GRIFFIN| CAPITAL MANAGEMENT
Discussion Materials
J u n e 2 0 1 1
J o r d a n G a l e s - A n d r e w K w o n - M i c h a e l L e R o s e - A n t h o n y N o v i o - J e r i l e e S m i t h
Agenda
2
Portfolio Overview
Review of Key Issues
Portfolio Modifications
Fund Strategy
Investment Highlights
Fund StrategyTo generate long-term capital growth through long exposures in the international equity markets, with the focus to generate positive asymmetric returns (>10%) against the benchmark index and peer group
Price/Earnings: Under 25
Price to Earnings Growth: Low (<1)
Price to Cash: Under 6
Price to Book: Under 3
Return on Equity: Over +20%
Return on Investment: Over +15%
Gross Margin: High (>50%)
Net Profit Margin: High (>20%)
Investment StyleOpportunistic bottom-up approach incorporating both stock and sector views with
macroeconomic overlay
Market-capital agnostic allowing for higher flexibility in exposure to a broad range of
potential assets
Individual stocks must develop a near-term catalyst within a period of 6 to 12 months
Strict sell discipline once the target stock price has been reachedIn times of increased volatility and periods of market corrections, increase the cash level
of the portfolio significantlyTarget Exposure (3-5 Yr) Screening Criteria
65%
30%
5%
Foreign
Domestic
Cash
3
Mechanical stock screening and relative rank-orderingFilter that includes financial ratios, price, and other accounting measures of valueImproper finds (false positives) and overlooked opportunities (false negatives) are “double-traps”
Fund Strategy
Active Screening Method (preliminary)
No. Ticker Company Sector Industry CountryMkt Cap
$M P/ E Price
1 CHBT China-Biotics, Inc. Healthcare Drug Manufacturers - Other China 204.67 7.11 8.16$
2 CNET ChinaNet Online Holdings, Inc. Services Advertising Agencies China 38.46 2.92 2.05$
3 CPTS Conceptus, Inc. Healthcare Medical Instruments & Supplies USA 375.84 4.65 12.09$
4 CRUS Cirrus Logic Inc. Technology Semiconductor - Specialized USA 1070.02 5.61 15.81$
5 ENTR Entropic Communications, Inc. Technology Semiconductor - Broad Line USA 706.86 9.48 8.20$
6 GFRE Gulf Resources, Inc. Basic Materials Specialty Chemicals China 135.49 2.36 3.73$
7 HITK Hi Tech Pharmacal Co. Inc. Healthcare Drugs - Generic USA 320.42 9.3 25.49$
8 KLAC KLA-Tencor Corporation Technology Semiconductor Equipment & Materials USA 6833.53 10.46 40.68$
9 MDCO Medicines Co. Healthcare Drug Manufacturers - Other USA 910.74 7.58 16.90$
10 NANO Nanometrics Incorporated Technology Scientific & Technical Instruments USA 346.63 5.84 15.03$
11 NSR NeuStar, Inc. Technology Diversified Communication Services USA 1947.95 13.08 26.39$
12 PWRD Perfect World Co., Ltd. Technology Application Software China 1202.29 9.82 26.00$
13 RBCN Rubicon Technology, Inc. Technology Semiconductor - Specialized USA 507.34 11.18 22.29$
14 SB Safe Bulkers, Inc. Services Shipping Greece 550.03 4.41 7.80$
15 SKBI Skystar Bio Pharmaceutical Company Healthcare Drug Manufacturers - Major China 32.36 2.31 4.63$
16 TER Teradyne Inc. Technology Semiconductor Equipment & Materials USA 2885.45 8.84 15.47$
17 YONG Yongye International, Inc. Basic Materials Agricultural Chemicals China 190.57 3.64 3.91$
Methodology
4
Mechanical stock screening and relative rank-orderingFilter that includes financial ratios, price, and other accounting measures of valueImproper finds (false positives) and overlooked opportunities (false negatives) are “double-traps”
Fund Strategy
Eight-Factor Screen
Methodology
No. Ticker Company Sector CountryMkt Cap
$M P/ E PEG P/ B P/ Cash ROE ROI Gross M Profit M Price
1 CHBT China-Biotics, Inc. Healthcare China 204.67 7.11 0.36 1.02 1.55 25.93% 23.73% 66.99% 43.08% 8.37$
2 CNET ChinaNet Online Holdings, Inc.Services China 38.46 2.92 0.29 0.98 2.18 48.61% 49.66% 62.81% 40.06% 2.03$
3 CPTS Conceptus, Inc. Healthcare USA 375.84 4.65 0.21 2.47 4.98 76.52% 55.15% 80.83% 60.81% 12.08$
4 CRUS Cirrus Logic Inc. Technology USA 1070.02 5.61 0.28 2.44 5.44 61.95% 60.72% 54.66% 55.06% 15.81$
5 ENTR Entropic Communications, Inc.Technology USA 706.86 9.48 0.49 2.68 4.96 44.33% 43.72% 54.03% 30.62% 8.20$
6 GFRE Gulf Resources, Inc. Basic Materials China 135.49 2.36 0.12 0.64 1.54 32.41% 32.08% 51.38% 33.13% 3.68$
7 HITK Hi Tech Pharmacal Co. Inc.Healthcare USA 320.42 9.3 0.68 1.92 5.43 24.05% 23.90% 55.35% 20.07% 25.60$
8 KLAC KLA-Tencor CorporationTechnology USA 6833.53 10.46 0.66 2.56 3.71 27.09% 19.79% 60.21% 23.31% 40.77$
9 MDCO Medicines Co. Healthcare USA 910.74 7.58 0.76 2.36 3.43 37.36% 33.15% 69.60% 26.68% 16.92$
10 NANO Nanometrics IncorporatedTechnology USA 346.63 5.84 0.29 1.86 4.32 40.45% 36.10% 54.85% 28.41% 15.03$
11 NSR NeuStar, Inc. Technology USA 1947.95 13.08 0.7 2.95 5.97 25.50% 24.50% 77.17% 28.11% 26.40$
12 PWRD Perfect World Co., Ltd. Technology China 1202.29 9.82 0.78 2.4 4.39 30.31% 29.51% 82.00% 33.46% 25.98$
13 RBCN Rubicon Technology, Inc.Technology USA 507.34 11.18 0.42 2.39 5.76 29.86% 29.86% 58.74% 44.93% 22.36$
14 SB Safe Bulkers, Inc. Services Greece 550.03 4.41 0.88 2.1 5.48 64.24% 16.67% 84.88% 69.83% 7.80$
15 SKBI Skystar Bio Pharmaceutical CompanyHealthcare China 32.36 2.31 0.39 0.45 5.49 22.47% 21.60% 53.71% 29.63% 4.63$
16 TER Teradyne Inc. Technology USA 2885.45 8.84 0.57 2.35 3.37 40.43% 31.01% 53.88% 24.01% 15.52$
17 YONG Yongye International, Inc.Basic Materials China 190.57 3.64 0.24 0.87 4.55 28.40% 30.01% 55.70% 23.98% 3.90$
5
Mechanical stock screening and relative rank-orderingFilter that includes financial ratios, price, and other accounting measures of valueImproper finds (false positives) and overlooked opportunities (false negatives) are “double-traps”
Fund Strategy
Eight-Factor Screen
Methodology
No. Ticker Company Sector CountryMkt Cap
$M P/ E PEG P/ B P/ Cash ROE ROI Gross M Profit M Price
1 CHBT China-Biotics, Inc. Healthcare China 204.67 7.11 0.36 1.02 1.55 25.93% 23.73% 66.99% 43.08% 8.37$
2 CNET ChinaNet Online Holdings, Inc.Services China 38.46 2.92 0.29 0.98 2.18 48.61% 49.66% 62.81% 40.06% 2.03$
3 CPTS Conceptus, Inc. Healthcare USA 375.84 4.65 0.21 2.47 4.98 76.52% 55.15% 80.83% 60.81% 12.08$
4 CRUS Cirrus Logic Inc. Technology USA 1070.02 5.61 0.28 2.44 5.44 61.95% 60.72% 54.66% 55.06% 15.81$
5 ENTR Entropic Communications, Inc.Technology USA 706.86 9.48 0.49 2.68 4.96 44.33% 43.72% 54.03% 30.62% 8.20$
6 GFRE Gulf Resources, Inc. Basic Materials China 135.49 2.36 0.12 0.64 1.54 32.41% 32.08% 51.38% 33.13% 3.68$
7 HITK Hi Tech Pharmacal Co. Inc.Healthcare USA 320.42 9.3 0.68 1.92 5.43 24.05% 23.90% 55.35% 20.07% 25.60$
8 KLAC KLA-Tencor CorporationTechnology USA 6833.53 10.46 0.66 2.56 3.71 27.09% 19.79% 60.21% 23.31% 40.77$
9 MDCO Medicines Co. Healthcare USA 910.74 7.58 0.76 2.36 3.43 37.36% 33.15% 69.60% 26.68% 16.92$
10 NANO Nanometrics IncorporatedTechnology USA 346.63 5.84 0.29 1.86 4.32 40.45% 36.10% 54.85% 28.41% 15.03$
11 NSR NeuStar, Inc. Technology USA 1947.95 13.08 0.7 2.95 5.97 25.50% 24.50% 77.17% 28.11% 26.40$
12 PWRD Perfect World Co., Ltd. Technology China 1202.29 9.82 0.78 2.4 4.39 30.31% 29.51% 82.00% 33.46% 25.98$
13 RBCN Rubicon Technology, Inc.Technology USA 507.34 11.18 0.42 2.39 5.76 29.86% 29.86% 58.74% 44.93% 22.36$
14 SB Safe Bulkers, Inc. Services Greece 550.03 4.41 0.88 2.1 5.48 64.24% 16.67% 84.88% 69.83% 7.80$
15 SKBI Skystar Bio Pharmaceutical CompanyHealthcare China 32.36 2.31 0.39 0.45 5.49 22.47% 21.60% 53.71% 29.63% 4.63$
16 TER Teradyne Inc. Technology USA 2885.45 8.84 0.57 2.35 3.37 40.43% 31.01% 53.88% 24.01% 15.52$
17 YONG Yongye International, Inc.Basic Materials China 190.57 3.64 0.24 0.87 4.55 28.40% 30.01% 55.70% 23.98% 3.90$
6
Mechanical stock screening and relative rank-orderingFilter that includes financial ratios, price, and other accounting measures of valueImproper finds (false positives) and overlooked opportunities (false negatives) are “double-traps”
Fund Strategy
Eight-Factor Screen (top 2)
Methodology
No. Ticker Company Sector CountryMkt Cap
$M P/ E PEG P/ B P/ Cash ROE ROI Gross M Profit M Price
1 CHBT China-Biotics, Inc. Healthcare China 204.67 7.11 0.36 1.02 1.55 25.93% 23.73% 66.99% 43.08% 8.37$
2 CNET ChinaNet Online Holdings, Inc.Services China 38.46 2.92 0.29 0.98 2.18 48.61% 49.66% 62.81% 40.06% 2.03$
3 CPTS Conceptus, Inc. Healthcare USA 375.84 4.65 0.21 2.47 4.98 76.52% 55.15% 80.83% 60.81% 12.08$
4 CRUS Cirrus Logic Inc. Technology USA 1070.02 5.61 0.28 2.44 5.44 61.95% 60.72% 54.66% 55.06% 15.81$
5 ENTR Entropic Communications, Inc.Technology USA 706.86 9.48 0.49 2.68 4.96 44.33% 43.72% 54.03% 30.62% 8.20$
6 GFRE Gulf Resources, Inc. Basic Materials China 135.49 2.36 0.12 0.64 1.54 32.41% 32.08% 51.38% 33.13% 3.68$
7 HITK Hi Tech Pharmacal Co. Inc.Healthcare USA 320.42 9.3 0.68 1.92 5.43 24.05% 23.90% 55.35% 20.07% 25.60$
8 KLAC KLA-Tencor CorporationTechnology USA 6833.53 10.46 0.66 2.56 3.71 27.09% 19.79% 60.21% 23.31% 40.77$
9 MDCO Medicines Co. Healthcare USA 910.74 7.58 0.76 2.36 3.43 37.36% 33.15% 69.60% 26.68% 16.92$
10 NANO Nanometrics IncorporatedTechnology USA 346.63 5.84 0.29 1.86 4.32 40.45% 36.10% 54.85% 28.41% 15.03$
11 NSR NeuStar, Inc. Technology USA 1947.95 13.08 0.7 2.95 5.97 25.50% 24.50% 77.17% 28.11% 26.40$
12 PWRD Perfect World Co., Ltd. Technology China 1202.29 9.82 0.78 2.4 4.39 30.31% 29.51% 82.00% 33.46% 25.98$
13 RBCN Rubicon Technology, Inc.Technology USA 507.34 11.18 0.42 2.39 5.76 29.86% 29.86% 58.74% 44.93% 22.36$
14 SB Safe Bulkers, Inc. Services Greece 550.03 4.41 0.88 2.1 5.48 64.24% 16.67% 84.88% 69.83% 7.80$
15 SKBI Skystar Bio Pharmaceutical CompanyHealthcare China 32.36 2.31 0.39 0.45 5.49 22.47% 21.60% 53.71% 29.63% 4.63$
16 TER Teradyne Inc. Technology USA 2885.45 8.84 0.57 2.35 3.37 40.43% 31.01% 53.88% 24.01% 15.52$
17 YONG Yongye International, Inc.Basic Materials China 190.57 3.64 0.24 0.87 4.55 28.40% 30.01% 55.70% 23.98% 3.90$
7
Agenda
8
Portfolio Overview
Review of Key Issues
Fund Strategy
Portfolio Modifications
Investment Highlights
Portfolio Overview
9
Portfolio Construction
Regional Views: Specifiable characteristics and catalysts for key markets with stable or growing earnings as well as favorable geo-political conditions
Narrow Focus: Strong bottom-up orientation to equity selection resulting in a concentrated portfolio of no more than 20 positions
Stock Selection: Fundamental analysis, combining multiple valuation models, target prices, liquidity and views on the management quality
Stock Allocation: Conviction weighted portfolio combined with identifiable triggers
Market-Cap (Weight and Return)Sector Breakdown
(%)Sector Returns*
*non-weighted
Mega-cap: Over $100B
Large-cap: $10B-100B
Mid-cap: $1B-10B
0%
10%
20%
30%
40%
50%
60%
70%
27%30%
62%Weight
Return
Source: Finviz.com
Retail 26.8
Semi-conductors 13.8
Air Transport 13.0
Consumer Goods 10.6
Healthcare 6.4
Electronics 6.4
Cable 6.1
Railroads 5.7
Cash 5.0
Computer Services 2.3
Specialty Manufacturing 1.8
Rental and Leasing 1.2
Basic Materials 0.9
Retail 53.39%
Consumer Goods 21.90%
Healthcare 17.98%
Air Transport 12.28%
Railroads 8.39%
Electronics 6.40%
Specialty Manufacturing 4.66%
Computer Services 1.72%
Cable 1.22%
Basic Materials -1.07%
Semi-conductors -3.50%
Rental and Leasing -8.91%
Cash nil
Portfolio Overview
10
Fund Performance
Summary Overall Gains(1)
Source: Google Finance
Portfolio netted an overall gain 12.44% coupled with an extremely low standard deviation of 1.03%
Expected return of the portfolio is 0.66% using a 90day T-Bill for risk free rate and market return of 0.544%
Portfolio Beta=1.22 was relatively low considering our weightings in high beta stocks
The risk adjusted returns were close: Sharpe Ratio=12.04% and Treynor Measure=10.17%
Generated a high positive Alpha=11.78%; earned $162 in dividends
Beta Exposure
49%
24%
<0.40.5 to 11 to 1.8
Beta
A
llo
cati
on
2 to 2.6
12.44%
0 0.5 1 1.5 2 2.5
0.00%
0.05%
0.10%
90 Day Treasury
0.03% Re= 0.03%+1.22(0.544-0.03)
E(r)portfolio=0.66%
Series1
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Fund*
We
ek
ly
Re
tu
rn
s
Portfolio Overview
Fund Performance
Profits and LossesCorrelationsInsignificant High
NegativeHigh Positive
Risk Characteristics
72% of our stock pairings had low correlations which implies strong portfolio diversification
Although 14 correlation pairings were greater than 0.40, only one of the top three pairings had considerable weights (7% IP and 6% CMCSA)
Realized strong diversification from UNP (6%) and DDS (16%) with a correlation=-0.35
No evidence of exaggerated return fluctuations or deviations from the S&P return and implies portfolio resiliency
Daily Return Volatility
11
SMTC -0.0 ALK
SOA -0.01 CMSA
WMT -0.01 RKT
WMT -0.02 SOA
IP -0.03 DDS
VSH -0.04 RKT
SOA -0.05 DHR
SMTC +0.0 ALK
UNP +0.01 SMTC
WMT +0.01 DDS
SOA +0.05 SMTC
RKT +0.05 GME
SOA +0.05 DDS
RKT +0.06 ARW
RCII -0.57 DHR
UNP -0.36 DDS
UNP -0.35 RCII
SOA -0.34 GME
SMTC -0.3 RCII
RCII -0.3 CMCSA
UP -0.29 RCII
RKT -0.29 ALK
AET -0.28 RCII
RKT -0.28 CMCSA
GME -0.25 ALK
RKT -0.24 IBM
WMT -0.22 RCII
SOA -0.22 RCII
IBM +.76 CMCSA
DHR +.60 CMCSA
IP +.59 CMCSA
VSH +.56 ARW
VSH +.55 SMTC
SMTC +.53 ARW
WMT +.53 CMCSA
AET +.50 DHR
AET +.49 SMTC
AET +.49 VSH
WMT +.48 VSH
AET +.48 WMT
WMT +.46 DHR
WMT +.45 ALK
Ticker Company Weight Return
DDS Dillard's Inc. 16% 31.5%GME GameStop Corp. 8% 18.6%
AET Aetna Inc. 6% 18.0%RKT Rock-Tenn Co. 3% 15.4%ALK Alaska Air Group, Inc. 13% 12.3%SMTC Semtech Corp. 13% 8.7%UNP Union Pacific Corporation 6% 8.4%
IP International Paper Company 7% 6.6%DHR Danaher Corp. 2% 4.7%WMT Wal-Mart Stores Inc. 3% 3.2%IBM International Business Machines Corp. 2% 1.7%CMCSA Comcast Corporation 6% 1.2%ARW Arrow Electronics, Inc. 6% -0.2%SOA Solutia Inc. 1% -1.1%RCII Rent-A-Center Inc. 1% -8.9%VSH Vishay Intertechnology Inc. 1% -12.2%
Cash 5%
-3%
0%
3%
Fund
S&P 500
Fund 2 month
Alpha % 11.8%
Beta 1.22
Sharpe Ratio 12.0%
Traynor Measure 10.2%
Std. Dev 1.03%
Portfolio Overview
12
Fund PerformanceAnalysis of Market Timing and Allocation
AbilityBogey Performance and Excess Return
Bogey Performance
Low yields due to low Fed Funds Rates has caused low returns for investors in the bond market
Pessimistic forecasts by other investors and global turmoil has caused major downturns in the equity market
S&P rating on US DebtNatural and Man-made Disasters
Allocation
Our fund utilized a riskier 95-5 asset allocation structure instead of the ideal 60-30-10
Asset allocation did not determine our rate of return
The types of assets we were allowed to hold restricted our ability to explore asset allocation techniques
Selection
Majority of excess returns were a result of our stock selection techniques
Our eight-factor screening allowed us to hold stocks that generally outperformed the benchmark
Stock Selection
Asset Allocation
ComponentBenchmark
Weight Index Return (%)
Equity (S & P 500) 0.6 0.544%
Bonds (Vangaurd Short Term Bond Index) 0.3 0.020%
Cash (Money Market) 0.1 0.010%
Return of managed portfolio 12.440%
-Return of bogey portfolio 0.333%
Excess return of managed portfolio 12.107%
Market
Actual Market Weight
Benchmark Market Weight
Excess Weight
Index Return (%)
Performance Contribution
(%)
Equity 0.95 0.6 0.35 0.544% 0.190%
Fixed-income 0 0.3 -0.3 0.020% -0.006%
Cash 0.5 0.1 0.4 0.010% 0.004%
Contribution of asset allocation 0.188%
Market
Portfolio Performance
(%)
Index Performance
(%)
Excess Performance
(%)Portfolio Weight
Contribution (%)
Equity 12.44% 0.54% 11.90% 95.00% 11.30%
Fixed-income 0.00% 0.02% -0.02% 0.00% 0.00%
Contribution of selection within markets 11.30%
Agenda
Portfolio Overview
Review of Key Issues
Fund Strategy
13
Portfolio Modifications
Investment Highlights
Investment Highlights
14
Alaska Air Group
Press Releases
In Quarter 1 2011 the company posted an eye- popping 112% share-earnings gain, year over year.
In 2011, Quarter 1, they had an operating margin of 14.9% on sales of $965.2 million. Highest margin of all airlines.
Paid down nearly $200 million of debt over the last six months, improving its debt-to-equity ratio.
Risks
As fuel prices, the industries largest expense, continue to increase over time, the airline industry’s bottom line will be heavily effected.
Airlines will have to increase cost reductions like removing capacity on underperforming routes and price hedging.
Decision
With the highest operating margin in the industry we believe that as the airline continues to lower debt and increase efficiency, they will be able continue to be a valuable investment for our portfolio
Price Data
$54.00
$56.00
$58.00
$60.00
$62.00
$64.00
$66.00
$68.00
$70.00
$72.00
Weekly Interval
**logo banner**
Investment Highlights
15
Dillards, Inc.
Press Releases
Dillard’s boosts dividend after 15 years up 25% to 5cents/share; approves $250 mln share repurchase plan
DDS surged to a new high on topping Q1 expectations; earned $1.31 per share up
from $0.68 the year before- estimate was $0.91
In early May, Dillar’ds reported a 57% surge in profit reflecting improved margins, higher revenues, and 2% comparable store sales growth
Risks
Department Sector may continue to lag behind, but latest earnings show that consumer purchases are rebounding in 2011
Decision
Confident in their ability to maintain profit margin figures and retrench their consumer base, amidst heightened competition from Macy’s and JC Penney
Price Data
$35.00
$38.00
$41.00
$44.00
$47.00
$50.00
$53.00
$56.00
$59.00
Weekly Interval
Investment Highlights
16
Comcast Corporation
Press Releases
Major film studio Miramax signed a 700-title licensing deal with both Netflix and Hulu; Hulu is co-owned by Walt Disney, Comcast, and 20th Century Fox Parent
News Corp.
Comcast committed to purchasing the remaining stake in Universal Orlando from PE firm Blackstone Group for $1-1.5B; Universal generated $267 in operating revenue
Comcast hires former FCC Commissioner Meredith Baker for lobbying job just four months post approval for the $12.75B acquisition of NBC-Universal
Strengths
Recent acquisition of NBC-Universal gives Comcast a strong foothold to compete in the online media space
Decision
Although key decisions in the past year reflect an proactive strategy, competitive advantage still marginal
Price Data
$22.50
$23.00
$23.50
$24.00
$24.50
$25.00
$25.50
$26.00
$26.50
$27.00
Weekly Interval
Investment Highlights
17
Rock-Tenn Company
Press ReleasesAcquired Smurfit-Stone Container Corp,
making Rock-Tenn the no.2 North American producer of containerboard and coated recycled board.
Contributed a 15.4% return with a 3% weight in our portfolio
Reported Q2 2011 net income increase of 13% and increase in sales of 8.3%, also reduced debt by $48 million in the quarter
RisksManufacturing capacity may leave the
U.S. at a higher- than-expected rate, slowing volume growth and creating slack capacity.
Uncertainty regarding the effect of Rock-Tenn’s acquisition will have on operations.
Decision
With the companies purchase of Smurfit-Stone, we are confident that they will effectively integrate the acquisition and continue their industry leading practices.
Price Data
$60.00
$62.00
$64.00
$66.00
$68.00
$70.00
$72.00
$74.00
$76.00
$78.00
$80.00
Weekly Interval
Investment Highlights
18
Wal-mart Stores, Inc.
Press ReleasesSouth Africa approves Wal-Mart,
Massmart Merger with conditionsWalmart reports FY12 first quarter EPS
from continuing operations of $0.98, above guidance
Walmart announces acquisition of social media company Kosmix
Strengths
Entrance into high growth countries seen as a vote of confidence in South Africa’s economy and the continent’s potential
South Africa’s Massmart operates in more than a dozen African countries; Wal-Mart will now have access to more than 50 million African consumers
Decision
Despite low-weight in current allocation, movement into new continent poses high potential for increased revenue growth and untapped consumer base
Price Data
$50.00
$51.00
$52.00
$53.00
$54.00
$55.00
$56.00
$57.00
Weekly Interval
Agenda
Portfolio Overview
Fund Strategy
19
Portfolio Modifications
Investment Highlights
Review of Key Issues
Review of Key Issues
1. Investigate the company’s operating history
Original 4 stocks chosen for the portfolio were some of the highest rated by Value Line, but 2 out of 4
ended up eroding our returns
Be critical of using key sources weather it’s Value Line, Wall Street Journal, Bloomberg, or Financial
Times; there’s always a more complicated chain of events
2. Follow principles not rules
Rather than focusing merely on P/E ratios, betas and PE/G ratios, we started to look deeper into the
economic conditions of each industry and the economy as a whole
Resist choosing stocks based on popularity, investigate smaller-cap stocks that reap higher returns
while staying out of the public eye
3. IPOs, buyout rumors, and global news have drastic effects on stock prices
Price boom in LinkedIn’s IPO, attempts at Apple buying out T-Mobile, stock splits in Caterpillar, and even global disasters
Market is extremely quick to react to this type of news causing spikes in prices, but the market tended to be slower when correcting exaggerated price shifts due to news
4. Diversify on a global scale
The US has many pending negative issues that we believe will soon affect the market. U.S. government’s debt ceiling, the ending of the QE2, the slow-down growth in emerging-markets, and the debt issues in Europe are all adding to market risk and volatility
By investing in other countries whose economies are not correlated with the US, we could more effectively diversify our portfolio.
20
Agenda
Portfolio Overview
Review of Key Issues
Fund Strategy
21
Portfolio Modifications
Investment Highlights
Portfolio Modifications
Criteria Match
Portfolio was relatively conservative relative to our high degree of risk toleranceStricter procedures needed for closing out of underperforming stocks (e.g. mega-cap
underperformance)Unjustly weighted to domestic stocks, foreign stocks will represent 65% of our portfolio in coming 5yrs
Critique
Source: Finviz.com
22
No.Ticker Company Sector Country Mkt Cap $M P/ E PEG P/ B P/ Cash ROE ROI Gross M Profit M Beta Price
1 AET Aetna Inc. Healthcare USA 16401.99 9.91 0.87 1.6 11.36 17.79% 5.26% 1.30 43.62$
2 ALK Alaska Air Group, Inc. Services USA 2438.95 7.83 1.31 2.1 2.34 31.14% 8.76% 28.16% 8.07% 0.51 67.59$
3 ARW Arrow Electronics, Inc. Services USA 4916.11 9.52 0.62 1.4 9.43 16.51% 10.89% 13.19% 2.68% 1.60 43.10$
4 CMCSA Comcast Corporation Services USA 67467.62 18.48 1.35 1.5 35.58 8.30% 3.31% 52.08% 9.37% 1.02 24.52$
5 DDS Dillard's Inc. Services USA 2989.51 15.67 2.85 1.5 20.3 9.99% 5.83% 35.46% 3.31% 2.56 55.50$
6 DHR Danaher Corp. Conglomerates USA 35361.2 18.95 1.24 2.7 22.19 14.43% 10.43% 51.22% 14.22% 0.87 54.10$
7 GME GameStop Corp. Services USA 3901.88 10.08 0.82 1.3 9.86 14.55% 12.34% 26.75% 4.26% 1.09 27.88$
8 IBM International Business Machines Corp.Technology USA 203469.49 14.09 1.32 9.0 15.36 67.53% 21.11% 46.15% 14.85% 0.73 168.32$
9 IP International Paper Co. Consumer Goods USA 13164.69 11.9 2.6 1.8 6.42 16.73% 4.79% 27.63% 3.87% 2.18 30.42$
10 RCII Rent-A-Center Inc. Services USA 1983.04 12.42 1.38 1.4 13.68 12.19% 7.58% 72.17% 5.97% 0.80 31.44$
11 RKT Rock-Tenn Co. Consumer Goods USA 2876.93 12.97 1.73 2.6 241.76 22.22% 9.89% 23.16% 7.31% 1.09 74.18$
12 SMTC Semtech Corp. Technology USA 1762.4 24.12 2.01 3.3 7.62 15.53% 14.41% 59.03% 15.97% 1.08 27.21$
13 SOA Solutia Inc. Basic Materials USA 2829.56 13.3 2.66 3.3 16.36 30.43% 6.97% 30.93% 10.54% 10.43 23.85$
14 UNP Union Pacific CorporationServices USA 49827.02 17.45 1.12 2.8 39.93 16.47% 7.22% 72.18% 16.60% 1.11 102.72$
15 VSH Vishay Intertechnology Inc.Technology USA 2502.36 7.2 0.6 1.6 2.48 24.63% 16.12% 30.76% 14.04% 0.31 15.44$
16 WMT Wal-Mart Stores Inc. Services USA 190976.22 12.74 1.31 2.9 20.32 23.63% 14.14% 24.69% 3.78% 2.09 54.58$
Portfolio Modifications
Criteria Match
Source: Finviz.com
23
Portfolio was relatively conservative relative to our high degree of risk toleranceStricter procedures needed for closing out of underperforming stocks (e.g. mega-cap
underperformance)Unjustly weighted to domestic stocks, foreign stocks will represent 65% of our portfolio in coming 5yrs
Critique
No.Ticker Company Sector Country Mkt Cap $M P/ E PEG P/ B P/ Cash ROE ROI Gross M Profit M Beta Price
1 AET Aetna Inc. Healthcare USA 16401.99 9.91 0.87 1.6 11.36 17.79% 5.26% 1.30 43.62$
2 ALK Alaska Air Group, Inc. Services USA 2438.95 7.83 1.31 2.1 2.34 31.14% 8.76% 28.16% 8.07% 0.51 67.59$
3 ARW Arrow Electronics, Inc. Services USA 4916.11 9.52 0.62 1.4 9.43 16.51% 10.89% 13.19% 2.68% 1.60 43.10$
4 CMCSA Comcast Corporation Services USA 67467.62 18.48 1.35 1.5 35.58 8.30% 3.31% 52.08% 9.37% 1.02 24.52$
5 DDS Dillard's Inc. Services USA 2989.51 15.67 2.85 1.5 20.3 9.99% 5.83% 35.46% 3.31% 2.56 55.50$
6 DHR Danaher Corp. Conglomerates USA 35361.2 18.95 1.24 2.7 22.19 14.43% 10.43% 51.22% 14.22% 0.87 54.10$
7 GME GameStop Corp. Services USA 3901.88 10.08 0.82 1.3 9.86 14.55% 12.34% 26.75% 4.26% 1.09 27.88$
8 IBM International Business Machines Corp.Technology USA 203469.49 14.09 1.32 9.0 15.36 67.53% 21.11% 46.15% 14.85% 0.73 168.32$
9 IP International Paper Co. Consumer Goods USA 13164.69 11.9 2.6 1.8 6.42 16.73% 4.79% 27.63% 3.87% 2.18 30.42$
10 RCII Rent-A-Center Inc. Services USA 1983.04 12.42 1.38 1.4 13.68 12.19% 7.58% 72.17% 5.97% 0.80 31.44$
11 RKT Rock-Tenn Co. Consumer Goods USA 2876.93 12.97 1.73 2.6 241.76 22.22% 9.89% 23.16% 7.31% 1.09 74.18$
12 SMTC Semtech Corp. Technology USA 1762.4 24.12 2.01 3.3 7.62 15.53% 14.41% 59.03% 15.97% 1.08 27.21$
13 SOA Solutia Inc. Basic Materials USA 2829.56 13.3 2.66 3.3 16.36 30.43% 6.97% 30.93% 10.54% 10.43 23.85$
14 UNP Union Pacific CorporationServices USA 49827.02 17.45 1.12 2.8 39.93 16.47% 7.22% 72.18% 16.60% 1.11 102.72$
15 VSH Vishay Intertechnology Inc.Technology USA 2502.36 7.2 0.6 1.6 2.48 24.63% 16.12% 30.76% 14.04% 0.31 15.44$
16 WMT Wal-Mart Stores Inc. Services USA 190976.22 12.74 1.31 2.9 20.32 23.63% 14.14% 24.69% 3.78% 2.09 54.58$
J o r d a n G a l e s - A n d r e w K w o n - M i c h a e l L e R o s e - A n t h o n y N o v i o - J e r i l e e S m i t h