business sale. potential to dis-

Valuation tribute this cash (US$ in millions unless otherwise stated) On an Earning power basis – current

Earnings Power Calculation Implied Equity Value share price assumes there will be no Adj. normalised EBIT 1,280 WACC and to initiate a Less: Tax at 35% (448) 8.0% 8.5% 9.0% growth in the franchise: Less: Maintenance Capex (1) (160) 727 14,138 13,604 13,129 Plus: D&A 155 Cash 827 15,387 14,779 14,239 Distributable Cash Flow 827 Flow 877 16,012 15,368 14,794 dividend using WACC 8.5% 927 16,637 15,956 15,350 TEV 9,729 977 17,262 16,544 15,906 Plus: NPV of Tax Assets Utilisation 2,092 the free cash flow EPV 11,820 Less: Total Debt (2,729) Share price Less: Pension Liabilities (Post Tax) (1,170) WACC Plus: Cash & Equivalents 5,733 8.0% 8.5% 9.0% it produces every Plus: Cash from Sale of Networks 975 727 $41.82 $40.24 $38.83 Plus: Accounts Receivable Run Off 150 827 $45.51 $43.71 $42.11 Equity Value 14,779 877 $47.36 $45.45 $43.76 Shares Outstanding (m) 336 927 $49.21 $47.19 $45.40 year.” Per share $44.03 977 $51.06 $48.93 $47.04

Notes: (1) Maintenance capex assumed average of 2007-2010 capex (post Symbol acquisition)

Risks Government spending cuts: Radios for public safety are the quintessential definition of non- discretionary spending. Moreover, there are a myriad of funding sources underpinning each contract (ad- hoc taxes and grants, most of which are already funded as part of the P25 standard roll-out initiative). MSI has a large diversified account base (US federal Government account for 8% of total revenue). The rest of the government spend within the US are individual states, municipalities, and cities, without any coordinated procurement. Finally the increase in government revenue and $2.6bn backlog in Q4 2010 is a testament to Motorola Solution‟s resilient government business. Bad acquisitions with cash: Motorola Solution‟s management has been fairly disciplined in acquisitions with the major one being Symbol, in 2007 ($3.7bn) to complement its Enterprise business. We also be- lieve the presence of likeminded value-focused shareholders (Carl Icahn, Dodge & Cox and Highfields hold 25% of share capital in total) will ensure that cash is returned to shareholders. Management has Page 24

PaulQuest Johnson Diagnostics Inc. (DGX) Anuj Aggarwal Rahul Lulla Josh Saltman

[email protected] [email protected] [email protected]

Current Price ($M) Valuation/Financials FYE on Dec 31 Share price (4/24/11) $56.55 2010 2011E 2012E 2013E Shares outstanding 156.4 EV/EBITDA 7.6x 7.2x 6.7x 6.3x Market cap $8,846 EV/EBIT 9.1x 8.5x 7.9x 7.4x Debt 4,224 P/E 13.9x 11.6x 10.4x 8.8x Cash and investments 994 FCF Yield 10.3% 10.4% 10.5% 11.2% Minority interest 23 P/BV 2.2x 2.4x 2.4x 2.4x EV $12,099 Anuj is a first year MBA 5-Year Revenue CAGR 6.2% student. Prior to school, he Trading Statistics 5-Year EBITDA CAGR 6.0% was a private equity associate at Avg. volume (M) 1.9 5-Year EPS CAGR 7.9% Crestview Partners and an Avg. volume ($M) $110 '03-'10 Avg. ROIC 14.4% investment banking analyst at JP Short interest 1.3% '03-'10 Avg. ROE 19.9% Morgan. He holds a BS from

MIT. Recommendation: We recommend buying the equity of Quest Diagnostics (DGX or “the Company”) because it is a great business with a sustainable competitive advantage trading at an attractive valuation. DGX is the low-cost provider of lab-testing services due to significant economies of scale. This positions DGX to capitalize not only from inevitable growth in the market, but also from healthcare reform, which represents a free option in our investment“ thesis. So .”you‟re able to buy a stable, compounding busi- ness at 10x 2012E P/E and an 11% FCF yield. We believe this opportunity exists due to temporary volume headwinds and investor misperceptions about the impact of healthcare reform. Our target price of $90 per share represents a 60% total return in the next 12-18 months.

Company Description: Rahul is a first year MBA DGX is the largest provider of lab-testing services in the U.S. The market is evenly divided between student. Prior to school, he hospital labs and commercial labs like DGX. Within the commercial segment, DGX and LabCorp was a private equity associate at (LH) represent an effective duopoly, while the remaining competitors are highly fragmented. The Monitor Clipper Partners and Company provides “routine” tests (60% of sales), genomic and other “esoteric” tests (24%), and an investment banking analyst at “anatomic pathology” or cancer biopsy tests (16% of sales). DGX operates a network of 31 regional Credit Suisse. He holds a BA labs that test samples gathered from physician offices and over 2,000 patient service centers across from Vassar College. the country. Payers include health insurers (51% of sales), physicians/hospitals/employers (24%), Medicare/Medicaid (18%), and patients (7%).

Investment Thesis: Secular market growth: The U.S. lab-testing industry is around $60B in size, and we project mar- ket growth of 4-6% per year. Volumes should grow 3-4% due to population growth, an aging popula- tion (people who are 65+ get 5x more lab tests than people under 65), the introduction of new eso- teric tests, and increasing focus on preventative care and personalized medicine. DGX‟s average pric- ing should grow 1-2% due to a mix shift toward higher-priced esoteric tests. Favorable competitive dynamics: The commercial lab-testing market is an effective duopoly be- tween DGX and LH, and both companies appear to be rational competitors. DGX and LH compete Josh is a second year MBA nationally, but our proprietary analysis of market shares by state indicates that there is relatively little student and a participant in geographic overlap at the local level. We believe this minimizes direct competition and facilitates Columbia‟s Applied Value local economies of scale. Pricing for both companies has been steadily rising since 2003. Investing Program. Prior to Sustainable competitive advantage: DGX‟s massive size provides significant economies of scale, school, he was a private equity economies of scope, and a privileged relationship with health insurers. DGX‟s hub-and-spoke busi- associate at TA Associates and ness model allows it to enjoy high utilization of its fixed-cost testing centers, translating into lower an investment banking analyst at unit costs. Our primary research indicates that most hospital labs are unprofitable due to insufficient Morgan Stanley. He holds a scale. DGX provides over 3,000 tests, which allows it to leverage its massive distribution network BSE from Princeton University. and offer a wider menu of tests to payers. Health insurers prefer to deal with large, low-cost provid- ers like DGX and LH and charge higher co-pays to patients who use other labs. Market share growth: DGX is gaining market share due to growth in esoteric testing. Most hospi- tals don‟t provide esoteric tests because the volumes are low and esoteric tests require costly equip- ment and significant technical expertise. A growing focus on reducing healthcare costs could allow DGX to gain share from the dominant hospital segment since hospital labs charge 2x-4x higher prices than DGX. Issue XII Page 25

QuestPaul Johnson Diagnostics (continued from previous page)

Margin expansion: Margins should expand 40-50 bps per year due to operating leverage and a mix shift toward higher-margin esoteric tests. EBITDA margins are 35-40% for esoteric tests compared to 15%-20% for routine tests. Good capital allocation: Management has opportunistically repurchased $4.4 billion of shares since 2003. Dividends have been paid every year since 2004 and the stock has a 0.7% dividend yield. Attractive valuation: DGX trades at a 10x „12E P/E and an 11% „12E FCF yield based on our forecast.

Variant Perception: Physician visits should stabilize: The number of patient visits to a physician dropped 5% in 2010, “Our 12-18 month contributing to a 1% drop in DGX test orders. Our discussions with physicians indicate that visits are down because unemployed people lost their insurance and are deferring checkups to save on co-pays. price target for We believe this trend is unsustainable and should reverse as employment trends improve. Insourcing trends should cease: Some sell-side analysts are concerned about a recent trend toward DGX is $90 per physicians performing more of their own lab tests“ (“insourcing”). ” We believe that insourcing should reverse due to Federal regulations called Stark Laws that ban most physician-owned labs (to reduce over share, representing -utilization of healthcare). Our discussions with physicians indicate that most won‟t take the legal risk to generate small incremental revenues from insourcing. In addition, our ROI analysis indicates that in- a 60% total return sourcing is unprofitable for most physicians due to high fixed costs and low testing volumes. DGX should benefit from healthcare reform: Some investors are worried about the impact of from today‟s price healthcare reform. Our research indicates that DGX will actually benefit from reform due to expanded health insurance coverage, the elimination of co-pays on lab tests, and greater cost-consciousness driving of $56.55. This volumes to low-cost providers. We estimate that the addition of 32 million uninsured people to man- aged care in 2014 represents 4-9% of upside to the stock, which is a free option in our thesis. target price repre-

Valuation: sents 8.8x EV/‟13E Our 12-18 month price target for DGX is Downside Base Case Upside ’13E Rev. Growth (1.0%) 4.9% 6.6% $90 per share, representing a 60% total re- ’13E EBIT Margin 17.1% 19.7% 20.1% EBITDA, 10.4x turn from today‟s price of $56.55. This tar- ’13E EV/EBITDA 7.3x 8.8x 9.4x get price represents 8.8x EV/‟13E EBITDA, ’13E P/E 10.9x 14.0x 15.0x EV/„13E EBIT, 10.4x EV/„13E EBIT, 14.0x „13E P/E and a ’13E FCF Yield 10.3% 7.4% 6.8% 7.4% „13E FCF yield, which are below DGX‟s Target Price $50 $90 $105 14.0x „13E P/E and 8-year average multiples. Our forecast as- Upside/(downside) (11%) 60% 86% sumes that by 2013, DGX maintains share a 7.4% „13E FCF with industry growth of 5% and EBIT margins are 19.7% (vs. 18.1% in 2010). We see limited downside from today‟s price and the upside/downside ratio is compelling at 8:1. yield, which are

Catalysts: below DGX‟s 8- Physician visits stabilize: Physician visits drive testing volumes and are impacted by unemployment rates. Improving employment trends should lead to more physician visits and higher volume growth. year average multi- Earnings outperformance: Our projected EPS is 13% and 21% above consensus in „12 and ‟13. Smart M&A: Acquisitions in this industry are usually very accretive due to significant cost savings on ples.” overhead as well as visible revenue synergies from expanded distribution for new esoteric tests.

Risks and Mitigants: Drop in reimbursement rates: Declining reimbursements is a risk for all healthcare companies. However, lab test reimbursements from Medicare and other payers have been stable/growing over time. Lab testing represents only 2% of total healthcare costs, and our discussions with payers indicate that they are most focused on cutting reimbursements for high-cost procedures. Lab testing allows for early diagnoses, which saves payers money by avoiding costly, late-stage treatments. DGX has contracted pricing with its insurance clients through 2013, and Medicare/Medicaid only account for 18% of sales. Anatomic pathology (“AP”) insourcing: DGX has been losing share in AP testing (16% of sales) to physician-owned labs due to a loophole in Stark Laws that ban most self-referrals. Our base-case projec- tions assume continued declines in AP revenues. However, the AP exemption from Stark Laws could be eliminated and the long-term trend toward outsourcing is likely to continue. Point-of-care (“POC”) testing: DGX could lose share due to greater use of portable testing equip- ment by physicians. However, only the lowest-priced, most-routine tests are performed at the point-of- care. These POC tests are less accurate than lab tests and the cost per test is higher. In addition, there are technological challenges with developing portable, easy-to-use POC testing equipment. Page 26

20th Annual Graham & Dodd Breakfast Seminar

On October 21st, 2010 Columbia hosted the 20th annual Graham & Dodd breakfast at the Pierre Ho- tel in midtown. Each year, the breakfast brings to- gether students, alumni, faculty, and investment prac- titioners to discuss current investment markets and celebrate Columbia‟s ongo- ing contribution to the value investing discipline.

At the event, Mr. Cheah Cheng Hye, Chairman & Co -CIO of Value Partners Lim- ited gave his views on mak- ing value investing work in China and Asia. Under the leadership of Mr. Cheah Cheng Hye, Value Partners Limited has established one of the most successful in- Mr. Cheah Cheng Hye, Value Partners Limited vestment management qualitative analysis. When I The investing process at Value teams in the Greater China first started in the 1990s, Partners is broken down into a region. there were very few compa- set of skills that “can be mas- Mr. Cheah spoke about first nies with superior business tered by fairly ordinary peo- and foremost being a value characteristics in China. ple...and the process is teach- “Each human investor and only secondly What you were really buy- able, repeatable, sustainable, and being has dif- being a China investor. ing were pretty lousy com- scalable.” “The only thing new I can panies trading at very cheap ferent strengths To implement this strategy Mr. say about research is that in prices. But in more recent Cheah emphasized the impor- the China context, we have years, the trend has been and weak- tance of creating an appropriate been moving increasingly much more encouraging. culture where everyone helps nesses, but to- away from quantitative You are finding more com- each other and a focus on hiring analysis to panies that may fit the de- gether we make scription of a good fran- the right people. a formidable chise. I.e. a sustainable, com- For a full copy of the tran- petitive advantage, durable script, please visit team.” advantage we call it, and to www.grahamanddodd.com do that it is very difficult to quantify in numbers.” 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.

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Graham & Doddsville 2010 / 2011 Editors

Garrett Jones is a second year MBA student. This summer he in- terned at Nicusa Capital, a concentrated long-short value fund. Prior to Columbia, he was a Senior Consultant with Booz & Company in Dallas and the Middle East. He received a BA in Music and Computer Science from Dartmouth College.

Daniel Kaskawits, CFA is a second year MBA student and participant in the Applied Value Investing Program and Advanced Investment Re- search seminar. This summer he interned at Steinberg Asset Manage- ment, a long-only value fund. Following school, Daniel will work at Elm Ridge, a long-short value-focused equity fund. Prior to Columbia, Daniel worked for six years in research at Citi, where he was a member of the U.S. equity strategy team. Daniel received a BSM in Finance and Market- ing, with a minor in Sociology from Tulane University in 2003.