Occupy Yahoo

Readers,

Cove Street Capital's latest strategy letter is now available on the firm's website. I highly recommend checking out the new piece to see portfolio manager Jeff Bronchick's comments on the corporate governance debacle that is Yahoo (YHOO). In addition, included with the posting is what has to be one of the most poignant and perfectly fitting pieces of artwork (also shown on the right had side of this page) you are going to see this year. I believe our in-house artist Kelli Manthei has captured the management acumen of Chief Yahoo Jerry Yang (note the incredible irony embedded in that title) and HP's former CEO Leo Apotheker amazingly well by portraying Yang as Beavis and Apotheker as Butt-Head. For those of you who might not be familiar with the famous characters created by Mike Judge, spending 5 minutes on YouTube should be enough to explain why no corporate CEO would ever want to be compared to these two cultural icons.

I hope you enjoy the piece and will continue to follow Cove Street's blog.

Sincerely,

The Inoculated Investor

Earnings Per Share Myopia

My newest piece, entitled Earnings Per Share Myopia, is now exclusively available on Cove Street Capital's blog site. You can access the posting by clicking this link. After listening to a number of company conferences calls during the Q3 earnings season, I was struck by how many of the questions posed to the executives hosting the call had nothing to do with trying to ascertain the intrinsic value of the company. Instead, the focus was inevitably (and unfortunately) on gathering data that will help the sell-side analysts forecast the next quarter's earnings per share number. While this practice is frustrating for the listener, I firmly believe that patient value investors can find a way to benefit from such myopia. Please use the above link to access the piece if you want to know more of my thoughts. (Don't forget to see the disclosure statement located at the bottom as well.)

As a reminder, all new content generated by me will be posted on Cove Street's site from now on. We are in the process of migrating people who have sign up for the RSS feed to this site. If for some reason you do not want to be signed up to receive emails updating you when new material is posted on Cove Street's site, please send us an email at Questions@CoveStreetCapital.com. If you are new to this site or are not a subscriber and want to have access to Cove Street's blog, just click this link and sign up in the box located in the top right corner of the page.

I hope you will take the time to explore the new site and read my latest piece.

The Inoculated Investor is Moving!

Dear Readers,

After about two and half years using Blogger as the primary medium for sharing my thoughts, notes and links, The Inoculated Investor has found a new home. Specifically, the change is being made due to some compliance concerns and, most importantly, my overwhelming desire to have the time I spend blogging benefit my new firm, Cove Street Capital, as well. 

The good news is that nothing is going to change other than the website. In fact, I may even be posting more often than I was in the past. In addition to commentary pieces and notes from the seminal events of the year—the Berkshire annual meeting for example—I hope to also post notes from industry conferences and management meetings. Further, readers will also have access to material from portfolio manager Jeff Bronchick, who used to write for TheStreet.com, and Eugene Robin, my partner in crime on the analyst side. I personally believe that the integrated site will offer additional content that makes it more valuable than my site alone.

So, the obvious question is, if you want to continue to follow The Inoculated Investor, how should you sign up? Well, there are a number of ways and we want to make it very convenient for people because the goal is to transition as many readers as possible to the Cove Street site.

First, you can bookmark the site on your web browser. Click here for the homepage of the Cove Street blog and here for my new homepage. If you click either link you will be able to sign up for our mailing list in the box located on the right-hand side of the page. In order to not inundate people, we make sure to only send out emails to subscribers that highlight recent blog content once a week. At that point you will be able to pick and choose what you want to read but I hope that you will sample material from all of the members of the Cove Street team.

Next, for those of you who are more used to using programs such as Google Reader to access blog sites’ RSS feeds, you can sign up for Cove Street’s RSS feed by clicking this link (try using Internet Explorer if Google Chrome or Firefox won’t access the link). For those of you who are already subscribers to The Inoculated Investor’s RSS feed, we will take the liberty of signing you up for Cove Street’s RSS feed as well. I hope you do not feel that this is an intrusion of your privacy and I apologize for any inconvenience. I am just passionate about not losing the people who have followed me over the past few years. If you do not want to view Cove Street content through your RSS reader, feel free to delete the confirmation email you receive or simply email us at Questions@CoveStreetCapital.com.

Finally, I want to assure you that the current site is not going anywhere. For anyone who wants to access old postings, they will remain available. In fact, I will continue to post links to the newest content—that will be exclusively available on Cove Street’s site—on the front page of The Inoculated Investor site. However, as of December 1^st, 2011, I will post a permanent link to my new home and cease posting on the Blogger site.

My goal has always been the same: to post valuable content that both informs readers and resonates with them. As such, the change in locations will not alter my objectives. I sincerely you hope you will follow me in this new endeavor. If you have any questions or comments, feel free to email me at inoculatedinvestor@gmail.com (this email will remain in use as well).

Thank you for all of your support. I leave with a link to my newest thought piece, officially available on Cove Street’s blog site: In a Zero Hedge World, Investors Must Stay Nimble.

Sincerely,

Ben Claremon

The Inoculated Investor

Analyst, Cove Street Capital

Exclusive Notes from a BB&T 1-on-1 Conference

(Disclaimer: The opinions included in the following posting belong to me and do not necessarily reflect those of Cove Street Capital “CSC” or any of its employees. The information in this posting should not be considered as a recommendation to buy or sell any particular security or to encourage anyone to invest with CSC. Past performance of CSC is not a guarantee or indicator of future results.)

Now that I am working on the buy-side on a full time basis again, I get to employ my note taking skills in variety of new mediums. Specifically, one of the perks of having relationships with sell-side firms is that it affords Cove Street Capital the opportunity to have its analysts meet with management teams from all over the country and world. In this case I had the opportunity to attend the recent BB&T 1-on-1 conference held in San Francisco. What I like about these types of conferences is the intimacy. In my former life on the buy-side I attended dozens of sell-side conferences in which 30 or 40 people packed into a small room to hear a pre-canned pitch by the management team of a specific company. While such conferences can be valuable and enlightening, I happen to believe that I learn a lot more when I have a chance to sit down in front of a CEO or CFO and ask targeted questions.

Not only does a 1-on-1 conference make me perform a significant amount of diligence on the companies I am scheduled to meet with, but it also allows me gain a granular knowledge that is often not accessible at less intimate affairs. So, kudos and a big thanks to BB&T for putting on a very well-run and informative conference at the Ritz-Carlton in downtown San Francisco.

On the day of the conference, I met with the management teams of eight different companies. Most of the meetings were 1-on-1’s but a couple were 2-on-1’s. Given that I only had a few days to prepare to meet with eight new (to me at least) companies, I was unable to perform the level of diligence I would have liked. However, in each case I had at least read the company’s most recent 10-K and 10-Q filings and had come up with a list of value-investor-oriented questions. The notes I took solely include my impressions of what was discussed and certainly do not represent the opinions of Cove Street or BB&T.

The list of companies and my notes are included in the Scribd document attached to this post and the Google Doc available here. However, I wanted to make some brief comments about each of the companies as a preview of what is included in the notes. You will notice that I have only posted the notes from seven of the firms as we are holding back on releasing the notes from one unnamed smart metering company that looks compelling on a secular trend and valuation basis.

Diamond Foods: A company in the midst of a very interesting and profound expansion after the acquisitions of Kettle Foods in 2010 and Pringles this year. Diamond is transforming itself from a low margin, nut-focused company to a higher margin, chip and popcorn producer.

CIBER: An IT consulting company in the midst of a turnaround after a change in management. The long struggling US operations are being centralized in an attempt to improve profitability and leverage the knowledge and skills transferred from the very successful European operations.

Perficient: Another IT consulting company that, unlike CIBER, is not focused on ERP implementation. Perficient is uniquely focused on continuing to grow in the US while maintaining its pristine (debt free) balance sheet.

Kansas City Southern: The smallest remaining independent Class 1 railroad company left in the US. KSU has some very interesting opportunities in Mexico and has what looks like a monopoly granted by the Mexican government. Also, read the notes for the CFO’s comments on Berkshire’s purchase of BNSF.

Tyson Foods: A meat protein company that is also very involved in prepared foods such as pizza crusts. The stock is trading at a low multiple because the chicken business has been hit by an oversupply of chickens and rising grain costs. However, the company thinks the chicken opportunity in China is huge (see KFC’s success in that country) and that the higher margin beef and pork businesses are being overlooked by investors.

Gorman-Rupp: A pump company that does nothing but keep its head down, execute, and make targeted acquisitions to help with growth. Accordingly, the company trades a much deserved premium. Gorman-Rupp is a Buffett-like company that investors should look to own at the bottom of an economic cycle when the market is sure the global economy will never recover.

Kirby Corp.: The largest marine transportation barge company in the US with about 28% market share. This size and scale allows the company to make money when the rest of the industry is struggling. Kirby strives to be one of the only rational players in an industry prone to overbuilding that causes utilization rates and prices to plunge.

As usual, if you have trouble with the Scribd document or the Google Doc, feel free to email me for a PDF copy of the notes. This site has been built through the posting of exclusive and unique content and even though my circumstances have changed a bit I hope to keep creating content that readers find valuable and informative. I hope you enjoy the notes!

Notes from BB&T 1-on-1 Conference

2011 South Central Scholars Charity Idea Dinner

(Disclaimer: The opinions included in the following posting belong to me and do not necessarily reflect those of Cove Street Capital “CSC” or any of its employees. The information in this posting should not be considered as a recommendation to buy or sell any particular security or to encourage anyone to invest with CSC. Past performance of CSC is not a guarantee or indicator of future results.)

I recently had the distinct pleasure of co-hosting a charity idea dinner with my friend Alex Rubalcava of Rubalcava Capital Management. Alex is on the board of an incredible organization named South Central Scholars (SCS) and he asked me to help him plan the event. Right off the bat, I really liked the idea of participating in an event that involved two things that are quite important to me: investing and education. If you ask me what the one major threat to the continued prosperity of the United States is, my immediate response would surround my concern for the state of public education in America. As such, I gladly offered to help plan and promote an event that had the goal of raising money for underprivileged students and also provided an opportunity to talk about investing.

The format was simple: attendees were asked to contribute a charitable donation to SCS in exchange for a three course meal and exposure to the investment ideas of some of the brightest minds in Southern California.

The impressive list of presenters included:

1. Ryan Morris of Meson Capital Partners who discussed First Marblehead (FMD)
2. Matt Peterson of Peterson Capital Management who discussed option strategies on Coca Cola (KO) and Kraft (KFT)
3. UCLA Anderson Professor Eric Sussman who discussed his top 16 accounting red flags
4. My co-host Alex Rubalcava who discussed Clear Channel Outdoor (CCO)
5. Toby Carlisle of Eyquem Fund Management and author of the popular blog Greenbackd who spoke about Xyratex (XRTX)
6. Robert Wollendorf of Western Standard who discussed MI Developments (MIM)
7. Brian Massey of Mar Vista Investments who spoke about First American Financial (FAF)

Also attending as an interested observer was Chuck Gillman of Boston Avenue Family Office. Finally, there were a number of people who were kind enough to donate but were unable to attend: John Schwartz (organizer of the Value Investing Congress), Lance Helfert of West Coast Asset Management (my former employer), Alan Schram of WellCap Partners, Dan Anglin of Prince Henry Group, and John Dash of Dash Acquisitions.

Most importantly, we were privileged to have the founders of SCS, Dr. Jim London and his wife Trisha, at the event. I personally found it motivating to see how two people who were inspired by a book (And Still We Rise by Miles Corwin) could turn a little idea into an impactful organization. Furthermore, I really enjoyed listening to Jose Rodriguez, a member of the SCS alumni community who shared real life anecdotes about the difference that SCS has made in his life. The value proposition of SCS becomes much more real and relevant when you meet someone who has directly benefitted from the work of the Londons and all of the other supporters of SCS.

Alex and I wanted to thank everyone for helping SCS achieve its goals. It was a wonderful night and I feel very fortunate to have had the chance to be involved with helping to raise money for such a great cause.

In addition, aside from acknowledging the generous participants of the event, the purpose of this post is to increase awareness of SCS. I know that many of the people who read this blog are not from California—or even from the US— and may not be particularly concerned about the plight of kids from South Central LA. Clearly, there are serious problems and deserving charities in every country around the world. As such, my hope in discussing the merits of SCS is not necessarily to entice people to contribute to this specific cause. If you think the value that SCS adds to the LA community is worthwhile, by all means I encourage you to become involved or help the organization raise money. But, for everyone else who would rather support causes a little closer to home, my hope is that the details of this event and description of SCS encourage you to look for ways to reach out to the educational community in your home state or country.

As mentioned above, SCS was founded by Dr. London and his wife after reading about the difficulties hard-working students from South Central LA were having escaping blighted neighborhoods and going to college. Accordingly, the goal of SCS is to help motivated high school students from inner city schools become successful in college and graduate school. These talented students are often from dysfunctional families and communities impacted by drugs and violence. Sadly, the high schools in such areas often only graduate 25% of their students and even those who do graduate may not have the financial means to attend college or are not aware of their options.

This is where SCS steps in to provide information, outreach and financial support to students from 39 high schools in the area. The main strategy is to try to get the strongest students to apply to private colleges, specifically the Ivy League schools and other small liberal arts colleges. The reason for this focus is that these schools are not only some of the top schools in the US, but they also provide the most generous financial packages; with some even guaranteeing that students will not graduate with any student loan debt. Once they are in college, SCS supports these students and their goals by:

• Putting on seminars that help students bridge any gaps between themselves and other college-ready students.
• Offering bridge scholarships that close void between the financial packages offered by the colleges and the actual total cost of the education.
• SCS supports approximately 300 currently enrolled college students
• Creating a mentoring program in which students are paired with people who have had success in careers that the students are interested in pursuing.
• Trying to help students work around obstacles such as financial, family, academic and psychological problems that may hinder them from succeeding in college.
• A number of students are also homeless and SCS works to find places for these young people to stay during holidays and summers.
• Helping students obtain valuable jobs and internships in fields that interest them.

It is hard to argue that giving these students the opportunity to go to college is not a worthy goal. In fact, the success of SCS makes the organization and ones like it look compelling destinations for charitable donations. But, anyone who approaches the world from an investor’s point of view likely wants to get the most bang for his or her buck. There are thousands of deserving charities out there. So, why is SCS any more deserving than the others? Well, given that I believe a failing educational system represents a real threat to this country’s long-term prosperity, what sold me on SCS was its ability to scale. When I asked the question about what prevented SCS from providing yearly bridge scholarships to 200 or 500 students instead of 74, the answer had nothing to do with personnel, staff or overhead. Simply, what prohibits SCS from expanding is funding. My understanding is that a large percentage of every dollar that SCS receives ends up supporting students as opposed to bloated infrastructures or administrative salaries. Further, after meeting a group of board members and founders whose only concern is helping underprivileged students, I became very comfortable making a donation.

Thus, if you share some of my concerns about the American educational system and want to donate or become involved, please visit SCS’s website at southcentralscholars.org. On that site you can find a place to make online donations and can learn more about volunteering opportunities or becoming an employer of these gifted students. I hope you will consider helping SCS expand its reach. If you have any questions or comments, please feel free to contact me or info@southcentralscholars.org.

Introduction to Cove Street Capital

(Disclaimer: The opinions included in the following posting belong to me and do not necessarily reflect those of Cove Street Capital “CSC” or any of its employees. The purpose of the post is to introduce the firm I will be working for as of July 1^st, 2011. The information in this letter should not be considered as a recommendation to buy or sell any particular security or to encourage anyone to invest with CSC. Past performance of CSC is not a guarantee or indicator of future results.)

Dear Readers,

First, I wanted to thank everyone for the amazing response to my request for help in finding a full-time position in the investment management industry. I received emails from people from New York, Boston, and Chicago as well as Germany and Singapore (to name a few). I really appreciate the support and encouragement I received. What I have found is despite the fact that we are located all around the world, there is a cohesive group within the value investing community that is available to assist its members. I owe a special debt of gratitude to a gentleman in New York who enjoyed my notes from this year’s Markel Breakfast so much that he decided to recommend me to a friend of his, Jeff Bronchick.

Jeff Bronchick is the former CIO of a well-known asset manager in Los Angeles. After 22 years at the firm, Jeff left this firm to start up Cove Street Capital. For those of you interested in the name, Cove Street was the street that was home to Berkshire Hathaway’s original offices. However, unlike Berkshire, Cove Street has decided to locate its offices in El Segundo, CA, less than 2 miles from the Pacific Ocean. Thanks to a tip from the above-mentioned gentleman and my newly defined persuasion skills, I convinced Jeff to hire me to be one of two analysts that will help manage $400mm of assets for both institutions and high net worth individuals.

Jeff is a bottom-up value investor in the mold of Warren Buffett who runs a concentrated portfolio of stocks that he believes are trading below intrinsic value. He focuses on establishing a margin of safety in order to win by avoiding big losers. While Jeff pays attention to the macro environment and has written extensively about his top-down view of the world, he primarily relies on company fundamentals to make buy and sell decisions. Thanks to the wonderful Internet age we live in, Jeff’s strategy letters going back to the year 2000 are available at http://www.rcbinvest.com/resources/letters.html.

Accordingly, I was able to perform a good deal of due diligence on Jeff and subsequently became comfortable that we approached investing from the same point of view. For example, what impressed me the most was how clear it was that Jeff views the money management process as a fiduciary responsibility. As such, he refuses to become an asset gatherer or chaser of short-term performance. Instead, he is willing to invest with a multi-year outlook and is comfortable assuming the role of a contrarian, both of which are important to me.

I also have a soft spot for people who like to write and who are articulate, as I have made myself a very minor star in the value investing world through my writings. Similarly, Jeff wrote for TheStreet.com in the 1990s and for Grant’s Interest Rate Observer. It also doesn’t hurt that he is a Penn guy as well. Our relationship continues to build but my initial impression is that we have a lot in common, especially our passion for investing and love of security analysis. I have told everyone who has asked me about the position that this is a dream job for me and I am excited to start contributing.

I don’t think this is the place to talk much more about Cove Street’s strategies. That information is available on the firm’s website at http://www.covestreetcapital.com/Default.aspx. However, I do want to say that we will be looking for value and market inefficiencies in both small and large companies and will not shun international opportunities that arise. If you are interested in learning more about me, Jeff or any of the other team members, please visit the “About Us” tab on the website. Additionally, if you are an investor capable of making the Cove Street minimum investment and would like to inquire about investing with the firm, please contact Daniele Beasley at dbeasley@covestreetcapital.com.

Finally, we are still contemplating precisely what will become of The Inoculated Investor blog but I assure you that I am not done writing. I have far too much to say. Most likely, my thoughts on stocks and the markets in general will appear on Cove Street’s site while this site will continue to be dedicated to unique content (event notes, interviews, etc.) that I hope people will find compelling.

Thanks again for your support and for making running the blog an extremely positive experience. I hope that you will continue to follow my career on this site as well as on that of Cove Street.

Sincerely,

Ben Claremon

The Inoculated Investor

Cove Street Capital

Notes from the Final Conversation with Charlie Munger

Dear Readers,

I surmise that many of you have heard the unfortunate news that last Friday's event at the Pasadena Convention Center will most likely represent the last opportunity for the value investing community to have a semi-intimate conversation with Charlie Munger. Now that Wesco is a part of Berkshire Hathaway and given that Charlie is hoping that we will find a new cult hero, those of us who long to hear words of wisdom from Charlie will have to make the trek to Omaha for the Berkshire Annual Meeting.

For those of you who could not make it out to Pasadena this year, I was fortunate enough to attend the event and have compiled my notes. As usual, they were taken in real time without the use of a recording device. Therefore, I cannot promise that I was able to capture everything that Munger said. However, my goal with the notes is to recreate the narrative in a way that both provides context and captures the sentiment of Charlie's remarks. I apologize in advance for any errors or ommisions.

I have embedded a Scribd version of the document to this post to retain the formatting. But, I understand that many people have trouble accessing Scribd for a variety of reasons. As such, I have also created a Google Doc that can be accessed by clicking this link. However, I am also happy to email a PDF copy to anyone who contacts me at inoculatedinvestor@gmail.com.

I apologize in advance for any delay in responding. A new and exciting thing in my life is starting tomorrow and I hope you will stay tuned to my blog for details regarding this endeavor.

Thanks again for following this site and I hope you enjoy the notes.

Sincerely,

Ben Claremon

The Inoculated Investor

Conversation With Charlie Munger

Notes from Creighton Value Investing Panel

Dear Readers,

I have finally gotten around to editing my notes from the Creighton Value Investing Panel that was held the day before the 2011 Berkshire Annual Meeting in Omaha. I was initially focused on getting my notes posted from the events I know people are really interested in: the BRK meeting, the Value Investing Congress, and the Markel Breakfast. However, after reviewing and editing the notes from the Creighton Panel, I remembered that the discussion had actually been quite interesting.

Given that the event is held on a college campus, the focus was more on high-level, philosophy of investing-type questions and less on individual security analysis. However, the panelists (listed below) discussed a number of stock ideas and provided a lot of detail regarding their approach to investing. All of the panelists are true value investors but clearly have distinctly different styles and types of companies they are attracted to. As such, I highly recommend reading through the notes if you are interested in the various approaches to value investing.

Panelists:

Whitney Tilson of T2 Partners

Vitaliy Katsenelson of Investment Management Associates

Michael Green of Evergreen Capital Management

Patrick Brennan of RBO & C0.

As usual, I have embedded a Scribd document of my notes to this post. If you have trouble using Scribd, click this link and you can access the notes through Google Docs. Finally, if neither of those avenues works, please feel free to email me at inoculatedinvestor@gmail.com and I will send you a PDF copy.

I hope you enjoy the notes and will stay tuned to the blog for a couple interviews with great investors.

Sincerely,

Ben "I Finally Graduate this Friday" Claremon

Creighton Value Investing Panel

2011 Markel Breakfast Notes

Dear Readers,

I hope everyone has enjoyed the notes from the Berkshire Meeting and from the Value Investing Congress. I have heard from a lot of people and so far the consensus has been that the notes were pretty comprehensive. I feel very fortunate to have readers all around the world who I can communicate with and get to know. This has been a very busy time of year for me and I wanted to make sure I took the time to thank everyone for following my blog and my career. I am still looking for the right full-time opportunity for after graduation so feel free to email me if you know of any equity value funds who are looking for a research analyst.

Before I move on I wanted to apologize again. For about a 6 hour period on Sunday night the version of the Value Investing Congress notes available through Scribd was not a complete version. Accordingly, if you downloaded a version that is missing stock charts for each of the companies, please feel free to email me and I will send you the polished version.

I know that you all have a lot to read right now but I wanted to post my notes from the 2011 Markel Breakfast while the comments and content were still very relevant and timely. For those of you who have not been to Omaha during the Berkshire weekend, the Markel Breakfast is held the Sunday after the Berkshire meeting and is a standing room only event. I was lucky enough to get a seat right in front and had the opportunity to hear CIO Tom Gayner and Vice Chairman of the Board Steve Markel discuss a number of topics, including:

• The state of the municipal bond market
• The state of the property and casualty insurance market
• Markel's approach to buying whole companies
• Inflation, hedging and currency risk
• The David Sokol affair

As usual, I have embedded a Scribd document of my notes in this post. While they are only a little over 8 pages, they are a bit too long to read on a regular blog post. If you have any trouble with Scribd, click this link to access a Google Docs copy (with no sign-in required). If neither of those options works, feel free to email me at inoculatedinvestor@gmail.com and I will gladly send you a PDF copy of the notes.

Finally, I wanted to let you know that there is still one more set of notes yet to be released. I attended the Creighton Value Investing Panel in Omaha and got to hear investors such as Vitaliy Katsenelson and Whitney Tilson answer questions from two moderators. It was an interesting event and I encourage you to stay tuned for the notes.

Thanks again for all of your support and I hope you enjoy the Markel notes.

Sincerely,

Ben Claremon

UCLA Anderson 2011

The Inoculated Investor

Markel Breakfast 2011 Notes

Detailed Notes from the 2011 Value Investing Congress

Dear Readers,

It has been a very busy 10 days and I am not even done editing all of my notes yet. However, after 24 pages of Berkshire annual meeting notes, I am now posting over 70 pages of notes from this past week's Value Investing Congress in Pasadena. Unlike the BRK meeting notes, these are in bullet point form because there are far too many data points and the speakers often move too fast for me to type the notes in paragraph form. These were taken in real time and I apologize for any errors or omissions. In any case, I think they provide a very comprehensive summary of what was discussed at the event.

For those of you who do not have the time to go through all of the notes, I have highlighted the companies that were pitched and discussed. I also included tickers and stock charts for most of the companies that were extensively analyzed. I think there were a number of compelling ideas pitched and I will briefly highlight a few that stood out in my mind as deserving some more research:

• Guy Gottfried of Rational Investment Group pitched Morguard Corp (TSE: MRC), a Toronto-listed real estate company that is run by a great investor and whose stock looks to be trading a fraction of the value of its real estate properties. Not to take anything away from the other great speakers, but I think Guy made the best presentation.
• Ori Eyal of Emerging Value Capital Management discussed a share arbitrage opportunity with PRISA (NYSE: PRIS) A and B shares. His compelling analysis made it seem unlikely that an investor could lose money and very likely that there would be significant upside in the next 6 months.

Aside from those two, there were also a number of interesting international and domestic stocks and other securities discussed. Some of you may notice that a few of the speakers have started their funds very recently and do not have long track records. As such, some people I spoke to voiced their concerns that it is hard to know if these guys are truly great investors. However, I have noticed that the young guys who run their own funds perform some of the most comprehensive and thoughtful research of any investors I know. As such, I highly recommend reading through the notes to see if anything piques your interest.

Also, if you like what you see in the notes, I suggest signing up to attend the next Value Investing Congress. The event will be held in New York on October 17th and 18th and the organizers are offering a very attractive early bird special for those who can commit to attending early. Please visit http://www.valueinvestingcongress.com/register/ if you would like to take part. I cannot promise that I will be there so there may not be much in terms of notes published in the blogosphere.

As always, I am unable to attach a PDF of the notes to this posting. However, I have created a Google Doc that anyone who clicks this link can access. Also, I have embedded the Scribd copy of the notes below. If neither of those works for you, feel free to send me an email at inoculatedinvestor@gmail.com and I will send you a PDF copy.

I hope you enjoy the notes. I appreciate all of the emails and offers to help me in my job search that I have received. I am looking forward to hearing more from all of you in the future.

Sincerely,

Ben Claremon

UCLA Anderson 2011

The Inoculated Investor

*****Update: The Scribd document attached is the correct one. My apologies, for a little while last night (between 2am and 8am LA time) a not-complete version was available on Scribd. I am sorry if anyone downloaded a non-polished copy and would be happy to send you an updated PDF version if you email me.
2011 Value Investing Congress Notes

Comprehensive 2011 Berkshire Meeting Notes

Dear Readers,

After 6 hours of continuous typing and close to 15 hours of editing, my notes from this year's Berkshire Hathaway annual meeting are complete. At the end of it all, the total tally is over 18,000 words and over 24 pages of wisdom from Buffett and Munger. As always, these notes were taken by hand, without the use of a recorder. For those of you who were not able to make it to the meeting this year, I hope the notes serve as an adequate substitute. For those of you who were in attendance, I hope the notes provide a comprehensive review of what was said.

Unfortunately, Blogger does not allow me to attach PDFs to posts. But, to make it easier on everyone I have created two ways for you to view the notes. First, you can click this link and access the notes through Google Docs. You don't even need an account with Google. Also, I have embedded a Scribd document to this post for those of you who like Scribd. However, as always, I am happy to email out PDF versions upon request. Just shoot me an email at inoculatedinvestor@gmail.com if you want a PDF copy.

Lastly, I am asking the value investing community for some assistance. I will be graduating from the Anderson School of Business at UCLA in June. Accordingly, I have been selectively looking for the right full-time position. Ideally, I would like to work as an equity research analyst for a value-focused buy-side firm. If you know of anyone who is looking for a diligent analyst with a passion for stocks, I would really appreciate it if you would think of me. You can view examples of my research on this site under the "Equity Research" link on the right side of the page. I am also happy to provide a copy of my resume upon request. Thanks so much for any help you can provide.

Enjoy the notes and please stay tuned for notes from other Omaha events and the upcoming Value Investing Congress.

Sincerely,

Ben Claremon

The Inoculated Investor

2011 Berkshire Annual Meeting Notes

Book Review: The Most Important Thing by Howard Marks

I was very fortunate to receive an advance copy of Howard Marks's new book, The Most Important Thing, directly from Howard himself. I then asked Howard if he would mind if I reviewed the book for my blog. Knowing how popular the memos he writes on behalf of Oaktree Capital Management are with members of the value investing community, I thought my readers would really enjoy learning more about his investment philosophy. Howard agreed to let me review the book on one condition: that I do so objectively and without hesitating from articulating any criticisms I had. The ultimate product is the following analysis of The Most Important Thing, in Scribd format because it is a little too long for a blog post. If you have any troubles with Scribd or would like a PDF copy, just email me at inoculatedinvestor@gmail.com and I will happily send it to you.

According to the link to the book on Amazon.com, it will be available on May 1st and can be pre-ordered now. I won't take any time here (read the review!) to explain why, but I highly recommend that readers with an interest in investing consider purchasing the book in order to further your own knowledge and gain a new appreciation for both Howard's writing and approach to investing.

Book Review- The Most Important Thing by Howard Marks

Stay Tuned for the Best Posts of the Year

Dear Readers,

I certainly have a busy few weeks coming up. No, I am not talking about the last 6 weeks of school work that are required for me to actually graduate in June. I am talking about the equivalent of Super Bowl week for value investors. Specifically, over the next 3 weeks, I will be attending the following events:

1. April 30th: Berkshire Hathaway Annual Meeting in Omaha

2. May 1st: Markel Breakfast in Omaha

3. May 3rd and 4th: Value Investing Congress in Pasadena

4. May 12th: 2011 South Central Scholars Value Investing Idea Dinner in LA- I am co-hosting this event with Alex Rubalcava and we are donating all of the excess proceeds to South Central Scholars, a nonprofit that helps kids from South Central LA realize their dreams of attending college and grad school. If you would like to learn more or make a donation, please visit the organization's website at: http://www.southcentralscholars.org/

As in previous years, I plan to blog about all of these events and hope that I will be able to produce my usually comprehensive notes for the Berkshire meeting and the Value Investing Congress. If you are planning to be at any of these events and want to meet up, feel free to email me. I would love to meet more of you in person. However, if you are not able attend, I hope my notes will serve as a good substitute. So, stay tuned for a series of posts that should be the best ones of the year.

Thank you for following my blog and I look forward to sharing my content with you.

Sincerely,

Ben

Equity Research Piece: Sterling Construction Co. (STRL)

I came across Sterling Construction Co. (STRL) after running a screen on Capital IQ for companies with: low debt levels, market caps between $100M and $500M and trailing EV/EBITDA multiples below 7x. I happen to believe that there is a lot more inefficiency in the small cap space and thus I often dig in that arena. What I quickly saw was that companies reliant on government infrastructure spending were trading at very low EV/EBITDA multiples. In fact, during my research I also came across Orion Marine Group (ORN), a company that operates in similar markets to STRL. At first I was intrigued by the valuation of ORN, but after more digging, STRL became the more compelling research candidate.

Unfortunately, I discovered the company a few weeks too late. On March 14th, 2011, the stock closed at $12.48, a price that implied a trailing free cash flow yield over 18%. Since then the stock has jumped to a price above $16 and no longer offers a sufficient margin of safety for my taste. However, I do think the stock bears watching because of the uncertainty surrounding state infrastructure spending. It is possible that the pessimism regarding states' ability to fund capital expenditures will drive the stock price down to a level that more than compensates for the inherent risks. Plus, I believe that STRL is a takeout candidate because the larger players such as Fluor and KBR may only be able to achieve growth through acquisitions over the next few years.

I should mention that this is my own personal research and the analysis and opinions presented should not be attributed to West Coast Asset Management. I hope you enjoy the piece as a I think it is representative of the type of research I like to do. For those of you who do not have time time read all 12 pages, I have included an executive summary in the first two pages of the write up. Please feel free to make comments or suggestions. I am always looking for feedback on my research, both positive and constructive.

As usual, I have put the write up in Scribd format to preserve the formatting of the charts. However, if you have trouble downloading the piece, feel free to email me and I will happily send you a copy.

Sterling Construction Co. Write Up

Please Help Japan

Readers,

For anyone who has been following the events in Japan over the past week, it has been a very painful time. But, there are people there who are really suffering and need as much help as we can provide. I happen to be a member of the Japan America Business Association (JABA) at UCLA Anderson. As such, I know many students who are from Japan and are likely going to return there after graduation. Sadly, I find myself not knowing what to say to people or how to console them. How can you really convey how sorry you are after watching the images of the tsunami wiping out everything in its path? The before and after pictures of the Sendai area are breathtaking in their brutality. Personally, I feel helpless to extent that it causes a sort of paralysis. So, I have been trying to find a way to help that has the greatest potential impact. Therefore, I am hoping to use my position as a very minor celebrity in the value investing world to raise money for those affected and increase awareness of the ongoing situation in Japan.

So, this is what I am asking from you:

1. Please help the MBA programs at UCLA Anderson, Pepperdine, and USC support the disaster relief effort by making a donation at http://socalmbahelpjapan.wordpress.com/. All of the proceeds will be donated to the the US Red Cross. The acute crisis may be nearing an end (at least we all hope), but the devastation is ongoing and, as citizens of the world, we can't just forget about the people of Japan once the news cycle shifts to another topic.
2. Keep informed about what is going on in Japan. Read newspapers, watch the news, keep up with your favorite blogs, follow Twitter. Do something to prevent yourself from moving on with your life just because the disaster didn't happen in your backyard. Because, especially if you live in California, one day it might happen here. The point is that the people of Japan deserve our empathy and for us to realize that we have an obligation to understand their plight.
3. Finally, reach out to anyone you know who has roots in Japan. I am living vicariously through someone who is very close to me and is currently in Japan. I have to say it is so difficult that I can't imagine how hard it would be if my family, friends, and the place where I grew up were going through so much turmoil. Believe me, they need your support.

Let us all hope that the earthquake and volcanic activity subsides and that the situation with the nuclear facilities becomes more manageable soon. The Japanese people need some indication of hope so that they can move forward. In the meantime, please help any way you can.

Sincerely,

Ben C.

The Inoculated Investor

Santangel's Review Strikes Again!

My friends at Santangel's Review are back at it again. Apparently, aside from working day and night on the upcoming newsletter, they somehow find the time to listen to the interviews recently conducted by the Financial Crisis Inquiry Commission and transcribe them for our reading pleasure. From the guys who brought us the transcript of David Einhorn's testimony, the newest transcription includes the wisdom of none other than the Oracle of Omaha himself. I don't want to spoil it for you, but I think everyone will want to hear what Warren Buffett said about what single act saved the entire financial system during the depths of the crisis. No, it wasn't the bogus bank stress tests or TARP. And is wasn't the FASB relaxing the rules on mark-to-market accounting. Have a read and see if you agree...

I also wanted to get in another shameless plug for Santangel's Review. I have inside knowledge regarding the subject of their soon-to-be-released newsletter. In fact, I expect to have a chance to read a draft this week. As such, for those of you who are high net worth individuals or who work for funds of funds, I highly recommend that you visit the website, read the free issue available there and strongly consider subscribing.

Now, without further ado, here is the transcript:

Transcript of Warren Buffett Interview With FCIC

Lance Helfert on CNBC Last Friday

My boss at West Coast Asset Management continues to be fixture on the TV circuit. Last Friday he was on CNBC discussing some of our research on rising input prices and the ultimate impact on clothing retailers. The question we are interested in answering is which retailers are going to be able to pass on higher input costs to consumers, assuming cotton prices stay at elevated levels for a while. Our thesis is that investors in clothing retail stocks should make sure the companies that they own have pricing power and are not dependent on discounting. See if you agree...

Introduction to Santangel's Review

Readers,

For those of you who are not yet familiar with Santangel's Review, now is a great time to become acquainted with the site. Santangel's Review is a quarterly newsletter that profiles emerging and undiscovered value investors. But, it is different from Value Investor Insight in that it is not focused on Q&A sessions with managers. Instead, the authors provide a narrative of the history of the firms, the people who run them, and the key investment decisions. In reality, the publication reads much more like a short story than a simple profile. However, since it is written by two security analysts, the descriptions of the investments are robust and very in-depth.

For anyone interested in understanding the investment process of managers who have generated exceptional returns over a long period of time (but who operate under the radar), I highly recommend going to the site and downloading the free copy of the first issue. If you like what you see (and I truly believe that you will), please click on the link provided on the site and think about subscribing to the newsletter.

In addition, aside from the newsletter and subscription materials, the site also has a blog that is now up and running. As such, I wanted to call your attention to a piece that was posted today on the site. The authors have transcribed the presentation to the Financial Crisis Inquiry Commission by David Einhorn of Greenlight Capital. I have not seen this posted anywhere else on the web and it is a fascinating read. Here is the link to the posting if you are interested: http://www.santangelsreview.com/2011/02/28/david-einhorn-financial-crisis-inquiry-commission-interview-transcript/

I suggest bookmarking the site as the authors have a knack for finding material that is not available anywhere else. I also hope that you will consider subscribing. You will not be disappointed.

Enjoy the site,

The Inoculated Investor

(Disclosure: I have a close friendship with the authors of the site. I also have helped in the editing of the newsletter. However, I have no financial stake in the endeavor and truly believe that the publication is like no other investment newsletter I have ever seen.)

Exclusive Notes from Howard Marks Presentation

Readers,

One of the perks of being in school again is that I get access to a number of great investors who take time out of their busy schedules to speak to the UCLA Anderson Student Investment Fund. As a group, we are very fortunate that our advisor has a relationship with the President of Oaktree Capital, Howard Marks. Mr. Marks was gracious enough to spend close to 90 minutes with me and my classmates this past Monday.

I first became aware of Oaktree in March of 2008 when a copy of the latest memo from Howard Marks came across my desk. The memo was entitled "The Tide Goes Out" and after reading it I decided to email the contact person listed on the Oaktree website, begging her to allow the investment community to have access to all of previous memos. While she was reluctant at first, all of them are now available.

At the time, I was living in New York and was working for an equity-focused hedge fund. Consequently, I had no idea how prominent a firm Oaktree was in the fixed income world. However, since moving out to LA and meeting investors who live and work in the area, I have learned just how well-respected Oaktree is. Not surprisingly, I have read every memo released since March of 2008.

Further, my first opportunity to hear Mr. Marks speak was at a Wharton Hedge Fund event in New York. I have been lucky enough in my young career to have met and listened to a good number of very savvy investors discuss their investment philosophies. However, to this day one particular comment from Mr. Marks has stuck with me. He said that his main job is to manage risk and to protect capital. As a value investor, that mandate really resonated with me. I think it fits in perfectly with the margin of safety concept that I try to incorporate in all of my stock analysis.

Fortunately, Mr. Marks' wisdom will soon be available for all of us to consume. He has written a book called The Most Important Thing that can be pre-ordered on Amazon now and will be available on May 1st. I have already put it on my Amazon wish list and humbly suggest that you do as well. However, if you cannot wait that long, check out this interview on the Financial Times' website with Howard Marks (Update: link is fixed) from last November.

Finally, Mr. Marks has graciously allowed me to post the notes from the event last Monday. Given the length (no, the notes are not quite as long as those from the Berkshire Annual Meeting), I have put the notes into a Scribd format. The settings should allow you to download a PDF copy. But, if you have any trouble, feel free to email me and I will send you a copy.

I have to say that even after following Mr. Marks for the last few years, in person, his temperament and the way he articulates his investment philosophy far exceeded my expectations. I hope you enjoy the notes.

Sincerely,

Ben

(Picture of Howard Marks was taken from his bio page on Oaktree's website)

Howard Marks Presentation to UCLA Student Investment Fund

My Second Article on MarketWatch

On February 1st, the second article that I co-wrote with WCAM President Lance Helfert appeared on MarketWatch. The article is about just how international the S&P 500 companies have become. My point is that even if the US continues to be in an economic funk, companies with operations all over the world and that have access to growing economies may continue to prosper. In reality, this is my attempt to temper my currently bearish stance on US stocks. See if you agree with my premise...

http://www.marketwatch.com/story/sp-500-is-the-best-international-play-2011-02-01

By Lance Helfert

SANTA BARBARA, Calif. (MarketWatch) — The U.S. economy is toast and prudent investors should stay away from U.S. stocks.

At least that is the belief espoused by a number of bearish market commentators who see the U.S. budget deficit, troubled housing market, and dependence on consumer spending as reasons that economic malaise will continue for years to come. And what if they are right? What does that mean for a stock market index such as the S&P 500 Index(SPX 1,325, +5.52, +0.42%) going forward? Perhaps not as much as one would think.

The reason is that many companies in the S&P 500 generate a substantial amount of revenue outside the U.S. According to Standard and Poor’s, of the 250 S&P 500 companies that report detailed information on foreign income, 47% of sales were generated outside the U.S. in 2009. This represents a 7% increase from 2006 with growth primarily coming from Asia. Accordingly, most investors have significantly more international exposure than they are aware of. In fact, the S&P 500 is positioned well to benefit from a major international secular trend that is likely to accelerate in the coming decade.

Specifically, the development that will drive spending growth across the world is improved living standards. Residents of the U.S. live in a modern country with seemingly endless amenities and access to a dizzying array of goods and services. As such, it is often easy to forget that developing nations do not necessarily have the same access to the goods that Americans take for granted.

However, as incomes rise and emerging economies become more advanced, citizens of these countries are going to demand the same standard of living enjoyed by their counterparts in developed nations. They will eat more meat, burn more fuel, buy more luxury goods, and desire the most advanced drugs and new technologies.

Populations of countries such as China and India dwarf that of the U.S. Even a small increase in the percentage of people who can afford more goods leads to a huge jump in the number of potential customers available to U.S. companies that have overseas operations.

For example, according to an October 2010 release from China’s Ministry of Security, the total number of automobiles in China is around 85 million. In contrast, according to the U.S.’s Bureau of Transportation Statistics, in 2008 there were approximately 137 million passenger cars in the U.S. This means that there are approximately 0.45 cars per person in the U.S and only 0.065 cars per person in China. If the ratio in China were to reach even one-third of the U.S. ratio, there would be nearly 200 million cars in China. Any material increase in this ratio for China would have a profound impact on energy consumption, global energy prices, and the global economy. Does anyone doubt that this ratio won’t increase?

None of this should come as a surprise to those who follow the global equity markets. Since the U.S. is expected to be stuck in a slow growth environment for a number of years, it is only logical that investors will continue to seek international exposure. But what is the best way to gain such exposure, and is the anticipated growth already reflected in foreign company valuations?

For the average investor, the answer to the first question is not to go directly to the source. While betting directly on emerging markets through their local stock exchanges may sound exciting, there are many risks that have to be taken into consideration. Such risks include lower liquidity and regulation, as well as higher volatility, currency risk, political risk, and risk of fraud. Second, many high-growth companies are already priced to perfection and assume that aggressive growth targets are met.

Despite the fact that the secular growth story in the emerging markets is so well known, many world class companies in the S&P 500 trade at cash flow multiples that do not reflect their significant exposure to these trends.

Take personal and health-care company Kimberly-Clark Corp. (KMB 65.01, -0.06, -0.09%)Aside from a slight blip in 2009, KMB has achieved consistent revenue and earnings growth since 2005. More importantly, revenue in Asia and Latin America increased more than 52%. KMB is an attractive company because of its exposure to international markets and the fact that its products are associated with a better quality of life. Irrespective of those positive aspects, KMB is currently trading at approximately nine times trailing cash flow with a dividend yield of 4.1%. Thus, KMB is precisely the type of company that should be enticing to investors looking for exposure to growth in developing markets.

Bears may be right and the U.S. economy may stagnate for the foreseeable future, but this concern should not cause investors to shy away from select U.S. companies with attractive valuations and international growth prospects.

Lance Helfert is president of West Coast Asset Management , and the co-author of “The Entrepreneurial Investor — The Art, Science and Business of Value Investing.” West Coast Asset Management does own Kimberly-Clark (KMB) in their portfolio. Ben Claremon contributed to this article.