Graham & Doddsville An investment newsletter from the students of

Inside this issue: Issue XXXII Winter 2018 The 27th Annual Omega Advisors, Inc. Graham & Dodd At the end of 1991, following 25 years of service, Lee retired Breakfast P. 3 from his positions as a General Partner of Goldman, Sachs & Leon Cooperman, Co. and as Chairman and Chief Executive Officer of Asset Management to organize and launch an investment CFA ’67 P. 4 management business, Omega Advisors, Inc. David Poppe CC ’86 & John Harris P. 12 At Goldman Sachs, Lee spent 15 years as a Partner and one Leon year (1990-1991) as of-counsel to the Management Committee. Student Pitches P. 21 Cooperman, In 1989, he became Chairman and Chief Executive Officer of C.T. Fitzpatrick, CFA ’67 Goldman Sachs Asset Management and Chief Investment Officer of the firm’s equity product line, managing the GS CFA P. 27 Capital Growth Fund, an open-end mutual fund, for one-and-a-half years. Prior to Seth Fischer P. 35 those appointments, Lee spent 22 years in the Investment Research Department as

Editors: Ruane, Cunniff & Goldfarb Abheek Bhattacharya MBA 2018 David Poppe joined Ruane, Cunniff & Goldfarb in 1999 after a 12-year career in Matthew Mann, CFA journalism. Mr. Poppe graduated with a MBA 2018 BA from in 1986.

Adam Schloss, CFA John Harris joined Ruane, Cunniff & MBA 2018 Goldfarb in August 2003. Prior to joining David Poppe John Harris the firm, he spent two years as an analyst Ryder Cleary CC ’86 MBA 2019 at Kohlberg, Kravis, Roberts & Co. (KKR), a private equity firm based in New York Gregory Roberson, Esq. and San Francisco. Before joining KKR, he served as an analyst in the investment MBA 2019 banking division at Goldman, Sachs & Co. Mr. Harris graduated with an AB from Harvard College in 1999, Magna Cum Laude and Phi Beta Kappa. David Zheng MBA 2019 Oasis Vulcan Value Management Partners1 Visit us at: Company www.grahamanddodd.com Rolf Heitmeyer www.csima.info C.T. Fitzpatrick Seth Fischer is the founded Vulcan founder and Chief Value Partners in Investment Officer of 2007 to manage Seth Fischer Oasis Management C.T. his personal Company, an international investment Fitzpatrick, CFA capital. Since manager headquartered in Hong Kong. inception, all four Oasis was founded by Mr. Fischer in 2002 strategies have peer rankings in the top following a successful seven-year career 4% of value managers in their respective at Highbridge Capital Management, (Continued on page 2) where he managed the firm’s Asia

1Please see page 10 for required disclosures

Page 2 Vulcan Value Partners (Continued from page 1) categories.2 Prior to University of Alabama. I Management and had a great founding Vulcan Value majored in finance and experience there. It was a lot Partners, C.T. worked as a minored in English. As my of fun, but the main reason I principal and portfolio coursework evolved and as I went back to school was to manager at Southeastern had exposure to more things, I transition my career. In 1990, Asset Management. discovered that I was I started with Southeastern During his 17-year tenure, passionate about investing. Asset Management in the team at Southeastern Memphis, also known as Asset Management While I was in school in the Longleaf Partners. I was very achieved double digit early 1980s, coursework fortunate there had been some C.T. returns well ahead of emphasized efficient markets, changes in the senior Fitzpatrick, CFA inflation and was ranked in CAPM, and all those things. management of that company. top 5% of money managers Conceptually, a lot of it made It left a hole, allowing some over five, ten, and twenty sense but some of it didn’t. It younger guys, including myself, year periods according to was counter to how my dad to take on a lot of Callan and Associates. actually did things in the real responsibility quickly. I became world. I started challenging my a partner in the company C.T. earned his MBA in professors and I got pushback. pretty early on. Finance from the Owen It just didn’t feel right. Of Graduate School of course, you want to I started as a generalist. We Management at Vanderbilt regurgitate it for the test, but were finding things in the real University. He also has a then do you really agree with estate area that were really BS in Corporate Finance it? cheap and interesting. We from the University of increasingly gravitated to it Alabama. I read Graham and Dodd’s simply because there was Security Analysis just to try to more opportunity there. Long Graham & Doddsville understand, “Okay, what’s the story short, we started a real (G&D): Could you tell us other side of this?” It really estate effort, and I was very about how you got started in appealed to me and struck a fortunate to be tapped to lead the industry? nerve. By the time I graduated, that effort. I went from being a I wanted to be a value generalist to a real estate C.T. Fitzpatrick (CTF): I investor. It was the mid-80s expert. Then, in the early was a weird kid. I was reading and Wall Street was booming. I 2000s, we shut that program the Wall Street Journal when I had some opportunities on the down because basically we was 14 years old. My father money management side, but I rode cap rates down from 12% was my mentor. He was an also had an opportunity to to 8% and thought the bargains entrepreneur and I was just work here in New York in had dried up. Obviously we got curious about what he was investment banking. out too early. I became a doing. It became an intellectual generalist again. At that point, curiosity. My dad was a value G&D: What was that job? we had moved into investor but he didn’t know it. international and global. That He didn’t call himself a value CTF: I worked at Merrill was really fun. investor. He did a lot of things Lynch capital markets. I met in real estate and he would try my wife. She was a trader at Then, in early 2007, I decided to buy properties at a discount what now is Credit Suisse First it was time for me to move on. to replacement value. He’d be Boston, which was First I’d been there for 17 years. I looking for things that had fat Boston at the time. It was a think anyone who’s passionate cap rates, things like that. great experience but I was only about what they do, and on the edge of what I wanted strives to continuously Since I knew I wanted to go to do. I was an agent, not a improve, will keep their core into business, I did not have principal. principles but continue to the patience to pursue liberal refine them over time. I began arts, so I went straight into I went back to graduate school to feel very strongly about corporate finance at the at Vanderbilt’s Owen School of some things that I wanted to (Continued on page 3)

2 Source: Vulcan Value Partners Large Cap Composite versus peer group of the eVestment US Large Cap Value Equity Universe. Vulcan Value Partners Small Cap Composite versus peer group of the eVestment US Small Cap Value Equity Universe. Information provided is supplemental information for the Large Cap Composite, Focus Composite, Focus Plus Composite, and Small Cap Composite for period ending September 30, 2017 as of October 18, 2017.

Page 3

Vulcan Value Partners

do in my own personal company’s assets are opaque it had net cash on its balance evolution. and difficult to value with sheet. Unlike all the others precision. Even if you were that I mentioned, it generated I left Southeastern to start able to accurately value the a huge free cash flow coupon Vulcan Value Partners in order assets, and the asset values and had an inherently stable to put these principles into dropped just a little bit, the value. They all became practice. I had a wonderful equity value could evaporate discounted, but we bought the experience there and I’ll be because of the financial companies that had inherently forever grateful for being part leverage on the balance sheet. stable values. of Southeastern. I wouldn’t be You could buy J.P. Morgan at a here today if I had not been discount to tangible book and My evolution as an investor there first. believe you had a margin of was that it's not enough to buy safety, but the margin of safety a company that is statistically G&D: Is there a particular would be ephemeral because cheap at a point in time. It has philosophy or framework that the company’s value is to have what we call at Vulcan they use? inherently unstable. Value Partners a sustainable margin of safety. CTF: When I was there my That is an example of a initial emphasis was just on G&D: In addition to valuation. The cheaper, the “My evolution as an sustainable margin of safety, better. There were other parts what other things are critical to the analysis, of course, but investor was that it's parts of your investment the energy went to finding not enough to buy a philosophy? discounted companies. The bigger the discount, the more company that is CTF: Time horizon is really interesting, and that’s the work important. It can be a huge you focused on. statistically cheap at a competitive advantage if you’re able and willing to use it. Our As I evolved, I began to feel point in time. It has to minimum time horizon is five that it was even more years. Assume the equity important to focus on business have what we call at markets are shut down or quality, specifically value Vulcan Value Partners a think about it like a private stability. This concept gets equity investor. If we would back to what attracted me to sustainable margin of not be willing to have capital value investing in the first tied up for five years, it doesn’t place: the idea that you could safety.” qualify for investment. take on less risk and earn excess returns. That absolutely company that, in fact, the old With that rule, we discard turns the Efficient Markets C.T. would have said, “Oh, my probably 90% of the companies Hypothesis and CAPM on its gosh! I can buy J.P. Morgan at that are publicly traded. A lot head, but it is what Graham half of tangible book. You of them get cheap from time and Dodd were talking about, know, this is great!” or, to time but we have no and what Warren Buffett and “Maybe we should buy Bear interest in them because they Charlie Munger continue to Stearns too or maybe we don’t meet that test. If we’re talk about. should buy Lehman Brothers. going to have a five-year time We can buy them at a discount horizon and base our For example, look at J.P. to book.” But, we didn’t do investment decisions on that Morgan during the financial any of that at Vulcan. time horizon, we have to crisis. It was a really well- invest in companies whose managed company but its Instead, we were buying value is stable over that time balance sheet was so leveraged companies like MasterCard horizon. Very few companies that it was impossible to figure that were caught up in the fit that criteria, but the ones out what its equity was worth taint of being a financial that do, again, provide what with any accuracy. The services-oriented company but we call sustainable margin of (Continued on page 4)

Page 4

Vulcan Value Partners

safety. differentiates Vulcan. That is seem to focus on free cash what we do differently than a flow. Is that correct? When I started, I was discount lot of practitioners in the first and then the rest later. industry. CTF: Yes. From a quantitative Today, at Vulcan, we are value point of view, free cash flow is stability first. We don’t care if G&D: How do you motivate really important to value it’s discounted or not. Of your analysts to look at things stability. That’s a quantitative course, we want to buy that aren’t cheap yet? metric. There are others: How companies at a discount, but high are your returns on when we start, we don’t look CTF: That’s a great question. capital? How stable are your for cheap stocks. We look for It gets to how we’re wired. margins? How strong is your companies with inherently I’ve heard Mr. Buffett speak balance sheet? We look at all stable values. Those companies very eloquently about this. of it, free cash flow being the we follow. Most of them are There are different types and most important. overvalued most of the time different stripes of value but when they become investors. When he wrote the We spend a lot of time discounted, we’ve already essay The Superinvestors of qualitatively trying to done the work. We’re up to Graham-and-Doddsville, he understand what’s driving the speed on them. We follow mentioned there are different numbers and the qualitative them just like we own them. people who do it in different aspects of the business. Is the ways. There’s not, I think, one business getting better or Often there is an event: it correct way to do it but worse? Our analysis is could be a macro event, it there’s probably one way quantitative but I think our real could be something specific to that’s correct for each of us to value add is on the qualitative the industry, or it could just be do it. It gets back to staying side. We spend an awful lot of volatility. We haven’t had within our circle of time debating those qualitative much of that lately but it does competence. issues. happen every now and then and you have a chance to buy G&D: You mentioned your G&D: In the past you’ve these businesses at a discount. shift towards value stability. mentioned energy companies Were there some investments and commodity risk. Are there You have a history of your that pushed you in that any other sectors that you’re values. You’ve updated them. direction? saying, just by the dynamics of When you watch that over and that business model and that over again, it gives you a lot of CTF: On average, our returns sector, we're not playing in confidence to buy a company. were really good but it that area? You might not have owned it bothered me more to lose for 10 years, but you might money than I enjoyed making CTF: Anybody who doesn’t have been following it for 10 money. What attracted me to control their own destiny, years and its value has value investing in the first place which is most people. You compounded steadily. It gives is a margin of safety, taking on mentioned energy. There are you a lot of confidence less risk. less than a half a handful of because you’re not scrambling companies in that area that to get up to speed. If you’re Using a baseball analogy, you provide value-added services trying to get up to speed at the don’t improve your average by that we like, but we don’t like last minute, the seller is going just hitting more home runs. If most of the industry. to know a lot more than you you can eliminate your are as the buyer, but we’ve strikeouts, you can really There are some really well- been following these improve your results. It’s not managed industrial companies. companies forever. so much about what you do; One we’ve owned for a long it’s what you don’t do. time that’s been really We make mistakes but I think successful for us is Parker our dual emphasis on quality G&D: When you’re thinking Hannifin. They’re a leader in and discount is what really about the value stability, you (Continued on page 5)

Page 5

Vulcan Value Partners

motion control products and looking for great businesses. over many years. Nobody even they have a substantial There’s a lot of accumulated remembers whose idea it was. aerospace business as well, knowledge. A lot of businesses It’s great because we’re now where they are in programs that we own currently, I have working objectively with a like the 787 which have a very owned three or four times culture that reinforces our long life. We like companies over the course of my career. investment process. We’re not where the equity duration is That makes up what we call at odds with each other. long and the cash flow is very our MVP list: companies we stable. follow that we would buy if Most new businesses fail. You Professor Tano Santos they become discounted. have a lot of things going speaks with Mario Gabelli Then there are other industrial against you but when you can ’67 at the 27th Annual companies that are just making G&D: You have a couple set up initial conditions Graham & Dodd Breakfast commoditized products. hundred names on that list, thoughtfully and create a They’re typically price takers right? foundation that can propel you and they are heavily leveraged. forward, that is a one-time They’re in a very weak CTF: We have roughly 500. asset but it’s depleted over position. Anybody can do what Our analysts are rewarded for time. It’s gone. You only get it they do. Those are just cigar finding new names to add to once. We spent a lot of time butts. They get cheap, but we when we were setting up the don’t care. We don't want to “We don’t screen. company to make sure that we waste our time with them, set up a culture and a even if they are cheap, because We’re looking for great compensation system that they do not have inherently reinforces the execution of stable values. businesses….A lot of our investment philosophy.

G&D: Could you buy one of businesses that we own G&D: How do you look for those cigar butts at such a currently, I have owned these new MVP companies? discount that you are effectively agnostic to the three or four times over CTF: We read a lot. We get a commodity price risk? lot of ideas from following the the course of my career. companies we own. We spend CTF: Absolutely. You could, a lot of time talking to the and I used to do things like That makes up what we companies we own. I can’t give that but don’t do them you all the secret sauce, but anymore. You have to be call our MVP list: we’ve spent a lot of time disciplined. We still like the companies we follow talking to very accomplished discount. But liking a discount people. We never ask about didn’t make it go away. that we would buy if earnings. We talk about long- term issues impacting the There are things we look at, they become business. We talk about what’s we go, “Oh, my gosh. You going on currently. We talk know, this is just so tempting,” discounted.” about the things that really but don’t do it. We don’t. matter. The companies we talk the MVP list, but they’re to really appreciate that. G&D: You mentioned doubly rewarded for taking spending some time on the names off. No one is rewarded G&D: You’ve owned Oracle quantitative but a lot of time for how many names they for a while, and it’s your on the qualitative. How do you follow in the portfolio. You largest holding. Why? go about valuing those just happen to be the person qualitative metrics for who is following the name at CTF: We became believers in companies and kicking the tires the moment it became the shift from on-premise before you invest? discounted. These names on computing to cloud computing the MVP list have been a long time ago. Go back a CTF: We don’t screen. We’re updated by numerous analysts few years before the cloud (Continued on page 6)

Page 6

Vulcan Value Partners

grew rapidly. Oracle and SAP cloud, what does that mean? about two years ago, sort of dominate the on-premise Oracle is in the cloud in a flatlining about two years ago software markets, specifically much more integrated way and then just a slight decline. the enterprise computing than SAP is. Oracle invested Part of it was FX, but I’m software market. SAP is aggressively to be able to offer talking about down mid-single stronger in applications and the cloud across their entire digits. Not a big deal at all. ERP and Oracle are stronger in product suite, a complete databases, but Oracle has solution. With Oracle, you can At the same time, while the on plenty of ERP products and be 100% in the cloud, you can -premise is slowing down, the SAP has its own database. SAP remain 100% on-premise, or cloud business is exploding. I’m licenses the Oracle database you can be hybrid and never a value investor. We have a for most of their stuff. know the difference. When really hard time modeling you’re sitting at your desk and growth rates like this but this It’s like Coke and Pepsi. you pull up the database, you was 70-80% annual revenue Neither one of them is going might be using one of the growth with expanding to knock the other out. They products in the cloud and one margins. Earnings growing well fiercely compete with each of the products on-premise. over 100% in that part of the other, but they respect each You’ll never know. That’s business. other. They bad mouth each really easy to say and other but at the end of the incredibly hard to do. The on-premise business is day, neither one of them is basically going from growing at going away. It’s very logical. SAP kept focusing on on- a mid-single-digit rate to Both companies have pricing premise. They’re more of a basically growing at zero. The power and their products are European company and more cloud business is now at a $6 really sticky. Renewal rates are of their clients are based in billion run rate. With that kind north of 90%. They’re in a Europe. The Europeans are of run rate, it’s now growing sweet spot if you look at generally more skeptical about around 40-50% instead of 70% where the economy is cloud than the Americans. The or 80% on that much bigger growing. adoption’s been a lot faster in base. You couldn’t see it in the the U.S. There are some GAAP numbers but we saw it There’s more and more business reasons for it, too, in all of the new bookings. demand for their products. but Oracle is in a much Growth was in line with the Everybody talks about the stronger competitive position strategy that they explained to explosion of data, and that than they have ever been us. We weren’t the only ones drives demand for their because of their investment in who heard it, but you could products. They both have had the cloud. see it in the figures that a wonderful business for a ultimately drive the GAAP really long time. They’re both It cost them in terms of numbers. MVP companies. earnings. They’ve been converting their client base to You can go read old sell-side Roughly five years ago, Oracle cloud. It has impacted their reports that were negative on made an announcement that revenue growth because Oracle because its earnings they were moving toward the you’ve had decelerating growth growth had stalled. Now their cloud. SAP at the time said in on-premise. They have had earnings are beginning to they were staying with on- heavy R&D investments and accelerate and the reports are premise and not really costs going up faster than getting more favorable. investing much in the cloud. revenues. Their earnings after Oracle’s stock price is Oracle spent a ton of money growing steadily for decades beginning to go up but the to make all of their on-premise starting dipping. growth was there two years products fully compatible in ago if you looked at what’s the cloud and integrated with G&D: When was that? When under the hood and not at the the on-premise offerings. did they start dipping? GAAP numbers. The GAAP numbers are a lagging indicator When you say you’re in the CTF: They started dipping to what’s actually happening in (Continued on page 7)

Page 7

Vulcan Value Partners

the business. we’re still getting a free cash needed to deliver such flow coupon, and they are services. We do recognize that Oracle’s growing at double using that to repurchase shares cloud-only competitors exist in digit rates again. We think at a discount. the application layer, such as they’re going to grow at Workday and Salesforce, and double-digit rates for a really Our view is that we were paid there are infrastructure-only long time. Ultimately, is it to wait while this transition competitors, such as AWS. going to be a 10-year transition occurred. We give Oracle’s However, no one competes or a 20-year transition? If it’s management team points effectively throughout the 10 years, they’ll grow faster because they do what stack with Oracle in both on- sooner, but if it’s 20 years, everybody says you’re premise and in the cloud. you’ll just have longer supposed to do. They’re willing duration. They’ll grow slower to sacrifice short-term results G&D: Are there any other but it’ll last longer. They will to strengthen the company examples where your settle back down to a mid- over the long term. Now institutional knowledge from single digit kind of revenue we’re in the payoff phase but having followed these growth again but in the mean we had to ride through the companies on the MVP list time they’re going to grow at investment phase. Now we’re helped you spot a multi-year an accelerated rate. SAP trades on the other side of it. As five- opportunity when others were at a significant premium to year investors, we’re happy to focused more on near-term Oracle because they have EPS? continued to enjoy their “We give Oracle’s earnings growth over the CTF: It does happen from shorter term. They haven’t management team time to time. It’s really ironic made these investments, but because it’s what many say that’s going to catch up with points because they they want companies to do, them. but then the companies get in do what everybody trouble for it. United Again, at the right price, we’d says you’re supposed Technologies is doing it right own SAP. SAP’s strategy is not now with Pratt & Whitney. flawed. It’s just a different to do. They’re willing Honeywell did it a few years strategy, but in terms of what’s ago. FedEx did it a long time going to happen, SAP’s growth to sacrifice short-term ago when they started building is going to slow relative to their international operations. Oracle’s and it trades at a results to strengthen Quaker Oats did it when they premium. I think Oracle is an were investing heavily in Latin example of us exploiting our the company over the America. It can create great five-year time horizon. We long term.” opportunities for long-term look at that and say, “Okay, investors. we’ve got two years of flat-ish wait. Other investors are not. earnings.” Meanwhile, they’re They want to see near-term G&D: How do you evaluate generating $13 billion of free earnings acceleration. management? Is that just going cash flow, 80% of which has back and checking the track been put into share re- G&D: Can you talk a little bit record of how they’ve purchases because they know about barriers for entering the performed as stewards of their stock is cheap. cloud? Can’t others enter as capital in the past or is it more well? by talking with them about the While we’re waiting for this landscape they’re facing? transition to occur and CTF: Oracle has made earnings growth to accelerate extensive investments not only CTF: You have to do both. I again, our value is stable to rewrite all of their code so think that studying somebody’s because of the robust free cash that it can be deployed in the history is really, really flow and stable margins. They cloud, on-premise, or hybrid, important. We made an quit growing for a while but but also in the infrastructure investment in Time Warner (Continued on page 8)

Page 8

Vulcan Value Partners

seven years ago. That was a is value stability. How stable is competitive position was company that was not on our your value? Things that lend beginning to erode, but you MVP list because of mis- themselves to value stability couldn’t see it in the numbers management exemplified by are production of free cash yet. the AOL-Time Warner flow, stable margins, and merger. Because of that, there strong balance sheets. Now, look at today. Cord was finally a shakeup on the You could argue that most of cutting's rampant. We saw that board. People that we didn’t our companies have very six years ago from a qualitative like started to leave the board, inefficient balance sheets. point of view. The qualitative and people we did like started Because of their free cash flow analysis is even more to join the board. Jeffrey production, they could have a important than the quantitative Bewkes became CEO, and we lot more financial leverage than analysis because quantitative is were paying attention. they do. Most of our always a lagging indicator. By companies have net cash and the time you see it in the The company was not on the their balance sheets can be numbers, it's often too late. MVP list because of this big, used as a weapon. black mark on management G&D: So you recognize the but it could be a potential add. You then go and say, “Okay, qualitative thing that triggers When Bewkes became CEO that’s great but that’s the past. you to think, “Okay, there’s a and we saw this change in the What’s the future going to shift here that hasn’t turned up board composition, we started look like?” During the financial in the numbers yet.” watching more closely what he crisis, we had large CTF: We’re not always right. was doing. He started investments in DirecTV and Sometimes we sell something reversing all the crazy stuff Comcast, and we ended up and the company remains they’d done. They started owning Time Warner Cable competitively entrenched. doing a lot of shareholder- when it was spun out. Those Frankly, with the distributors, friendly things like spinning out businesses were great it’s come back full circle. The Time Warner Cable and businesses when we owned video business is not that started buying back the stock them and their bottom-line important to them anymore when it was cheap. financial results still looked compared to what it used to fantastic when we sold them. be, but every time you’re We kept listening to But from a qualitative point of streaming Netflix or Amazon conference calls, and we kept view, we had started to worry Prime, it’s going through their watching, and we finally put it about cord cutting. pipes. They win anyway. They back on the MVP list. Luckily have really become ISPs more for us this happened right We started talking to the so than video providers. before the 2011 U.S. debt- younger analysts that we had ceiling debacle. First, we hired. All of a sudden, I’m I’m not saying that they qualify decided it met our quality hiring people and they’re again, but who knows? Five criteria, including management. saying, “I’ve never paid for years from now, we might own You can have a great business cable or satellite in my life and Comcast again. I don't know, like Time Warner, but if you I’m never going to.” The more but things evolve and they don’t have good management, work we did qualitatively, we change. We don't always know it doesn’t work. That was the said, “You know what? Power about the timing and how fast missing piece. It then became is shifting from the content it’s going to happen. discounted, and we bought it. distributors to the content We just recently exited the owners.” About the time we As value investors, we don’t position. bought Time Warner, we were have to play. It’s all about getting out of DirecTV, managing risk. We might be G&D: You mentioned the Comcast and Time Warner wrong, but if we're wrong and quality criteria for Time Cable because we believed things continue to go well, Warner. Can you define it? that the content owners were we’ll just allocate capital getting a stronger hand. We somewhere else where we CTF: Our definition of quality believed the distributors’ (Continued on page 9)

Page 9

Vulcan Value Partners

think things are also going to investing with us can be very options. We tell them to go well. We don't have to take uncomfortable. There are reduce their exposure to us those risks. going to be periods of time and put their capital when we’re doing things that somewhere else where there G&D: Taking a long-term are very uncomfortable in the are better risk adjusted approach as opposed to more short run. If you are not willing returns. We want the kind of of an activist approach, I would or able to go through that client where we can have that imagine you definitely need buy discomfort, don’t hire us. dialogue. Then, there'll be a in from your clients on this You’ll be unhappy with us. We day when we'll say, “Now, the type of strategy. How do you opportunity set is rich. I fully communicate the type of “With the [content] expect to get that money back investor you’re looking for and and a whole lot more.” 2008 how do you best have that distributors, it’s come was a great example of that conversation? happening. back full circle. The CTF: That’s a great question. One of our competitive We truly view our clients as video business is not advantages is our group of partners. We chose the word that important to clients. We closed to outside partners and put that in our investors in 2015. Our clients name very deliberately. We them anymore com- provide us with very stable view the companies that we capital, and that is a huge invest in as partners. We want pared to what it used advantage for us. them to treat us as partners. If they don’t feel that way about to be, but every time G&D: What advice would you us, that's a big red flag. We have to students just as we look for the intersection, if you you’re streaming Net- think about careers in this will, of a partnership between flix or Amazon Prime, industry long term? the management teams with whom we invest, ourselves, it’s going through their CTF: I’m going to quote the and our clients. One of the interview you did in your Fall things I’m really proud about at pipes. They win any- issue with Howard Marks. I Vulcan is everyone at Vulcan is thought his advice was required to invest in public way.” outstanding. Do what you love. equities exclusively through I’m the happiest guy in the Vulcan. You can’t work at want client partners that can world. Every day, I do what I Vulcan and invest anywhere provide stable capital for us. love. I’m more blessed than I else. deserve to be. I have been There’ll be a time when we're happily married for many, I think that really aligns our going to say, “Give us money. many years. I have healthy kids, interests with our clients. It The opportunity set is rich.” I everything’s great. But during doesn’t make us smarter than really think they will because my working hours, I don’t anyone else, but it does keep we’ve told them it's not a great think, “Okay, got to go and get everybody focused and it opportunity set right now. If through work so I can start weighs heavily when someone you have better places to enjoying my life.” I look in a research meeting feels allocate your capital, we forward to going to work. I get strongly about something. I encourage you to do that. If bored on vacations pretty know that their net worth is you have another manager quickly. It’s such a blessing to riding on it. who’s got some great things enjoy my work that much. My for another asset class, that’s advice to everyone is to find Our clients share our time great. Most of our clients are something that you love. You’ll horizon. They share our ability institutional. They invest in become so much more to differentiate between value multiple asset classes, partner successful at something if you and price. We have fantastic with multiple managers around love doing it. clients. We tell them that the world, and have lots of (Continued on page 10)

Page 10

Vulcan Value Partners3

I’m sure you have all heard of Malcom Gladwell’s book Outliers, and maybe you have read it. It discusses the principle that if you do something you enjoy doing, you’re going to do more of it, and the repetition makes you better. That’s my biggest advice. In terms of value investing or anything else, you must be passionate.

G&D: Thank you, C.T. Thank you for sharing your thoughts with us.

3Vulcan Value Partners, LLC is an investment adviser registered with the Securities and Exchange Commission under the Invest- ment Advisers Act of 1940. Vulcan focuses on long term capital appreciation; targeting securities purchases that we believe have a substantial margin of safety in terms of value over price and limiting our investments to companies that we believe have sus- tainable competitive advantages that will allow them to earn superior returns on capital. Value is our estimate of the price a will- ing buyer would pay, and a willing seller would accept, assuming neither was compelled to enter into a transaction.

Vulcan Value Partners buys concentrated positions for our portfolios, averaging 5% in our model portfolios, which may make our performance more volatile than that of our benchmark indices and our performance may diverge from an index, positively or negatively, as a result. Our focus is on long term capital appreciation, so our clients should consider at least a five year time hori- zon for an investment with Vulcan. Past performance is no guarantee of future results and we may not achieve our return goal.

It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securi- ties discussed in the article. Vulcan Value Partners has no editorial control over the article’s publishers or the content, subject matter and timing of the article. The opinions expressed in the articles are those of the author as of the date when the article was published. Economic and market conditions may have changed and Vulcan Value Partners’ views regarding the prospects of any particular investment may have changed. Vulcan Value Partners does not assume any duty to update any information in this article and no representation is made with respect to its accuracy on any future date.