ValueInvestor

February 28, 2017

The Leading Authority on Value Investing

INSIGHT
Traditionally Modern Inside this Issue
FEATURES
In a world where the “cutting edge” often gets the most attention, traditional
value investors Tweedy, Browne continue to prove that new isn’t always better. Investor Insight: Tweedy, Browne

F
Bargain-shopping around the world
or those seeking portfolio manag- and finding particular deals today in
ers who “eat their own cooking,” INVESTOR INSIGHT
Hyundai Mobis, Hang Lung Group,
Tweedy, Browne Co. would certainly Avnet and E-L Financial. PAGE 2 »
fit the bill. At year-end 2016, current and
Investor Insight: Jed Nussdorf
retired principals and their families, as well
In search of mispriced earnings-
as employees, accounted for $1.1 billion of
growth potential and seeing it today
the firm’s $16.5 billion under management. in J.B. Hunt Transport, AdvanSix,
Investors inside the firm and out have Zayo Group and Nestlé. PAGE 10 »
been quite well served. Since its 1993 incep-
tion the flagship Tweedy, Browne Global Uncovering Value: Oil-Dri
Value Fund has earned a net annualized Finding exciting upside potential in
9.3%, vs. 4.9% for the MSCI EAFE Index. probably one of the least-exciting
businesses imaginable. PAGE 17 »
Following a tried-and-true process de-
Tweedy, Browne Co.
veloped over the firm’s 97-year history, (l to r) Thomas Shrager, John Spears, Bob Uncovering Value: Dollar General
principals Thomas Shrager, John Spears Wyckoff Are recent investor concerns over
and Bob Wyckoff see opportunity today in Investment Focus: Seek companies this consistently successful business
such diverse areas as auto parts, insurance, whose stocks are statistically cheap and and concept justified? PAGE 18 »
IT distribution, agricultural equipment and the “issues” causing the cheapness are
deemed temporary or cyclical in nature. Editor's Letter
Chinese real estate. See page 2
A brilliant contrarian move? Why
your Editor-in-Chief is doubling

Bright Prospects down on value investing. PAGE 19 »

Growth investors often count on earnings upside to drive returns, while value in- INVESTMENT HIGHLIGHTS

vestors rely more on valuation gaps closing. Jed Nussdorf wants a balance of both. INVESTMENT SNAPSHOTS PAGE

W
hile Jed Nussdorf had only AdvanSix 14
INVESTOR INSIGHT
two years of full-time experi- Avnet 6
ence when he started his hedge Dollar General 18
fund in early 2005, he had a valuable ally E-L Financial 8
in Joel Greenblatt’s Gotham Capital, which Hang Lung Group 7
provided seed funding and took care of the Hyundai Mobis 5
operational aspects of the business. “It has J.B. Hunt Transport 13
made a real difference that I’ve been able to
Nestlé 16
focus almost exclusively on investing rather
Oil-Dri 17
than other things founders of investment
Zayo Group 15
firms have to worry about,” he says.
Combining elements of both value and Other companies in this issue:
Jed Nussdorf growth investing, Nussdorf’s Soapstone AGCO, CommScope, Dufry, Hyundai
Soapstone Capital Capital since inception has earned a net an- Motor, Kia Motors, LG Corp., MRC
Investment Focus: Seeks companies nualized 9.0%, vs. 7.8% for the S&P 500. Global, Ralph Lauren, Tiffany, UniFirst,
capable of strong earnings growth when Today he’s finding overlooked value in such Wells Fargo
their stocks trade at multiples expected to varied areas as packaged foods, intermodal
augment, not dilute, the prospective return. transportation, polymer resins and telecom
infrastructure. See page 10

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 I N V E S T O R I N S I G H T : Tweedy, Browne

Investor Insight: Tweedy, Browne

Thomas Shrager, John Spears, Bob Wyckoff, Jay Hill and Olivier Berlage of Tweedy, Browne Co. describe how value in-
vesting is like duck hunting, why today they focus more on non-U.S. companies than U.S. ones, how valuation for them
is a “two-part test,” and why they see mispriced upside in Hyundai Mobis, Hang Lung Group, E-L Financial and Avnet.

Your firm’s compendium, What Has wait for the ducks to come. If they come with a longer-term view when that’s too
Worked in Investing, is a must-read for you shoot them down. uncomfortable for others often provides
value investors, young and old. We imag- us with an attractive entry point.
ine its findings are a good place to start in Can you generalize about what the “is-
talking about your basic strategy. sues” tend to be that help create potential Olivier Berlage: A similar and more-recent
opportunity? example would be LG Corp. [003550:KS],
Bob Wyckoff: We are quite price-driven in the giant South Korean conglomerate.
our orientation as value investors, so our JH: Our investment in agricultural- There has been negative news at many
process often begins with screening across equipment manufacturer AGCO Corp. of its key affiliates. LG Electronics has
value metrics that allow us to cut a global troubles with its smartphone offerings.
universe down to what are likely to be LG Chem is seen to be facing headwinds
more-interesting ideas. Most of our invest- ON VALUE INVESTING: in the petrochemical cycle. LG Household
ments have characteristics that have been has issues to resolve with its cosmetics
It's like duck hunting. You
associated empirically with above-aver- business in China.
age investment rates of return over long sit in a blind and wait for the In addition to heightened uncertainty
measurement periods: a low stock price ducks to come. If they come at the company, we’re also finding some-
in relation to book value, a low price-to- what of a negative halo around Korean
earnings ratio, a low price-to-cash-flow you shoot them down. companies in general, caused by all the
ratio, an above-average dividend yield, a political turmoil in the country in recent
low price-to-sales ratio compared to other months, persistent worries over corporate
companies in the same industry, a signifi- [AGCO] illustrates one common type of governance, and ongoing concerns about
cant pattern of purchases by insiders, a situation that attracts us. We started buy- competition from Japanese companies
significant decline in share price. There’s ing the stock in 2014 at a time when if you benefitting from the weak yen. (Inciden-
a lot more to it of course, and individual looked at long-term average revenues and tally, the current political upheaval may
analysts here put their own spin on it, but profitability, you could make a very strong well lead to better corporate governance
the basic selection criteria described in case that the company had normalized further down the road.)
What Has Worked in Investing have been earnings power of at least $4 per share, at We got interested when there were low
incorporated in Tweedy, Browne’s invest- a time when the stock was in the low-to- expectations and systematically looked at
ment process for at least 60 years. mid-$40s. The earnings outlook then was the value of each of LG’s businesses on a
much lower because the #1 determinant more normalized basis. When we do that
Jay Hill: We try to buy companies at two- of agricultural-equipment demand is farm work, we arrive at a sum-of-the parts
thirds or less of a conservative estimate of income and the #1 determinant of farm in- intrinsic-value estimate that is very close
what Benjamin Graham called intrinsic come is crop prices, and crop prices were to the company’s reported book value of
value, with intrinsic value defined as what – and still are – historically weak. So the nearly ￦100,000 per share. That’s com-
the business would be worth in an acquisi- near term was uncertain, earnings were pared to a share price of around ￦58,000
tion or by estimating the collateral value declining and it was very difficult to know when we first got involved and around
of its assets and/or cash flow. As Bob said, when that might turn. ￦63,000 today.
the first part of the process is to find stocks But we were very comfortable that
that meet a statistical fact pattern we find the big-picture trends around food con- John Spears: The stock was trading at just
interesting. Often when that’s the case sumption were a long-term tailwind that 60% of book value and 9x earnings and
the companies have, shall we say, issues. argued for even better than a reversion the company carried very little debt net
Our job is to determine if those issues are to the mean. The sell-side in these types of cash. For a business that you believe
secular and more permanent, or whether of situations tends to value companies at actually has a reasonably bright future,
they’re cyclical and otherwise temporary. peak multiples of trough earnings, and that’s very cheap. We may not know the
only shifts to the more mid-cycle earnings timing of how that all will correct, but we
Thomas Shrager: Value investing is like and valuation we use when there’s clear believe it will. If it does we should benefit
going duck hunting. You sit in a blind and evidence the cycle has turned. Investing as shareholders.

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 I N V E S T O R I N S I G H T : Tweedy, Browne

Have any ideas cropped up following the At the other end of the spectrum, BW: We have fairly broad diversification
recent administration change in the U.S.? though, we will also buy into highly cy- within our portfolios, with generally no
clical, junkier and low-return-on-capital one issue at cost accounting for much
TS: This is not a new idea for us, but we companies. The stocks of these types of more than 3% of the portfolio. [Note: The
did have an opportunity to add to our po- businesses often bob up and down, so flagship Global Value Fund at December
sition in Kia Motors [000270:KS] when we’re just trying to buy them when they 31, 2016 had 111 positions.] Part of that
the stock went down, in no small part due trade at a significant discount to what we is our taking a more actuarial approach to
to concerns of it being "Trumped" given think they’re worth – in many cases also portfolio management, focused on mini-
the company’s plans to expand production relative to book value or to net current as- mizing the risk of individual errors we’re
in Mexico and export to the U.S. sets – and then be very sensitive to getting certainly going to make. We don’t want to
We don’t have a clue what actual policy write just one policy for broken legs, we
changes will happen and how they will af- want to have a lot of them and then count
fect Kia’s business. But the company has ON NON-U.S. INVESTING: on our underwriting to be more right than
made great strides on the operating front wrong over time.
The reality has been that
over the past decade – selling all over the Owning the number of positions we
world and improving product quality and when it comes to entry-point do also allows us to buy smaller and mid-
reliability as well as customer satisfac- pricing opportunities, we've size companies that collectively have an
tion. Markets can make mistakes in tak- important role in the portfolio. But we
ing a snapshot in time and extrapolating found more value elsewhere. take what the market gives us. Before the
that far into the future. Businesses adapt financial crisis, probably two-thirds of our
and adjust. Maybe Kia exports to Europe money was in stocks with market caps
out of Mexico, or it exports more cars to out if and when they reach intrinsic value. less than $5 billion. When the crisis hit in
the U.S. from Korea under a bilateral free- At the end of the day the portfolio is a mix 2008, the whole universe was indiscrimi-
trade agreement, or it builds a new factory in terms of quality, but in every case we’re nately on sale and we ended up moving
in the U.S. There are ways it can adapt. paying a price we believe is well below a toward bigger, higher-quality businesses.
But because of policy-related concerns conservative estimate of fair value. If there were any trend today, I’d say it
and other short-term issues, the stock would tilt toward mid-size ideas, although
trades at 60% of book, 6-7x earnings, We see Tweedy, Browne today more as a not long ago we were in the market buy-
with a 3% dividend yield and backed by non-U.S. investor than a U.S. one. Why ing a couple auto-dealers in the U.K. with
a balance sheet with net cash, almost un- did that happen? market values of $200 to $600 million.
heard of for a car company. You don’t find
many businesses with those characteristics BW: We examine businesses all over the How would you characterize today’s op-
around the world today, but in our experi- globe, focusing primarily on the devel- portunity set for the global investor?
ence when you do find them the odds are oped world and the more developed of the
in your favor that things will work out. emerging world. We’ve always liked the BW: As a price-sensitive investor, it has
idea of having a bigger shopping aisle of been a tough environment. To give a sense
Where do your companies tend to fall on opportunity, and the reality has just been of that, we recently did a global screen
the quality spectrum? that when it comes to entry-point pricing of nearly 5,800 non-financial companies
opportunities, we’ve simply found more with market values greater than $300 mil-
JS: If you look at stocks we’ve owned the value elsewhere. The equity culture out- lion, positive free cash flow over the past
longest and where we have the largest side the U.S. is still much less developed 12 months, at least an 8% return on eq-
gains versus our entry prices, they have than it is in the U.S., which appears to us uity over the past 12 months, net debt to
been in high-quality companies that gen- to result in a greater level of inefficiency. EBITDA of no more than 2.5x and a trail-
erate spendable cash profits that they can ing EV/EBIT multiple of no more than 8x.
put to good use. Like a Nestle [NESN:VX], TS: Remember what I said about ducks? Between 2010 and 2012, we would have
or a Philip Morris International [PM] or a We go where the ducks are. had 650 to 800 companies meet that crite-
Johnson & Johnson [JNJ]. If you buy a ria. Today the number is 188, concentrat-
quality business at a big discount to intrin- “Small market capitalization” is one of ed largely in retail, auto parts, homebuild-
sic value, you get the potential of a double the stock characteristics highlighted in ing, airlines and precious metals. The odds
dip – the gap to intrinsic value hopefully What Has Worked in Investing. Given the are that we're in for a bit more volatility
closes and then you can also benefit from amount of assets you manage, can you in- going forward – which can help us find the
the company compounding per-share val- vest in small companies to the extent you entry points we need – but it’s not easy for
ue over a number of years. once did? us to put money to work right now.

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 I N V E S T O R I N S I G H T : Tweedy, Browne

Has energy been of interest? divided by enterprise value – is in excess

of 8%. We include an absolute measure
JH: We probably have a better-than-mar- because we don’t want to rely solely on
ket exposure to energy, including big inte- what we might consider unsustainable
grated players like Total [TOT] and Royal M&A multiples.
Dutch Shell [RDSA:LN] and oil-services This is particularly relevant today. In
companies like Halliburton [HAL] and 2016, according to Standard & Poor’s,
MRC Global [MRC]. Not surprisingly, the average LBO of a target company
for E&P companies we try to be active with greater than $50 million of EBITDA
when valuations on a price-per-barrel- was done at an 11x EV/EBITDA multi-
equivalent basis are at very wide discounts ple. That’s the highest it’s been since they
to the cost of finding and lifting it out of started tracking the information in 2000.
the ground. For the service companies That’s driven primarily by low interest
we’re of course focused on activity levels rates, which we don’t consider to be
and generally are looking to capitalize on sustainable at current levels.
normalization of the cycle. Last summer I spent a lot of time study-
ing Tiffany [TIF]. The stock had fallen
Is MRC Global an example of a typical from $80 to around $60, and at that point
smaller-cap holding? it traded at roughly 8x EV/EBITDA, 10x
EV/EBIT, a 16x P/E and at an owner-earn-
JH: The market cap is just under $2 bil- ings yield just below 7%. Not terrible, but
lion, but it’s a leader with a 30-35% North also not that exciting. But if you looked
American market share in distributing a at the M&A comps, like Swatch acquiring
wide variety of pipes, valves and fittings Harry Winston in 2013, or LVMH buying
to the U.S. energy-infrastructure industry. Bulgari in 2011 or even Samsonite buying
When we got involved in the summer of Tumi in 2016, you could easily make the
2015 the shares were trading at a steep
discount to our estimate of value based on
case that Tiffany was trading at two-thirds
of private market value. But it wasn’t BRAINSTORM
normalized earnings and based on where
comparable businesses had been bought
cheap enough on an absolute basis so we
passed. That’s not looking like the great-
WITH THE BEST
out. On top of that, we thought – and still est decision at the moment, but it tells you
think – the company’s market position something about our process. [Note: Tif-
provides it with a competitive advantage fany shares trade today at around $92.] Through in-depth interviews,
it can continue to build as it buys out at Value Investor Insight
attractive valuations independent mom- Do you trade actively around positions? spotlights the strategies and
and-pops. That gives it a secular growth
angle in addition to the cyclical one that BW: It varies. Take a position like Nestlé, current ideas of today’s
is driven by the improvement in U.S. well which we’ve owned for over 20 years. It’s most-successful investors.
completions we expect with oil above $50 one of those unusual businesses that has
per barrel. [Note: MRC shares traded re- been able to compound its intrinsic value
cently at $20.90, more than double ear- at a pretty attractive rate while there’s See why it’s one of the
ly-2016 lows, but 65% of 2013 highs.] been, in general, a fair to pretty attractive best “value” investments
relationship between price and value. But you can make!
Has valuing companies on comparable sometimes the share price heads north or
M&A deals gotten you in trouble from south of intrinsic value depending on the
time to time? noise of the market or on how the busi- Sign up now for a
ness is doing on a near-term basis. For a one-year subscription
JH: Our valuation methodology is a two- compounder like this we’ll add to the po-
part test: Is the stock cheap relative to sition when given an opportunity and trim
private-market value and is it cheap on from time to time when the price trades
an absolute basis? In general we won’t close to intrinsic.
engage unless the owner-earnings yield – Cyclical and slow-growth businesses
defined as net operating profit after tax come and go. They’re often bought at

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 I N V E S T O R I N S I G H T : Tweedy, Browne

a big discount to book value and then guards. Operating margins increased last You’ve mentioned a couple South Korean
traded out at book or a slight premium quarter, which we haven’t seen for some stocks already. What’s your investment
to book. We tend to go in and out incre- time. It’s not the cheapest stock in the case for Hyundai Mobis [012330:KS]?
mentally, based on liquidity, but these are portfolio, but hope springs eternal and we
more “rents” than “owns.” do believe the company is moving in the OB: The company makes parts for Hyun-
right direction. dai Motor and Kia Motors and also
We noticed you recently sold your posi- handles the logistics and distribution for
tion in uniform-rental company UniFirst How do you handle your portfolios’ cur- their after-market parts and servicing.
[UNF]. Isn't that a compounder? rency exposure? While auto-parts manufacturing is a fairly
mediocre and cyclical business, the after-
JH: It is clearly a compounder, in a con- BW: We concluded a long time ago that market business is quite profitable and a
solidated industry with highly recur- while we can read a company’s balance reliable cash-generating machine that now
ring revenues and pricing power. But as sheet, we’re not nearly as capable of as- accounts for 19% of Hyundai Mobis's
Bob described, one of the reasons we’ve sessing a country’s balance sheet. So as a revenues and 54% of its operating profits.
held Nestlé so long is that the relation- general rule we don’t make currency bets As Tom mentioned earlier in speak-
ship between the stock price and intrin- in client portfolios. We recommend that ing about Kia, Korean car manufacturers
sic value has stayed fairly attractive. In clients either choose to be fully hedged or have been gaining global market share
the case of UniFirst our base valuation fully unhedged against non-U.S.-currency through building better cars and invest-
was 11x EBITA, which translated into a exposure. ing in their sales and marketing footprints
$123 share price. But the stock late last
year went above $140, trading at 13x INVESTMENT SNAPSHOT
EBITA on margins that we consider right
around peak. We’re unlikely to see much Hyundai Mobis
(Seoul: 012330:KS)
further benefit from unemployment com-
ing down, or from energy prices declining. Business: Manufactures, markets and Financials (TTM):
services a range of automotive parts, equip- Revenue ￦37.96 trillion
With the stock trading as far above our es-
ment and systems, primarily for South Korean Operating Margin 8.1%
timate of intrinsic value as it was and with carmakers Hyundai Motor and Kia Motors.
the short-term outlook still so positive, we Net Profit Margin 8.3%
took the opportunity to sell. Share Information Valuation Metrics
(@2/27/17, Exchange Rate: $1= ￦1,133):
(@2/27/17):
We have a shared history [VII, Septem- Price ￦255,500 012330:KS S&P 500
ber 30, 2011 and August 31, 2012] with 52-Week Range ￦229,500 – ￦293,500 P/E (TTM) 7.6 24.8
global security-service company G4S Dividend Yield 1.4% Forward P/E (Est.) 7.5 18.2
[GFS:LN]. With ups and downs, the stock Market Cap ￦25.21 trillion
is about where it was when we first spoke
HYUNDAI MOBIS PRICE HISTORY
about it and we see you recently added to
your position. Lessons?

TS: It was my idea so I should own up

to it. In hindsight, it has been a mistake.
We’re better than breakeven in the stock,
but what we missed was how poorly the
company was being run prior to chang-
ing management two and a half years ago.
It was growing nicely around the world,
but that masked how loosely run it was,
which is a problem for a company with
THE BOTTOM LINE
more than 600,000 employees and opera-
The market doesn't appear to appreciate either the quality of the company's customer
tions in more than 100 countries. New
base or the "reliable cash-generating machine" it has in providing after-market parts and
management is focused both on doing the servicing, says Olivier Berlage. Valuing its core business and its 20% stake in Hyundai
little things right and on more strategical- Motor separately, he puts an estimated fair value on the shares of around ￦430,000.
ly building out an integrated product mix
Sources: Company reports, other publicly available information
that goes beyond just providing security

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 I N V E S T O R I N S I G H T : Tweedy, Browne

both in developed and in emerging mar- ing business, which is clearly worth some- conductors and related components to the
kets. They also have the scale to develop thing, the estimate would be higher. 160,000 original-equipment manufactur-
technology to compete if and when vari- ers that purchase 30% of all semiconduc-
ous autonomous-driving and electric ap- You’re valuing Hyundai Motor at a pretty tors but are too small and spread out to be
plications take hold. All this obviously significant premium to its current market served by manufacturer direct sales forces.
benefits Hyundai Mobis, which should value. Do you own it as well? This is an attractive business, where the
continue to grow along with them. big distributors like Avnet, Arrow Elec-
The auto-parts business will move in OB: We do. As of year-end 2016 it was a tronics and WPG Holdings enjoy multiple
fits and starts and negative news can im- top-20 holding in the Global Value Fund. competitive advantages. Their size allows
pact the company’s share price from time them to purchase products on more favor-
to time, as happened in January follow- Turning to the U.S., what interests you in able terms, they have deeper and more-
ing the release of what were considered distribution-company Avnet [AVT]? efficient logistics capabilities, and their
disappointing fourth-quarter earnings. In product expertise is valued by their cus-
general, though, we believe the company JH: Avnet’s primary business, accounting tomers and is relied upon for selection and
has proven its ability over time to evolve for roughly 70% of EBIT, is selling semi- purchase decisions.
its product mix to focus on higher-value-
add products that better protect margins. INVESTMENT SNAPSHOT
As the after-market business continues to
Avnet Valuation Metrics
grow, that should provide a tailwind. (NYSE: AVT) (@2/27/17):
AVT S&P 500
Business: Distributes and sells electronic
Hyundai Motor has been working to sim- components, data-storage products and P/E (TTM) 15.4 24.8
plify its complex cross-holdings structure. embedded subsystems, and provides value- Forward P/E (Est.) 11.7 18.2
Do you have a view on how this plays out added information-technology services.
for Hyundai Mobis? Largest Institutional Owners
Share Information (@2/27/17): (@12/31/16):

OB: The restructuring scenarios tend Price 46.24 Company % Owned

to change over time, so we don’t have a 52-Week Range 38.16 – 51.50 Vanguard Group 8.9%
strong opinion on which scenario is most Dividend Yield 1.5% BlackRock 7.2%
Market Cap $5.96 billion Blue Harbour Group 4.2%
likely. But we do expect whatever happens
to improve corporate governance across Pzena Inv Mgmt 4.0%
Financials (TTM):
Artisan Partners 3.5%
the group and make the individual and Revenue $25.92 billion
collective entities more transparent. That Operating Profit Margin 3.2% Short Interest (as of 2/15/17):
should only be positive for Hyundai Mo- Net Profit Margin 1.5% Shares Short/Float 2.6%
bis’s shares.
AVT PRICE HISTORY
20
At today’s ￦255,000 price, how inexpen-
sive do you consider the shares?
15
OB: We separately value the core Hyun-
dai Mobis business and the 20% stake
in Hyundai Motor that it owns. For the 10
core business we assume a 10x multiple
on trailing-twelve-month earnings before
interest and taxes [EBIT], which results 5
in a per-share value of around ￦300,000.
For the Hyundai Motor stake, we put a
10x multiple on what we believe is its nor- THE BOTTOM LINE
malized EBIT, valuing Hyundai Mobis’s Two M&A deals in recent months – one purchase and one sale – have positioned the
20% holding at ￦130,000. A few other company as a pure play in a semiconductor-distribution business in which it has impor-
adjustments offset each other, so we arrive tant competitive advantages, says Jay Hill. Applying a 10x EV/EBITA multiple to his
at a total fair-value estimate of ￦430,000, estimates two years' out, he arrives at a near-term price target for the shares of $59.
a 68% premium to the current price. If we
Sources: Company reports, other publicly available information
assigned value to Hyundai Motor’s financ-

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 I N V E S T O R I N S I G H T : Tweedy, Browne

Last fall the company announced two deals have been done – and subtracting demand for luxury goods, to increased In-
deals that we believe position it well go- pro-forma net debt of $359 million, we ternet retail competition. Valuing the net
ing forward. In September it announced it estimate fair equity value at more than assets at even very high cap rates of 7-8%,
was selling its technology-solutions group, $7.4 billion, or $57 a share. Adding in an- we thought the shares at around HK$20
which distributes computer server, storage other $2 for Tech Data shares Avnet now were priced at half what they were worth.
and networking products, to Tech Data owns, our price target looking out 12 to It’s not as if the pessimism was without
for $2.6 billion. That business has lower 18 months is $59. foundation, but in cases like this where
margins and lower growth and faces secu- the share price gets so removed from in-
lar risks from cloud computing, so we Back to Asia, describe the potential you trinsic value we find that if you believe
were delighted to see it go. see in Hong Kong-based real estate devel- in the management and the assets, value
Then in October the company com- oper Hang Lung Group [10:HK]. eventually wins out. Even with no discern-
pleted a nearly £700 million acquisition ible catalysts, time tends to be your friend.
of U.K.-based distributor Premier Farnell, OB: Hang Lung specializes in luxury
reinforcing its biggest business and mak- shopping malls in China and we got par- Talk about your belief in management.
ing Avnet pretty much a pure play in semi- ticularly interested in early 2016 when the
conductor-related distribution. The deal shares were beaten down by pessimism OB: The company is controlled by the
wasn’t cheap at an EV/EBIT ratio of 14x, over a number of things, from a decelerat- Chan family, which built the business in
but there are significant cost synergies ing Chinese economy, to the anti-corrup- China practically from scratch in about 15
available and we think over the next 18 to tion crackdown in China that was hurting years. They have a great eye for location
24 months operating income attributed to
Premier Farnell can double.
INVESTMENT SNAPSHOT

Does the cyclicality of the semiconductor Hang Lung Group

business worry you? (Hong Kong: 10:HK)

Business: Develops, manages and invests Financials (TTM):

JH: The business is cyclical, but in our in high-end commercial, office and residential Revenue HK$13.60 billion
view is nowhere near the peak of the properties in Hong Kong and mainland China, Operating Margin 63.3%
cycle. Gartner estimates that semiconduc- with key focus on luxury shopping malls. Net Profit Margin 27.2%
tor sales should increase 3-5% annually
Share Information Valuation Metrics
through 2019. We think we’re still in the (@2/27/17, Exchange Rate: $1= HK$7.76): (@2/27/17):
early innings of rapid growth in more- 10:HK S&P 500
Price HK$31.95
connected devices – what people call the P/E (TTM) 11.6 24.8
52-Week Range HK$20.05 – HK$32.80
Internet of Things – which need semi- Dividend Yield 2.5% Forward P/E (Est.) 9.4 18.2
conductors to capture and process data. Market Cap HK$43.16 billion
Again using Gartner numbers, there are
five billion connected devices today and 10:HK PRICE HISTORY
that number is estimated to hit 20 billion
by 2020. That should be good news for
Avnet, which with a 13% global market
share in semiconductor distribution is #2
behind Taiwan’s WPG.

At a recent $46.25, how are you looking

at valuation?

JH: On a pro-forma basis, including ex-

pected deal synergies but subtracting $40
million of restructuring expenses that Wall THE BOTTOM LINE
Street analysts are willing to ignore, we Macroeconomic concerns about the company's business in China are not without foun-
think Avnet within two years should gen- dation, says Olivier Berlage, but he expects its long-term prospects to be driven primarily
by rising incomes translating into higher demand for goods sold in its luxury malls. Using
erate annual EBITA of around $780 mil-
a 7.5% cap rate on the company's current rental income, he values its shares at HK$42.
lion. Applying a 10x EV/EBITA multiple
– where a number of comparable M&A Sources: Company reports, other publicly available information

February 28, 2017 www.valueinvestorinsight.com Value Investor Insight 7

 I N V E S T O R I N S I G H T : Tweedy, Browne

and then step-by-step develop the mall velopment that do not yet generate signifi- a stock-and-bond portfolio held at the
and often surrounding real estate with an cant operating income. parent-company level and managed by a
eye to attracting high-profile retailers and number of outside value-oriented manag-
high-quality office tenants that drive addi- Just curious, do you own Hang Lung ers. The remaining 25% or so of the value
tional traffic to the mall. The results have Properties as well? consists of an investment in Empire Life
been objectively quite good: Over the past Insurance Company, which is a run-of-
ten years the company’s book value has OB: Here we chose just to invest in the the-mill life and health insurer that typi-
grown from just under HK$19 per share parent company. It trades at a larger dis- cally earns a 10% return on equity.
to over HK$55 per share. count to our estimate of net asset value
Currently the company’s malls in and we prefer to be closer in the owner- Why would this be mispriced?
Shanghai and Shenyang are performing ship structure to the level of the share-
very well, while additional properties in holder family. JS: We think it’s neglect. There are large
Jinan, Wuxi, Tianjin and Dalian are all at minority interests and complicated ac-
various stages in the value-add process. If What do you think the market is missing counting and it takes some work to de-
they can replicate their successes in even in Canadian investment holding company consolidate Empire Life from the balance
one or two more cities it would materially E-L Financial [ELF:CN]? sheet and see clearly the C$890 per share
impact operating performance and drive pile of cash and securities that are left up-
significant shareholder value. JS: The company’s assets fall into two stairs in the parent holding company. In
primary buckets. Much of the value is in addition, Empire Life includes realized in-
How do you assess the broader political
risks of investing in China today? INVESTMENT SNAPSHOT

OB: Hang Lung is based in Hong Kong, E-L Financial

(Toronto: ELF:CN)
where corporate-governance safeguards
Business: Toronto-based holding company
are fairly well established. While trouble Financials (TTM):
with primary operating segments focused on
could erupt in China as it deals with a Revenue $2.30 billion
investment management (E-L Corporate) and
number of macroeconomic challenges, the Operating Margin 27.7%
life and health insurance (Empire Life).
fact remains that the middle class contin- Net Profit Margin 19.0%
ues to grow rapidly there and they have Share Information
(@2/27/17, Exchange Rate: $1 = C$1.319): Valuation Metrics
proven to have an affinity for luxury goods (@2/27/17):
like those sold in Hang Lung’s malls. We Price C$735.00 ELF:CN S&P 500
believe that ultimately drives the invest- 52-Week Range C$630.00 – C$768.99 P/E (TTM) n/a 24.8
Dividend Yield 0.7% Forward P/E (Est.) n/a 18.2
ment case here, not the shorter-term ups
Market Cap C$2.95 billion
and downs of the economy or political sit-
uation. That said, would we want half of
ELF:CN PRICE HISTORY
our portfolio assets in China today? No.

With the shares now at just under HK$32,

do you still see plenty of upside from here?

OB: Hang Lung Group is the parent com-

pany of Hang Lung Properties [101:HK],
which makes up the bulk of its assets. So
first we have to value Hang Lung Proper-
ties, using a much more conservative cap
rate than the company does on its cur-
rent rental income of HK$7.8 billion. Us-
THE BOTTOM LINE
ing a 7.5% cap rate we arrive at a value
In deciphering the company's somewhat complex financials, John Spears believes the
for Hang Lung Properties of HK$23 per
market is significantly mispricing the value of its assets and of the ongoing stewardship
share. That translates into about HK$42 of its founding family. At today's price the stock trades at just 60% of tangible book value,
per share for Hang Lung Group. We try for company that has increased book value at a 12.5% annual rate for nearly 50 years.
to be conservative as well by assigning
Sources: Company reports, other publicly available information
minimal value to properties still under de-

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 I N V E S T O R I N S I G H T : Tweedy, Browne

vestment gains and losses in its reported How cheap are the shares at today’s things haven’t fundamentally changed.
earnings, which can make it look extreme- C$735 price? Investors still overreact on the upside and
ly volatile. the downside, and if anything, algorithmic
JS: At the current price the stock trades trading often accentuates those moves and
How have the company’s controlling for close to 60% of the latest reported creates pricing opportunities for people
shareholders, the Jackman family, treated tangible book value per share. One of the like us to exploit.
minority shareholders? great things about buying so cheaply is the We view rapid flows into passive strate-
return leverage. If book value grows 10% gies as a cyclical phenomenon which in-
JS: They’ve done an excellent job manag- and we paid 60% of book, we’re earning variably distorts equity valuations in the
ing the business. Since 1969 the holding a 16.6% return on our entry price. On top later stages of a bull market. When we do
company’s book value has compounded at of that the shares in the past have traded have a difficult time in the equity market,
an annualized rate of 12.5%. They’ve also as high as 1.4x book value, so it’s not out as we invariably will, you’ll see a comeup-
bought and sold businesses with a seem- of the question that they could again trade pance for index funds and you’ll see ac-
ingly good eye for price. At the end of at book value or higher in the future. tive managers attract much more interest.
2015 they paid approximately book val- A great “unwind” typically inures to our
ue to increase E-L Financial’s ownership One final question: Has the ongoing rise benefit as value investors due to relative
stake in Empire Life to just over 98%. of passive investment strategies and algo- out-performance.
A couple years earlier they sold another rithmic trading at all impacted how you Even John Bogle is lamenting the mas-
held insurance company to Travelers for do things? sive flows of funds from traditional index
about a 40% premium to book. Overall mutual funds into specialized ETFs that
we’re very comfortable with the family’s BW: Breaking that down a bit, there’s no can be traded on a minute-by-minute ba-
stewardship and keep track of their own question that well-constructed quantita- sis. This may all seem a bit unsettling, but
trading in E-L stock. They’ve been buyers tive models can be tough competitors, but think back to 2009 when market com-
of late, paying between C$650 and C$695 it hasn’t impacted our process or strategy. mentators were hailing the “death of eq-
per share for more than C$100 million Automated buying and selling can impact uities.” Stay tuned, things have a way of
worth of shares. how securities trade, but behaviorally changing. VII

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 I N V E S T O R I N S I G H T : Jed Nussdorf

Investor Insight: Jed Nussdorf

Soapstone Capital’s Jed Nussdorf explains the hierarchy of earnings-growth drivers he prefers, the “event-driven” situ-
ation he’s finding increasingly attractive, why traditional value-based screens don’t work for him, where’s he’s finding
short opportunities today, and why he sees mispriced value in J.B. Hunt Transport, AdvanSix, Zayo Group and Nestlé.

You’ve described your strategy as a bal- well. Obviously the emphasis there is to we believe specializing can develop do-
ance between growth and value investing. invest at the point where you have a cy- main expertise and that domain expertise
Please explain. clical tailwind and constant-multiple IRRs can provide a competitive advantage.
are robust, not the opposite. Many of our ideas originate from the
Jed Nussdorf: There are only three sources I would generally say that the hierarchy work we’re doing in one of those five sec-
of return from owning an equity: the divi- of growth drivers we prefer is very similar tors. In early 2013 we invested in Level
dends you receive, the change in a proxy to the hierarchy in the income statement. 3 Communications [LVLT], which oper-
for valuation – such as earnings, EBITDA I’d much prefer to have the IRR driven by ates one of the largest telecommunications
or free cash flow – and the change in the networks in the world, supported by our
valuation multiple the market puts on that view that the company would benefit from
proxy. We consider each of those variables ON GROWTH DRIVERS: a secular surge in bandwidth demand,
separately and are looking for investments driven by increased adoption of cloud
that on a prospective basis can generate
I would say that the hierarchy
computing, big data and non-linear video
an internal rate of return in the high teens, of growth drivers we prefer is consumption. As we better understood
without any benefit of multiple expansion. the landscape, that led to our investment
very similar to the hierarchy
In addition, we want the valuation mul- in TelecityGroup, which provides the in-
tiple to be more likely to augment rather in the income statement. terconnection points that allow Internet
than dilute the constant-multiple return. traffic to move from one service provider
Put another way, we’re effectively looking to another. Ultimately that led to our fi-
for IRRs in the mid-20% range, relying revenue than by margin. I’d much rather nal investment in the space, Zayo Group
on changes in valuation multiples for no it be driven by margin than financial engi- [ZAYO], which we’ll talk about in more
more than 20-25% of that. neering or changes in tax rates. Simplisti- detail later. Zayo owns the last remain-
Growth investors typically focus on the cally, the best and most robust investment ing independent fiber network in North
return from dividends and earnings. Value cases for us are when the core driver of America with a dense metro footprint and
investors focus more on changes in valua- the IRR is growth in volume – custom- we expect it to benefit from the same posi-
tion multiples. We try to balance the two, ers want to buy more of whatever it is tive thematic drivers.
but with a clear emphasis on the compa- the company is selling. The typical turn-
ny’s performance rather than the market’s around, where through financial engineer- What keeps stocks like this from being
perception of that performance driving ing or cost cutting the company is trying fully priced or higher?
our investment case. to produce higher profitability, is at the
margin of lesser interest to us. JN: With Level 3, the company over its
Prospective growth in any measure of history had been consistently plagued
earnings can come from various sources, How do you generate ideas? by high leverage, dilutive equity raises
from industry trends to company-specific and an inability to integrate acquisitions.
initiatives. Is one source of growth more JN: We don’t run typical value-investor That left investors fatigued and less will-
interesting to you than another? screens, which rarely generate ideas con- ing to believe that new management could
sistent with our approach. We’re trying change the trajectory of the business.
JN: We look for situations where the busi- to find companies with strong prospective In the case of Telecity, the company
ness fundamentals are at our back, which growth coupled with an asymmetric set of went through a turbulent cyclical period
often means large addressable markets outcomes on valuation. I haven’t found punctuated by the dismissal of its CEO.
with good demand dynamics and/or a fa- that screening for cheap stocks or those We saw supply and demand coming back
vorable or improving competitive context. with poor recent price performance direct into balance and the opportunity for better
Current examples of that would include us to those types of companies. operating performance under new man-
our investments in bandwidth infrastruc- We focus on five sectors: financial ser- agement. Most investors were focused on
ture and in intermodal transportation. vices, industrials, energy, consumer and the past or immediate future without fully
We’ll invest in cyclical businesses such TMT [technology, media and telecommu- handicapping the prospective value of the
as chemicals, industrials and financials as nications]. The rationale for that is that assets if better managed.

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 I N V E S T O R I N S I G H T : Jed Nussdorf

With Zayo we began buying in the Another good example would be Dufry many investors who rely on third-party re-
summer of 2015 when its stock came un- [DUFRY], the Swiss operator of duty-free search for forecasts and valuation analy-
der pressure for non-fundamental reasons and airport retailers. Over the past three sis. Collectively, all this created an imbal-
having mostly to do with the aftermath of years the company has continued to con- ance of supply and demand for AdvanSix
what could best be described as a poorly solidate the duty-free business by buying shares, which we believe has created an
executed private-equity-sponsored IPO. two of its largest competitors, Nuance excellent opportunity.
Even as the business was improving, there Group in 2014 and World Duty Free in
was selling pressure on the shares for rea- 2015. The combination of the three has Describe how you organize your research.
sons having little to do with how the com- taken Dufry’s market share from around
pany was doing. 7% of the business to 23-24%, and with JN: When I got into the business I was
that comes purchasing synergies, operat- given the advice that if you do three things
When we first spoke [VII, February 28, ing synergies and just a much stronger and you do them consistently you can be
2011] you mentioned looking for ideas in the top 1% of all analysts. The first
around corporate “events” such as acqui- was simply reading everything that is in
sitions, spinoffs or large-scale restructur- ON POTENTIAL IDEAS: the public domain – financial statements,
ings. Still true? transcripts, company presentations. The
With mergers in particular
second was to build your own models
JN: These types of situations can be in- there's an increasing oppor- from scratch. And the third was to get an-
teresting when there’s a potential change tunity to find situations that swers from the company on any questions
in the trajectory of a business or there’s that arise from the first two.
uncertainty or opacity around how to may be less well understood. I’d say the second point, building your
understand the business going forward. own models from scratch, has paid the
With mergers in particular I think there most dividends. It forces you to really
is an increasing opportunity to find situ- hand as the industry continues to consoli- understand the key variables that will de-
ations that may be less well understood, date. We thought – and continue to think termine the financial performance of the
especially as M&A activity expands. – that the potential of all that was under- company and the success of the invest-
appreciated by the market. ment, detail your specific assumptions
Give a representative example or two. With respect to spinoffs, I’d say the op- about those key variables and then make
portunity set is somewhat weaker than it your own forecasts. Obviously a great
JN: In 2015 CommScope [COMM], a was five or six years ago. The ideal con- deal of field research informs our assump-
leading global provider of connectivity text for a spinoff is where sellers are indis- tions, but thinking through the key drivers
and infrastructure solutions for telecom criminate, buyers are scarce, and the con- is where we spend much of our time.
networks, acquired the Broadband Net- sequence is an unusually cheap valuation. With CommScope, for example, the
work Solutions business of TE Connec- That still happens, but less often. In fact, two most important variables by far are
tivity. CommScope was #1 in most of the you’ll see spinoffs today that resemble demand trends from both wireline and
areas in which it competes and it was pur- IPOs, with road shows and plenty of Wall wireless networks for equipment, and the
chasing a business that was #3. We saw Street coverage. efficiency and effectiveness of the compa-
a positive industry backdrop driven by The best old-style spinoff opportunity ny’s acquisition-integration efforts. If we
the ongoing densification of wireless net- we’ve found in recent years is AdvanSix get those right our chances of investment
works, a really attractive horizontal merg- [ASIX], a manufacturer of polymer res- success are dramatically higher.
er predicated on reasonable synergies, a ins that was spun off from Honeywell in The longer I’ve been doing this the
management team with a demonstrable October of last year. Unlike many recent more I’m convinced that not everyone
track record of successful acquisition- spins, the company went public without does the three things I was told to focus
related integration, and somewhat of a research coverage from any of the major on in a consistent way.
forced seller in TE Connectivity. It was the brokerage houses. It had an initial market
type of situation we’re seeing more often, capitalization of 0.5% of its former parent, What’s your time frame for valuation?
where the market is slow to respond to the so index funds that held Honeywell were
upside potential because it’s not immedi- required to sell their AdvanSix shares. For JN: We identify the core metric on which
ately obvious to everyone what the com- active managers, the much smaller market to focus, typically earnings or free cash
pany’s earnings capacity might be looking cap meant large-cap holders of Honeywell flow, and first calculate the IRR at a con-
out two to three years. CommScope is still were more likely to sell. Finally, AdvanSix stant multiple looking over three to four
one of our top holdings and the thesis is chose not to provide earnings guidance for years. Separately we would look at his-
still playing out. this year or beyond, which is a turnoff for torical multiples on that core metric – or a

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 I N V E S T O R I N S I G H T : Jed Nussdorf

prospective range if it should be different – on tangible equity that were at multi-year sub-sectors are much closer to the peak of
and calculate IRRs assuming the multiple lows. Here the multiples started to correct the cycle than the trough, and we’re find-
changes. As I mentioned, we’re targeting sooner than we expected and we were out ing a number of short opportunities where
constant-multiple IRRs in the high-teens of the stock by the end of the year. the stocks appear to have peak multiples
and overall IRRs nicely above 20%. put on peak operating performance.
Are you kicking yourself that you didn’t In consumer businesses, mostly staples,
You made the case recently for taking hold on to it longer? we’re finding short ideas as well where
“tactical” positions. Describe what you peak multiples are being placed on peak
mean by that. JN: No. We shifted money out of Gold- earnings, especially when the earnings are
man and into Wells Fargo [WFC] in the high from unsustainable commodity-price
JN: In the first half of 2016 we couldn’t wake of the sales issues there and we’re or foreign-currency trends. Finally, in the
find ideas that were consistent with our happier to own Wells Fargo. We believe financial sector, we’re seeing a number of
approach and didn’t initiate a single new insurance companies whose equity may be
core position. But we made a few invest- overstated because estimates of future li-
ments that were much smaller in size and ON SHORT IDEAS: abilities are excessively optimistic.
I have used the term tactical to describe
Many stocks in certain indus-
the fact that while they weren’t likely to What’s behind your enthusiasm for J.B.
be in the portfolio in two to three years, I trial sub-sectors appear to Hunt Transport [JBHT]?
thought there was an interesting shorter- have peak multiples on peak
term opportunity. In general, tactical op- JN: The thematic component here is our
portunities can have similar prospective operating performance. belief in the long-term growth story for
IRRs, but are a bit more led by multiples intermodal freight transport, which ac-
than by earnings and dividends. counts for 70% of J.B. Hunt’s operating
Sensata Technologies [ST] would be its constant-multiple IRR today is higher income. The basic notion is that freight
one example. The company makes sen- and the valuation skew is more attractive. is transported in a single intermodal con-
sors and controls for auto manufacturers Wells' net interest margin is the lowest it’s tainer that can be moved by ship, rail or
and because we expect global auto sales to been in a very long time – to the extent truck. Intermodal transportation allows
shrink modestly over the next two years, that goes from being a big headwind to shippers to benefit from the “capillarity”
the stock didn't offer a constant-multiple neutral to eventually being a tailwind, its of road-based networks while capturing
IRR we considered sufficient. But there earnings would accelerate quite nicely. the superior cost position of the railroads.
was good visibility into improved margins The stock solidly meets our IRR criteria It’s at least 3x as fuel efficient as end-to-
as the company digested and integrated today, while Goldman's doesn’t. end trucking – Hunt’s original business –
two large acquisitions, so we expected and as much as 10x more labor efficient.
2018 EPS of $3.75 to $4, compared to the As a long/short fund, do you manage to a Intermodal has increased market share
mean consensus estimate of $3.23. The particular net-exposure range? but remains under-penetrated, represent-
investment was tactical in the sense that ing less than 15% of the 85 million annual
we didn’t think the market appreciated JN: Our net exposures are primarily gov- freight moves over 550 miles using road
the earnings lift to come – the shares were erned by the opportunity set. In the past and rail networks in North America.
priced at the lowest multiple of next-12- year we’ve been finding more to do on the While most intermodal marketing
months earnings since the company went short side, so our net exposure overall is companies are customers of railroads and
public in 2010. If the multiple reverted to lower than usual at around 30%. From therefore subject to regular price increas-
even 12-13x and my earnings estimates the peak of market in late 2007 until the es, Hunt has been successful in structur-
proved correct, we’d have a very attrac- end of last year it averaged in the low-40s. ing alliances with railroad partners like
tive and relatively short-term return. BNSF Railway, Norfolk Southern and
We also took a tactical position in Gold- Can you generalize about where you’re Canadian National Railway that grant it
man Sachs [GS]. The shares were offering finding short opportunities today? revenue sharing and preferential loading.
only a low-to-mid-teens constant-multiple We believe that gives it an explicit, du-
IRR, but traded at less than 90% of tangi- JN: In energy, we’re finding a number rable competitive advantage. It now has
ble book value and at the lowest earnings companies on the upstream side where the largest intermodal business in North
multiple in three years. We thought the market participants appear excessively America and we believe its advantage in
market wasn’t giving the company ade- optimistic around the recovery in oil pric- the secular-growth business is increasing.
quate credit for the strength of its balance es, in many cases pricing in $85-per-barrel What made the stock interesting again
sheet and its potential to increase returns oil or higher. In industrials, a number of to us was the intermodal growth story

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 I N V E S T O R I N S I G H T : Jed Nussdorf

JN: We’re expecting annual earnings-per-

INVESTMENT SNAPSHOT
share growth over the next few years of
J.B. Hunt Transport Valuation Metrics 16-18%, so adding in the 1% dividend
(Nasdaq: JBHT) (@2/27/17):
yield we have a high-teens constant-mul-
Business: Provider of transportation, delivery JBHT S&P 500 tiple IRR. The company has an effective
and logistics services with a specialty in P/E (TTM) 26.3 24.8 tax rate of 38%, so the valuation analysis
intermodal transportation executed through Forward P/E (Est.) 21.0 18.2
alliances with major North American railroads. needs to consider the implications of tax
Largest Institutional Owners reform. If the effective tax rate fell even
Share Information (@2/27/17): (@12/31/16): to 25-30%, we think the company would
Price 100.12 Company % Owned earn $5.75-6.00 per share in 2018, as
52-Week Range 75.71 – 102.38 Vanguard Group 8.1% tightening capacity improves margins and
Dividend Yield 0.9% Wellington Mgmt 5.8% returns on invested capital. At the medi-
Market Cap $11.14 billion Fidelity Mgmt & Research 4.7%
an historical multiple of 21x, the shares
BlackRock 4.2%
Financials (TTM): would be worth $120-125 in a year. In
Capital Research & Mgmt 4.1%
Revenue $6.56 billion the unlikely event that tax rates are un-
Operating Profit Margin 11.0% Short Interest (as of 2/15/17): changed, the fundamental drivers would
Net Profit Margin 6.6% Shares Short/Float 5.2% remain intact and we think we’d still earn
an attractive constant-multiple IRR.
JBHT PRICE HISTORY

Coming back to the spinoff you men-

tioned earlier, describe your broader in-
vestment case for AdvanSix.

JN: The company manufactures Nylon 6

and its primary precursor, caprolactam.
Nylon 6 is a polymer resin used in the pro-
duction of engineered plastics, fibers and
films that are found in things like automo-
tive and electronic components, carpet,
and food and industrial packaging.
THE BOTTOM LINE The global markets for Nylon 6 and
Looking beyond cyclical headwinds, Jed Nussdorf believes the company will benefit from caprolactam have undergone significant
unique advantages in providing intermodal transport services that will continue to capture
change in the past five years. Chinese man-
overall market share. Driven by annual EPS growth and dividends received, he expects
ufacturers have entered the market and
over the next few years from today's price to earn an IRR on the shares in the high teens.
added roughly 20% to industry capacity,
Sources: Company reports, other publicly available information
while demand for caprolactam has in-
creased at a 3% annual rate. That’s taken
margins for Nylon 6 and caprolactam to
being temporarily knocked off course and use electronic logging devices, which historic lows. Through all that, however,
starting in 2014 when congestion from should accelerate the retirement of older AdvanSix remained highly profitable, with
extreme winter weather cascaded through trucks where the costs to comply with double-digit returns on invested capital. It
the system and then demand was hit by the new rules are prohibitive. Finally, on remains the lowest-cost producer globally
cratering oil prices. By 2015, Hunt’s inter- the demand side, large retailers reduced due to its scale, vertical integration and
modal volume growth had slowed to its inventories in 2016 and we think those access to export terminals. In recent years
lowest level in a decade. reductions are mostly complete. We esti- that cost advantage has been enhanced by
We didn’t expect those issues to be mate in-bound freight to retailers needs to cheap natural gas, the primary raw mate-
permanent, and have in fact seen sup- increase 6-7% just for them to maintain rial for the production of caprolactam.
ply/demand dynamics in the system start flat inventories. Contracting capacity and Some big competitors have closed
to improve. Orders for Class A trucks, demand tailwinds should contribute to down capacity and Chinese capital expan-
which are used primarily to move truck- better pricing. sion has slowed, so pricing has recovered
load freight, fell last year to five or six year quite significantly from trough levels. In
lows. New regulations coming into effect How are you looking at expected return early January AdvanSix raised caprolac-
this year will require truckers to install from the current $100 share price? tam prices by about 12 cents per pound,

February 28, 2017 www.valueinvestorinsight.com Value Investor Insight 13

 I N V E S T O R I N S I G H T : Jed Nussdorf

aged 25-30% of sales in recent years. So

INVESTMENT SNAPSHOT
whether we’re talking about corporate
AdvanSix Valuation Metrics tax reform or a border-adjustment tax,
(NYSE: ASIX) (@2/27/17):
AdvanSix is unusually well positioned
Business: Development and production of ASIX S&P 500 for both. A corporate tax rate of 25% or
Nylon 6, a polymer resin used to produce P/E (TTM) 11.5 24.8 border-adjustment tax legislation like that
food and industrial packaging, carpets, and Forward P/E(Est.) n/a 18.2
automotive and electronic components. being discussed would each lift earnings
Largest Institutional Owners by roughly $1 per share, providing further
Share Information (@2/27/17): (@12/31/16): upside to the stock.
Price 27.87 Company % Owned
52-Week Range 12.00 – 30.21 BlackRock 10.1% Why do you consider Zayo Group a good
Dividend Yield 0.0% Firefly Value Partners 6.7% way to play the secular surge in band-
Market Cap $849.6 million Vanguard Group 4.9%
width demand?
Financials (TTM): JPMorgan Inv Mgmt 4.7%
Revenue $1.25 billion T. Rowe Price 3.9%
JN: The company is a leading provider of
Operating Profit Margin 9.4%
Short Interest (as of 2/15/17): bandwidth infrastructure in North Ameri-
Net Profit Margin 5.9%
Shares Short/Float 0.8% ca and Europe, including leased fiber-optic
cable, fiber to cellular towers and small
ASIX PRICE HISTORY
cell sites, dedicated wavelength connec-
tions, and Ethernet and IP connectivity.
Some historical context may be helpful
in understanding the current opportunity.
Zayo was founded in 2007 by Dan Ca-
ruso, with seed capital from seven private-
equity firms. Caruso had been one of the
founding executives of Level 3, where at
one time or another he led most of its lines
of business. After leaving Level 3 he led a
buyout of ICG Communications, which he
then sold to Level 3 in 2006. Since starting
THE BOTTOM LINE Zayo a year later, he and his team have as-
As its industry's low-cost producer, the company has the most to gain as a global supply sembled an enviable network, principally
glut in its primary market lessens, says Jed Nussdorf. At the low-to-mid-teens multiple
through acquisition, of fiber in key metro
on mid-cycle EPS typically earned by peers, on his 2018 estimate the stock would trade
around $40. Tax reform in the U.S. could provide significant additional upside, he says.
areas where barriers to add new capacity
are high. With CenturyLink in the process
Sources: Company reports, other publicly available information
of acquiring Level 3, there are no indepen-
dent, national players left in the market
other than Zayo.
an increase that was matched by BASF, The shares are up substantially in the past Management has been extremely dis-
the only other North American producer few months. Are they attractive at today’s ciplined in the prices it has been willing
of consequence. That suggests capacity price of $27.90? to pay for acquisitions, and we believe the
is closer to being in balance, which has company’s national footprint and scale
material earnings implications. A 12-cent- JN: We believe we’re in the middle of the have changed the trajectory of its business.
per-pound price increase yields about earnings cycle. In both 2011 and 2012 It can go after opportunities that smaller
$100 million of incremental revenue for AdvanSix earned over $5 per share. Most fiber-network competitors can’t. It also
the company, which all else equal would specialty chemical producers – especially benefits from a colocation model where
add roughly $2 per share to net earnings. low-cost producers – would trade at low- signing on additional customers that use
We’re not counting on the entire price in- to mid-teens multiples of mid-cycle earn- the same fiber is done at high incremental
crease to stick or that all other costs re- ings. So 2017 earnings of $3 per share margins. Over the past three years annual
main the same, but we believe it’s reason- should support a share value of $40. organic revenue growth has been 7% and
able to assume the company can earn in AdvanSix is also a full statutory tax EBITDA has grown at a compound annu-
excess of $3 per share over the next twelve payer at about 37%, and it imports al- al rate of 18%, even as the company has
months. most nothing and exports have aver- reduced leverage.

February 28, 2017 www.valueinvestorinsight.com Value Investor Insight 14

 I N V E S T O R I N S I G H T : Jed Nussdorf

JN: Nestlé is the largest food and bever-

INVESTMENT SNAPSHOT
age company in the world, with leading
Zayo Group Valuation Metrics positions in coffee, bottled water, dairy,
(NYSE: ZAYO) (@2/27/17):
nutrition, prepared foods, confectionary,
Business: Provider of communications ZAYO S&P 500 and pet care. Its best-known brands in-
infrastructure services, including leased fiber, P/E (TTM) n/a 24.8 clude Nescafé, Perrier, Dreyer’s, Gerber,
bandwidth connectivity, colocation, and cloud Forward P/E (Est.) 73.3 18.2
computing in North America and Europe. Maggi, Kit Kat and Purina. I've long ad-
Largest Institutional Owners mired the company for the strength of its
Share Information (@2/27/17): (@12/31/16): brands and market positions around the
Price 31.50 Company % Owned developed and emerging world.
52-Week Range 23.25 – 35.65 Capital Research & Mgmt 7.1% In recent years the company’s earnings
Dividend Yield 0.0% Dodge & Cox 6.0% growth has lagged its peers. Organic rev-
Market Cap $7.64 billion Vanguard Group 4.6%
enue growth has slowed for the entire in-
SPO Partners 4.4%
Financials (TTM): dustry due to weakness in emerging mar-
Third Point LLC 2.9%
Revenue $2.00 billion kets and commodity deflation. But while
Operating Profit Margin 16.8% Short Interest (as of 2/15/17): many of Nestlé’s peers cut sourcing and
Net Profit Margin (-0.7%) Shares Short/Float 4.7% advertising costs to drive margin expan-
sion, it meaningfully increased advertising
ZAYO PRICE HISTORY
and R&D to drive volume growth. Gen-
erally consumer-staples industry leaders
have EBIT margins in the low- to mid-
20% range, compared to 15% for Nestlé.
As a result of all this investors have be-
come increasingly fatigued. Nestlé is now
among the top three underweight names
in developed Europe and the shares trade
near their lowest relative valuation to the
S&P 500 since 2009.

What makes that all change?

THE BOTTOM LINE
The company's national footprint in providing U.S. bandwidth infrastructure has changed JN: We actually believe the catalyst for
the trajectory for it in this secularly growing business, says Jed Nussdorf. He expects
change has arrived in the form of new
high-single-digit organic growth, modest margin expansion and accretive capital alloca-
tion to drive a high-teens constant-multiple IRR in the shares over the next two years.
CEO Ulf Mark Schneider, who in January
became the first outsider to run the com-
Sources: Company reports, other publicly available information
pany in 95 years. He comes from Frese-
nius, a German healthcare company with
€28 billion in sales, where he had a track
Coming back to management and its accretive capital allocation can generate a
record of setting ambitious targets and
ability to create value: since 2007 the high-teens constant-multiple IRR over the
regularly exceeding expectations. Over his
company has raised $1.1 billion of equity next two years. With respect to valuation,
term as CEO, Fresenius’ share price rose
capital, which even at today’s undemand- Zayo currently trades at 10x EV/EBITDA,
by more than 12x, a rate of better than
ing valuation is worth $7.6 billion. which is at the low end of its historical
20% per year.
range and well below the 15-20x at which
Since coming on board Schneider has
Trading at $31.50, how are you looking private transactions have occurred. If the
recommitted the company to returning to
at the prospective rate of return on the multiple normalizes or approaches recent
mid-single-digit organic revenue growth
shares? transaction multiples, our return would be
within the next couple of years and has
much higher than the constant-multiple
confirmed already-set goals to take out
JN: Given the secular demand in the mar- expectation.
something on the order of 2 billion Swiss
ket, an attractive business model and
francs in costs by 2020. We believe this is
what we consider very capable manage- Now for something completely different, a case where the combination of a com-
ment, we believe high-single digit organic explain your thesis for global food giant pany with incredible franchise strength
growth, modest margin expansion and Nestlé [NESN.VX]. and leadership with an incredible track

February 28, 2017 www.valueinvestorinsight.com Value Investor Insight 15

 I N V E S T O R I N S I G H T : Jed Nussdorf

t JN: In 2015 we bought shares of Ralph

INVESTMENT SNAPSHOT
Lauren [RL], optimistic about its pros-
Nestlé pects given new leadership, an iconic
(Zurich: NESN:VX)
brand, what we considered a demonstra-
Business: Largest global food and bever- ble opportunity for margin recovery, and
Financials (TTM):
age company, with brands including Nescafé,
Revenue CHF 89.47 billion an undemanding valuation.
Perrier, Poland Spring, Dreyer’s, Gerber,
Carnation, Kit Kat and Purina. Operating Margin 14.7% Two key assumptions we made were
Net Profit Margin 9.1% that comp-store sales would modestly im-
Share Information prove and that margins, which had dete-
(@2/27/17, Exchange Rate: $1 = CHF 1.01): Valuation Metrics riorated, would begin to improve because
(@2/27/17):
Price CHF 74.30 of a variety of initiatives the company was
52-Week Range CHF 67.00 – CHF 80.05 NESN S&P 500 pursuing. In fact, comp-store sales have
Dividend Yield 3.1% P/E (TTM) 27.1 24.8 declined materially, which despite various
Market Cap CHF 231.23 billion Forward P/E (Est.) 20.2 18.2 efforts derailed any margin upside as well.
It’s safe to say this was a mistake that did
NESN:VX PRICE HISTORY not go according to plan.
The diagnosis? Our batting average
hasn’t been high in the retail sector and
it's possible that it doesn’t play to our
strengths. It may be that other investors
have superior data than we do. We may
have a harder time assessing product life-
cycles in more fashion-based businesses. If
you’ve been able to consistently succeed in
certain areas and done less well in others,
it probably makes sense to focus on the
former and deemphasize the latter.
THE BOTTOM LINE
Investors are "fatigued" with the company's performance, says Jed Nussdorf, at just the You handled everything on the investment
time he expects that performance to improve under new management. Driven by organic
side of your business for 11 years before
growth, an improvement in lagging margins and smart capital allocation, he expects to
hiring an analyst last year. Why change?
earn a mid-teens constant-multiple IRR in the stock over the next two to three years.

Sources: Company reports, other publicly available information JN: When the market swooned in mid-
2015, I found myself working at an un-
record will ultimately pay off handsomely modeled it, but we also see further return sustainable pace of 75 to 80 hours a week
for shareholders. upside from the firepower Nestle has to do for months in a row. I didn’t think that
accretive M&A. was good for my partners and I didn’t
The shares have gone nowhere over the The defensiveness of this stock also has think it was good for me, and I concluded
past two years. What upside do you see considerable appeal. While I don't have I needed additional resources to help me
from today’s price of around 74.50 Swiss a particular political view that's worth prosecute the opportunity set.
francs? sharing, I do think there's higher-than- That’s not an easy decision to make
normal risk of economic stress over the when you have your own firm and have
JN: We expect a mid-teens constant-mul- next couple of years from rising national- been the only one working on “product”
tiple IRR over the next two to three years, ism and protectionism. Nestlé's valuation for 11 years. It took some time to find the
driven by 4-5% organic sales growth, 4% has been quite counter-cyclical, trading at right person, but I was fortunate last year
from the combination of the dividend its highest premiums relative to the S&P that David Cohen, whom I’d known for
yield and share repurchases, and the bal- 500 in periods of high market turbulence. 15 years since we were summer interns
ance from improvement in margins. If the I believe it can provide a form of portfolio together at George Weiss Associates in
operating performance is there, there’s insurance if financial-market storm clouds 2001, became available. We knew each
additional potential from multiple expan- gather. other well, have collaborated many times
sion – the shares have historically traded over the years on research, and have a very
at a 25-30% premium to the S&P 500, Describe a mistake you’ve made in the re- similar process and approach. I couldn’t
compared to just 10% today. We haven’t cent past and any takeaways from it. be more pleased with how it’s going. VII

February 28, 2017 www.valueinvestorinsight.com Value Investor Insight 16

 U N C O V E R I N G V A L U E : Oil-Dri

Cat Out of the Bag?

Exciting but overlooked growth opportunities that attract discerning investors’ attention need not only be in
technology or Internet companies. Witness Oil-Dri Corp.’s aggressive move to expand in cat litter. By Ori Eyal

A not-uncommon situation that at- view: “Dan Jaffee, the CEO and grandson in a $75 share price, more than double to-
tracts discerning investors is when a com- of the founder, acts like a business owner, day’s $35.60. He would not be surprised
pany has a high-potential business ready innovating, investing for the long term if large competitors like Nestlé, Clorox or
to blossom, especially at the point where and ignoring Wall Street analysts.” He has Church & Dwight would try to buy the
investments in it exceed returns. That’s ex- that luxury because the Jaffee family con- company, although he says the Jaffee fam-
actly the situation Needham Funds' port- trols over 80% of the voting rights via its ily would be very unlikely to sell. As for
folio manager John Barr sees today in Oil- ownership of B-class shares. downside protection, he believes the com-
Dri Corporation of America. Also taking a long view, Barr believes pany’s clay mines, located in several U.S.
The Chicago-based company, founded the company within five years, driven states and holding some 350 years’ worth
in 1941, made its name selling industrial by cat-litter success, can earn at least $5 of proven-and-probable reserves at cur-
sorbent products made from clay minerals per share. He thinks at that point that rent production levels, could very likely be
primarily to industrial and manufacturing its growth and profitability profile could worth more than the company’s current
customers that used them to keep plant warrant at least a 15x multiple, resulting market capitalization. VII
floors clean. It has since expanded into
a number of other areas, including fluid INVESTMENT SNAPSHOT

purification, crop protection and sports- Oil-Dri Corp. Valuation Metrics

field maintenance. But the high-potential (NYSE: ODC) (@2/27/17):
opportunity that has Barr most excited? ODC S&P 500
Business: Manufactures and markets sor-
“Investors either don't know the company bent products used in industrial, automotive, P/E (TTM) 25.4 24.8
at all or don't yet realize the magnitude of agricultural, petcare and other applications. Forward P/E (Est.) n/a 18.2
its ongoing transformation around cat lit-
Share Information (@2/27/17):
ter,” he says. Largest Institutional Owners
Oil-Dri, in fact, is one of the world’s Price 35.61
(@12/31/16):
52-Week Range 29.89 – 40.94
largest manufacturers of cat litter, an op- Company % Owned
Dividend Yield 2.5%
portunity Barr believes is still in the early Market Cap $258.9 million T. Rowe Price 12.1%
innings. Of particular note is the compa- Gamco Inv 10.1%
ny’s line of Cat’s Pride Fresh & Light lit- Financials (TTM): Renaissance Tech 8.3%
ter, which provides 2x-longer odor control Revenue $261.1 million
Operating Profit Margin 4.1% Short Interest (as of 2/15/17):
while weighing 25% less than traditional
Net Profit Margin 3.9% Shares Short/Float 0.6%
products. The company has 20% of the
lightweight “scoopable” cat-litter market ODC PRICE HISTORY
and is gaining share in the category, which
is itself taking a larger share of overall lit-
ter sales. Within five years Barr believes
the company’s overall annual sales can
increase by $200 million – from their cur-
rent $260-million level – almost entirely
from branded and private-label cat litter.
To capitalize on this opportunity Oil-
Dri is spending heavily on advertising and
promotion, which has hurt profitabil-
ity and disappointed investors. Operating
margins in its retail and wholesale segment THE BOTTOM LINE
are running at around 3%, but Barr be- Heavy investments in its high-potential cat-litter business have weighed on operating
lieves they’re closer to 10% before the in- margins, but John Barr expects the money to prove well spent. At 15x the $5 in EPS
vestment spending and may reach at least he believes the company can earn within five years the shares would more than double.
15% as the scale of the business expands.
Sources: Company reports, other publicly available information
He credits management for taking a long

February 28, 2017 www.valueinvestorinsight.com Value Investor Insight 17

 U N C O V E R I N G V A L U E : Dollar General

Stretching Your Dollar

Even the most-successful business concepts face challenges that cause investors to question whether – or for
how long – the good times might be over. Is the concern today over dollar-store giant Dollar General justified?

While many money managers have With continued same-store growth, oper- footprint to sell consumables, but it ap-
likely never shopped in one, the “dollar- ating leverage enhanced by a zero-based pears to be focused in that effort on high-
store” concept has paid off nicely for in- budgeting program and efforts to reduce end consumers and dense urban markets
vestors in the concept’s top practitioner, product “shrink,” and share repurchases, – not at all Dollar General’s milieu.
Dollar General. Targeting towns with he believes management's low- to mid- What are DG shares more reasonably
less than 20,000 people and core custom- teens earnings growth target is reasonable. worth? Assuming it trades at what he
ers with an average household income of Key competitive threats? Top industry considers a conservative 18x the $5.25 in
$40,000, the company offers one-quarter rival Dollar Tree is “highly rational,” he EPS he expects next fiscal year, the stock
of the items – mostly branded consum- says, and is likely to prosper along with would trade at $95, versus today’s $76.80.
ables – found in a typical grocery store, Dollar General rather than at its expense. “Our goal is to invest in quality compa-
but attempts to price at parity with Wal- Wal-mart last year abandoned its directly nies at reasonable prices and watch them
mart, at a 15% discount to grocery stores competing “Express” concept. Amazon compound in value,” he says. “We think
and at 30% below pharmacies. Its slogan: seems interested in building a physical that’s exactly what we’re doing here.” VII
“Save time. Save money. Every day!”
INVESTMENT SNAPSHOT
The results have been anything but
low-end. Dollar General now sports some Dollar General Valuation Metrics
13,000 U.S. locations, annual sales in ex- (NYSE: DG) (@2/27/17):
cess of $21 billion and consistent mid- to Business: Discount retailer of consumables
DG S&P 500
high-teens returns on capital. It's proven and general merchandise through more than P/E (TTM) 18.0 24.8
capable of prospering in good times and 13,000 convenience stores in 43 U.S. states. Forward P/E (Est.) 16.3 18.2
bad, with a remarkable 26 years and run-
Share Information (@2/27/17):
ning of annual same-store-sales growth. Largest Institutional Owners
Despite its formidable past, Wall Street Price 76.79
(@12/31/16):
52-Week Range 66.50 – 96.88
punished the company’s stock starting in Company % Owned
Dividend Yield 1.3%
August of last year after it committed the Market Cap $21.21 billion T. Rowe Price 9.5%
sin of reporting a 1% increase in monthly Vanguard Group 6.1%
same-stores sales vs. a consensus 3% ex- Financials (TTM): State Street 4.5%
Revenue $21.26 billion
pectation. From a high of nearly $97 in
Operating Profit Margin 9.4% Short Interest (as of 2/15/17):
July, DG stock fell as low as $67 in Octo-
Net Profit Margin 5.7% Shares Short/Float 2.4%
ber. Was the run of success over?
Madison Investments’ Adam Sweet ar- DG PRICE HISTORY
gues decidedly not. He says the market’s
concern about the company rests on three
factors – food deflation, financial pres-
sures on its core customer and potential-
ly higher labor costs from new overtime
rules – that he ultimately expects to prove
cyclical, temporary and/or easily offset.
He also considers the company’s
growth potential fully intact. With their
appeal of more convenience and lower
prices, he expects dollar stores to con-
tinue to take share from grocery stores THE BOTTOM LINE
and pharmacies, and that DG will at least Adam Sweet believes the issues concerning the market about the company should prove
maintain its 40% share of the growing temporary and that its growth potential remains fully intact. At what he considers a con-
small-store discount market. He says that servative 18x his fiscal 2018 earnings estimate, the shares would trade at closer to $95.
can translate into mid-single-digit com-
Sources: Company reports, other publicly available information
pany square-footage growth for a decade.

February 28, 2017 www.valueinvestorinsight.com Value Investor Insight 18

 EDITOR'S LETTER

Doubling Down on Value Investing

While much has changed in the world investment thinking from the most suc- $500,000-plus investment portfolio, and
of investing since Whitney Tilson and I cessful investors. will pursue multiple paths to spread the
launched Value Investor Insight 12 years gospel of value investing and build an es-
ago almost to the day, the goal we articu- What has changed, of course, is the role timable franchise devoted to it. I welcome
lated for the publication in the Editors' and stature of the active investor. Twelve any input from VII readers on how to pull
Letter of that first issue [VII, February 23, years ago passive, quantitative and smart- it all off!
2005] hasn’t changed at all:. beta strategies accounted for nowhere near One new initiative planned for next
the estimated 35% of assets under man- month is the Capstone Student Investment
There’s no lack of information out agement they do today. Our idol, Warren Conference [CSIC], patterned after many
there for investors. Sell-side research Buffett, didn’t devote nearly as much time successful investment conferences around
from less-than-independent broker- in interviews and his annual Berkshire the country but created primarily for stu-
age firms. Effusive TV anchors treat- Hathaway letter to extolling the virtues of dents. Featured speakers at CSIC, to be
ing minute-to-minute market moves index funds. The active investor – profes- held in Tuscaloosa, Alabama on March
as sport. Magazines touting the “Best sional or not – who buys stocks one at a 25th, include Howard Marks of Oaktree
10 Stocks to Buy Now!” Newslet- time based on deep fundamental research Capital, David Herro of Oakmark Funds
ters claiming proprietary “systems” is back on his or her heels as never before. and Murray Stahl of Horizon Kinetics.
that will “Triple Your Money in Six I don’t bemoan or question any of that. [We are making the conference available
Months!” Money managers in aggregate will by as well to UA alumni and select others, in-
definition continue to underperform index cluding subscribers to VII. If you’re inter-
Our belief in launching Value Investor funds, and too many of them don’t de- ested, please visit CSIC’s website here.]
Insight is that savvy investors want and serve the fees they charge for the product I talk to successful value investors all the
deserve more. They deserve a publica- they deliver. What hasn’t wavered for me, time and still believe in Warren Buffett’s
tion that ignores the hype and deliv- however, is the belief that a disciplined, conclusion from his seminal 1984 Forbes
ers clear and concise information that consistently applied value-investing strat- article, “The Superinvestors of Graham-
helps them make better investment de- egy – based on fundamental research and and-Doddsville,” that it’s not by chance
cisions. They deserve a publication that on paying a significant discount to a con- that the best investors over long periods
explores the process of great investing, servative estimate of a company’s intrinsic of time tend to follow core value-investing
by providing direct access to the best value – can and will win the day as well as principles. The benefactor of the program
the future. at the University of Alabama, C.T. Fitz-
Value Investor Insight™ is published monthly a That’s why Whitney and I are more patrick [VII, September 28, 2012], is just
www.valueinvestorinsight.com (the “Site”), by Value confident than ever in the future of VII, one case in point. After nearly 20 years
Investor Media, Inc. Co-Founder and Chairman, Whitney Tilson; at Mason Hawkins’ Southeastern Asset
which has continued to thrive through
Co-Founder, President and Editor-in-Chief, John Heins. Annual
subscription price: $349. ups and downs in the market and as value Management, he started Birmingham-
©2017 by Value Investor Media, Inc. All rights re- investing goes temporarily in and out of based Vulcan Value Partners in 2007 and
served. All Site content is protected by U.S. and international favor. We’re investing in the product and through nothing more complicated than
copyright laws and is the property of VIM and any third-party your ability to access it, as you’ll see as we superior investment performance has built
providers of such content. The U.S. Copyright Act imposes roll out enhancements in coming months. the firm from the ground up over ten years
liability of up to $150,000 for each act of willful infringement
of a copyright. Personally, I have even further dou- to having nearly $13 billion in assets (and
bled down on value investing. In August prudently closing nearly all strategies to
Subscribers may download Site content to their computer
and store and print Site materials for their individual use only. I added a new job to my current one, as new investors).
Any other reproduction, transmission, display or editing of the the C.T. Fitzpatrick Professor of Value In- I’m honored to help manage C.T.'s in-
Content by any means, mechanical or electronic, without the vesting at the University of Alabama. It’s vestment in a field whose principles not
prior written permission of VIM is strictly prohibited. a long story how that came about, but only inform what I consider the best way
Terms of Use: Use of this newsletter and its content is our perhaps immodest goal is to build an to invest, but also, I’d humbly submit, in-
governed by the Site Terms of Use described in detail at academic and experiential program at the form a well-lived life. VII
www.valueinvestorinsight.com. See a summary of key terms
on the following page of this newsletter. university around value investing that is
one-of-its-kind at the undergraduate level
Contact Information: For all customer service, subscription
or other inquiries, please visit www.valueinvestorinsight.com, in the U.S. I will be teaching two classes
or contact us at Value Investor Insight, 1655 N. MacFarland as part of a formal value-investing special-
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February 28, 2017 www.valueinvestorinsight.com Value Investor Insight 19

General Publication Information and Terms of Use

Value Investor Insight and SuperInvestor Insight are published at www.valueinvestorinsight.com (the “Site”) by Value Investor Media, Inc. Use
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This newsletter is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation
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February 28, 2017 www.valueinvestorinsight.com Value Investor Insight 20