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.