ValueInvestor
February 28, 2019
The Leading Authority on Value Investing
Value First
The notion that buying cheaply protects value when markets fall can get lost in
long bull markets. That's not an issue for Nigel Waller and Andrew Goodwin.
I
n the understated fashion of a traditional
value investor, Oldfield Partners' Andrew
Goodwin, co-manager with Chief Invest-
ment Officer Nigel Waller of the firm's glob-
al-equity strategy, doesn’t make any grand
claims about his investment edge. “We gener-
ally believe share prices become too low after
a run of bad news and too high after a run
of good news,” he says. “From there we want
to bring to bear a great dollop of common
sense.”
With that no-nonsense approach, Old-
field's $3 billion (assets) global strategy since
inception in 2000 has earned a net annual-
ized 6.7%, vs. 3.8% for the MSCI World In-
dex. Today the two managers see mispriced
value inside Europe and out, in such areas as
telecom services, banking, diversified indus-
trials and power generation. See page 2
Stick to the Fundamentals
Thyra Zerhusen excels at identifying unexpected upside – in companies perform-
ing relatively poorly and in those where everything seems in pretty good shape.
INVESTOR INSIGHT
Thyra Zerhusen
Fairpointe Capital
Investment Focus: Seeks companies
whose stocks appear to either significantly
undervalue potential future growth or over-
value potential future challenges.
February 28, 2019
INSIGHT
Inside this Issue
FEATURES
Investor Insight: Oldfield Partners
Taking a contrarian, valuation-first
approach to find upside today in
INVESTOR INSIGHT Siemens, Mitsubishi UFJ, Kansai
Electric and BT Group. PAGE 2 »
Investor Insight: Thyra Zerhusen
Plying familiar ground to uncover
currently mispriced value in Copa
Holdings, Molson Coors, Wabtec,
Meredith and Teradata. PAGE 10 »
Uncovering Value: U.S. Xpress
Its 2018 IPO was a bust, but this
truckload shipper's stock may now
be ready for prime time. PAGE 17 »
Oldfield Partners
Nigel Waller (l), Andrew Goodwin (r) Uncovering Risk: Axon
All investments require some leaps
Investment Focus: Seek companies
of faith. Might those required for
with beaten-down stocks and low absolute
valuations resulting from expectations that this stock be excessive? PAGE 18 »
they believe will turn out to be unduly low.
Editor's Letter
Checking in on a Fund Manager of
the Decade; Why fear is the "friend
of the fundamentalist." PAGE 19 »
INVESTMENT HIGHLIGHTS
INVESTMENT SNAPSHOTS PAGE
T
hyra Zerhusen faced two big ob- Axon 18
stacles in securing her first equity BT Group 8
analyst job at Chicago’s Harris Bank. Copa Holdings 13
One, she didn’t really know what an equity Kansai Electric Power 7
analyst did. Two, the hiring manager at the
Meredith 14
firm had made it known he would never hire
Mitsubishi UFJ 6
a woman. “Miracles do happen,” she says.
Molson Coors 15
If there were any initial doubts about
Siemens 5
her investing skill, they have long been laid
to rest. Her Fairpointe Capital now manages U.S. Xpress 17
more than $3 billion and the mid-cap value Wabtec 12
strategy she has run since 1999 has earned a
Other companies in this issue:
net annualized 11.4%, vs. 9.1% for the Rus-
Akamai, Bunge, Citigroup, Cree, General
sell Midcap Index.
Electric, Lloyds, Lukoil, Manpower, New
Attracted to situations where short-term
York Times, Owens Corning, PG&E,
noise drowns out long-term potential, Zer-
Stericycle, Teradata, Tegna, Tesco,
husen and team see opportunity today in Transocean, Viacom
such areas as rail equipment, beer, traditional
media and airlines. See page 10
www.valueinvestorinsight.com Value Investor Insight 1

Investor Insight: Oldfield Partners
Nigel Waller and Andrew Goodwin of London's Oldfield Partners describe why they still consider valuation the prime
determinant of future returns, how they stress diversification in a portfolio with 25 stocks, lessons learned from a painful
value trap, and why they see mispriced value in Siemens, Mitsubishi UFJ Financial, Kansai Electric Power and BT Group.
One could categorize your investment
strategy as rather “old-school” when it
comes to discerning value. Would you
agree with that?
Nigel Waller: We consider ourselves to
be classic, contrarian value investors, so
to the extent that we regard a share price
that has gone down as cheaper and more
interesting, that’s probably fair. We focus
on areas of the market where other inves-
tors aren’t, where sentiment is poor and
where valuations are historically low in
absolute terms and relative to history.
We’re essentially trying to take advan-
tage of what we consider two key inef-
ficiencies in modern markets, the short-
termism of most market participants and
the tendency of many investment manag-
ers to hug indices. We think those who can
take a medium- to long-term view and dis-
regard the index composition will have an
advantage.
Just as the market can extrapolate
unduly to create share prices that are
too high after good news, we’re looking
for the opposite cases, where the market
lurches down in a knee-jerk reaction after
bad news. To give one example, when vot-
ers in the U.K. in 2016 voted to leave the
European Union, U.K. bank stocks bore
the initial brunt of the negative reaction.
We had already started looking at banks
like Lloyds [London: LLOY] and Royal
Bank of Scotland [London: RBS], stress-
testing their balance sheets and cash flows
against the worst-ever historical periods
in the property, commercial and personal
lending markets. When we did that, we
concluded in both cases that with a rea-
sonable time horizon the market was
overreacting to the threat of Brexit. The
lowering of their valuations due to the
threat is what gave us the opportunity we
ended up taking in Lloyds.
We’re fully aware that a low valuation
in itself tells you nothing about whether
February 28, 2019
I N V E S T O R I N S I G H T : Oldfield Partners
a stock is a bargain. When the shares of
BP [BP] fell after the Macondo oil spill
in 2010 we looked at it and decided very
quickly that the stock price had come no-
where close to discounting the potential
costs of the disaster. We looked last year
at General Electric [GE] and couldn’t get
comfortable with its hugely complex bal-
ance-sheet liabilities.
We also last year spent considerable
time on PG&E [PCG], the California util-
ity that has been very much in the news. Nigel Waller, Andrew Goodwin
The fundamentals of delivering power to
power-hungry consumers in the state were Across the Pond
attractive to us. On the surface, the regu-
If you’re looking for a vibrant community
latory framework was improving, with a
of value investors, says Oldfield Partners’
compromise reached with regulators in the
Nigel Waller, his home base of the United
middle of last year that seemed to clarify
Kingdom is probably not your best bet.
the company’s risk of liability in the event
“We love coming to the U.S. and Canada
of wildfires. We eventually concluded the
because there’s a rich vein of value inves-
compromise didn’t go far enough and the
tors in both countries to speak with and
threat of bankruptcy if there was a big fire
share ideas. Over here, it’s pretty bleak.”
was too high. When the outcomes are bi-
nary, we try to steer clear. But if you’re looking for actual value in-
vesting ideas, the U.K. today with its well-
Kudos on missing those potential “oppor- chronicled and dysfunctional attempt to
tunities.” As an example of something that leave the European Union would appear
did made the cut, explain what attracted to be far more welcoming. In fact, many
you to a traditional media company like
U.S.-based bargain hunters are spend-
Viacom [VIA].
ing more time than ever on British stocks
beaten down by any number of long-run-
Andrew Goodwin: Clearly the way people
ning Brexit fears.
consume media is changing, which has led
to a tremendous amount of uncertainty in Is Waller – Oldfield’s chief investment of-
the media sector. There’s been an increas- ficer and co-manager with Andrew Good-
ing polarization between those perceived win of the firm’s global equity strategy –
as the winners, like Netflix, and the losers, doing the same? “The first thing I'd say
of which Viacom appears to be counted. is that we don’t have any greater insight
When there’s this kind of polarization, than the market on how Brexit is going
investors can become enamored with the to play out," he says. "I wish we did. That
new and disregard the old. In Viacom’s said, there’s also no question uncertainty
case that meant a stock that historically can create opportunity for value investors.
had traded at a P/E of around 18x was With a long-enough time horizon, which
trading in early 2017 at a P/E of 6-7x. we have, the level of uncertainty here does
As contrarians, we’ll look at that to see appear to be unearthing a fair number of
whether its yesterday’s story or a potential bargains.”
bargain.
www.valueinvestorinsight.com Value Investor Insight 2

If we find a stock that appears statisti-
cally cheap, our research focuses on fully
understanding why that is. We want to
know what specifically is concerning the
market and whether those concerns are
appropriate. If we think the market is
wrong – that the problems can be fixed or
won’t be as bad as expected – we’ll then
try to figure out what the shares could rea-
sonably be worth.
In Viacom’s case, there were a number
of issues. The company was paralyzed
by a very public boardroom battle at a
time when the prospects for the pay-TV
ecosystem in the U.S. were threatened. Its
Paramount movie studio, historically a
Hollywood leader, was losing hundreds of
millions of dollars. The dividend had been
cut in half.
Our investment case was – and is – that
Paramount could be fixed and its value
would again be recognized. While the
decline in the pay-TV ecosystem is real,
content is as valuable as ever and Viacom
can not only make its way as the industry
evolves, but also due to the contractual
nature of its relationships with pay-TV
providers should have more stable cash
flows than the market seems to expect. We
also expected the wrangling over corpo-
rate governance to be resolved in the best
interests of the company, and that in the
meantime it was in good hands with new
CEO Bob Bakish, who had a credible plan
for an operational turnaround.
If you first started buying in early 2017,
you’ve so far been early. Is your thesis still
intact?
AG: There have been some bumps along
the way, particularly around negotiations
with cable and satellite service providers,
but we believe the turnaround is starting
to gain momentum. Paramount is very
much on the mend. Certain key properties
like MTV are putting up better viewership
numbers and the Media Networks busi-
ness remains highly profitable and cash-
generative – its operating margins are
around 33% and it generates a mid-teens
free-cash-flow yield. We took our second
bite of the stock on weakness in the first
February 28, 2019
I N V E S T O R I N S I G H T : Oldfield Partners
half of last year, and we still think the
turnaround is on track and will eventually
result in the stock re-rating toward peer
multiples. [Note: At a recent $34, Viacom
shares trade at 8x consensus 2019 earn-
ings estimates.]
You spoke about dodging bullets in GE
and PG&E, but more generally, how do
you try to avoid the permanent value de-
struction that value traps bring?
AG: One of the biggest criticisms of value
investing is the existence of value traps.
ON VALUE TRAPS:
The fact of the matter is that
value traps are necessary
for the whole proposition of
value investing to work.
It’s an occupational hazard and one you
will never eliminate entirely. But the fact
of the matter is that they are necessary for
the whole proposition of value investing
to work. If it weren’t for value traps, in-
vesting would be rather simple, you could
just buy statistically cheap companies.
But that wouldn’t last as the opportunity
would very quickly be arbitraged away.
Value traps are essential for value invest-
ing to work.
The primary key to mitigating value
traps is the quality of your own funda-
mental research. We’re very wary of com-
panies that combine financial leverage
with operating leverage, which is often a
prime contributor to value leakage over
time. That was a big issue for us with GE.
As Nigel mentioned with PG&E, we also
try to avoid binary potential outcomes,
where the downside is too extreme.
NW: A lot of it, as you might expect, also
comes down to valuation. If you’re dis-
ciplined in requiring a large margin of
safety, you can have some slippage on the
original investment thesis and still gener-
www.valueinvestorinsight.com
ate an attractive capital return. Our mini-
mum hurdle is that our estimate of fair
value on a stock two to three years out
gives us at least a 25% return from to-
day’s share price. In practice, the average
weighted upside has been around 30%
since we started the fund. That number
today is closer to 40%.
From a portfolio perspective, we come
at each idea from a bottom-up perspective
and while we run a concentrated book –
usually with 20 to 25 names – we care
very much about diversification. We know
if we’re lucky or smart we’re only going to
be right 60% of the time, so it is very dan-
gerous to start with a top-down view that
permeates every aspect of the portfolio.
We have some general rules of diversi-
fication. We can’t have more than 40% of
the global portfolio in any market other
than the U.S. Our broad sector limit is
33%, and for sub-sectors like autos or
utilities that have idiosyncratic risks and
influences, we limit those to no more than
one-eighth of the portfolio. A typical posi-
tion size for us is 5%, and if something
gets to 7% or so we’re usually in taking-
profits mode.
You mentioned taking a second “bite” out
of Viacom. How do you think through
averaging-down scenarios?
AG: If we buy something and the share
price falls, as long as we can still see the
requisite gap between the price and our
view of intrinsic worth, we will take a
second bite. But we’ll only do so after a
review of our investment case, if the share
price has fallen by more than 20% and,
ideally, if at least six months have passed
since we took our first bite.
We will also take a third bite if, again,
the required gap between price and value
remains. But this time a full review is done
by a new analyst who doesn’t have the po-
tential baggage of wanting to defend the
earlier decision. The price has to be down
at least 40% from the original purchase
price and we limit ourselves to investing
no more than 10% at cost of our capital
in a single idea like this. After three bites,
that’s it. We won’t take another.
Value Investor Insight 3

Can you describe how your experience
with supermarket chain Tesco [London:
TSCO] – one of the more ubiquitous traps
we’ve seen value investors fall into in re-
cent years – has played out?
NW: We’ve been invested in Tesco since
2011, and many of the guidelines Andrew
just described reflect our trying to learn
from our mistakes with it and with other
value traps we have fallen into over time.
When we first invested in the company
we knew it was operationally levered be-
cause it’s a supermarket chain with a lot
of fixed costs. What we didn’t appreciate,
in retrospect, was how rapidly its funda-
mental business was deteriorating and the
extent to which that deterioration would
make it more financially leveraged than
we thought. As we mentioned earlier,
that’s a route to value leakage.
We generally try to meet with man-
agement, but also want our analysis of
the available information to drive our
decision-making more than any subjective
view of the CEO or others in leadership.
In this case we made a fatal error in judge-
ment in discounting our own analysis in
favor of management’s “explanations”
for why the business was really in better
shape than it looked.
You still own Tesco shares. What’s the
story today?
NW: If there’s still a big gap between price
and value, we will hold on. When margins
collapsed we spent a lot of time on what
margins should be in a business like this.
Forget what they’d done in the past, what
evidence did we have from comparable re-
tailers in the world to support an estimate?
We came away with a strong view that an
operating margin somewhere between 3%
and 4% was a reasonable expectation for
a large food-retail business like this. The
company had rebased to 0% margins and
the general long-term expectation was
only 1% to 1.5%. The company came out
targeting 3-4% and we believe they’re on
track to doing that. We’ve stuck with it be-
cause we think from today there are still
handsome returns to be made.
February 28, 2019
I N V E S T O R I N S I G H T : Oldfield Partners
One idea in which you chose not to take
an additional bite last year was Rus-
sian energy giant Lukoil [London ADR:
LKOD]. Why not?
NW: We run primarily a developed-
market portfolio, but when we invest in
a name like this one important consider-
ation is the additional discount we require
because of country-specific risk that comes
with investing in a place like Russia. When
we originally invested, we required an ad-
ditional 20% discount, but as Mr. Putin
seemed to be pursuing ever more ambi-
ON TESCO:
We made an error by favoring
management's "explanations"
for why the business was in
better shape than it looked.
tious goals from a geopolitical perspec-
tive, we decided early last year to increase
that discount to 30%. That reduced the
upside to a level where we decided to cut
our position in half. As the shares came
back somewhat in the fourth quarter, they
reached our fair-value target and we sold
the rest.
While you passed on GE last year, you did
establish a new position in German con-
glomerate Siemens [Xetra: SIE]. What at-
tracted you to it instead?
NW: The stock had come down a long
way and it was appearing on our poor-
performer screens. But the main impetus
was actually our looking into GE and
seeing potentially unrecognized value in
its jet-engine, healthcare and even power-
equipment businesses. Siemens had some
of those same types of businesses, but
didn’t have the balance sheet issues GE
did. That prompted us to think this might
be a much better opportunity, with far less
risk and complexity than GE.
If you look at the operating-margin
history of Siemens, before around 2001
www.valueinvestorinsight.com
the story was awful. The company had an
overly diverse set of businesses that didn’t
fit together and in many cases weren’t very
well run. Overall margins were maybe
1.5% to 3.5%. From 2001 on, however,
there’s been a persistent slant up and to
the right for operating margins as a series
of management teams have continued to
restructure, focus and optimize the port-
folio of businesses. But even with that
improvement in the business, if you look
at a valuation chart for the stock, it looks
today exactly as it did in the 1990s. The
returns have improved but the valuation
hasn’t. That’s also something that will at-
tract our attention.
The company’s latest “Vision 2020” plan
to improve margins and return on equity
has fallen short of targets so far. Is that a
concern?
NW: Most of the divisions are very much
on track with the Vision 2020 goals, but
that’s been shrouded by the massive de-
cline in the power-turbine business, where
Siemens is one of three major global play-
ers along with GE and Japan’s Mitsubishi
Heavy Industries. After a demand bubble
in that business burst, new orders have
fallen to a 30-year low, which has resulted
in turbines going from 31% of Siemens'
group profit in 2014 to less than 2% in the
year just ended.
While wind and solar are likely going
to drive investment in power-generating
capacity over the next 15 years, the pow-
er-turbine business for Siemens is not go-
ing away and we think is poised to have
another cycle up that is not at all priced
into the shares. Natural gas will contin-
ue to replace coal to generate electricity,
which will help drive demand for new
gas-fired turbines. I’d add that Siemens
is also a leader on the renewables side,
where its publicly listed joint venture with
Spain’s Gamesa, Siemens Gamesa [Ma-
drid: SGRE], holds the #1 global position
in wind turbines.
Among other businesses of note, the
company sold part of its medical-equip-
ment business, Siemens Healthineers [Xe-
tra: SHL], to the public last year, and it
Value Investor Insight 4

INVESTMENT SNAPSHOT
Siemens
(Xetra: SIE)
Business: Diversified industrial conglomerate
with large global divisions focused on medical
diagnostics, energy and power infrastructure,
factory automation and transportation.
Share Information
(@2/27/19, Exchange Rate: $1 = €0.88):
Price €96.68
52-Week Range €90.85 – €121.70
Dividend Yield 3.9%
Market Cap €77.40 billion
Financials (TTM):
Revenue €83.34 billion
Operating Profit Margin 6.7%
Net Profit Margin 5.6%
SIE PRICE HISTORY
150
120
90
60
2017
THE BOTTOM LINE
A dismal cycle in the company's power-turbine business is masking ongoing strength
in other large units such as those focused on healthcare equipment, factory automation
and renewable energy, says Nigel Waller. Valuing the company's partly public and wholly
owned business lines, he arrives at a sum-of-the-parts fair value for the stock of €148.
Sources: Company reports, other publicly available information
continues to generate excellent growth
with high profitability. We also see tre-
mendous potential in the “digital factory”
business, where the company is a leader in
cutting-edge industrial-automation equip-
ment and software systems across indus-
tries. That business is growing at a mid-
teens annual rate, with EBIT margins of
around 20%.
With the shares trading recently at around
€96.70, how are you looking at valuation?
NW: A key part of the valuation work
centers on the digital-factory unit, where
February 28, 2019
I N V E S T O R I N S I G H T : Oldfield Partners
but do expect operating margins to get
back to around 8%, mostly as a result of
Valuation Metrics a headcount-reduction program already
(@2/27/19): announced and being implemented. Over-
SIE S&P 500 all, we value all the remaining businesses
P/E (TTM) 17.1 20.2 at 10x EV/EBIT on our 2020 estimates,
Forward P/E (Est.) 11.9 16.5 which yields a sum-of-the-parts fair value
Largest Institutional Owners of around €148 per share.
(@12/31/18 or latest filing):
Company % Owned In addition to Lloyds, which you men-
BlackRock 5.1% tioned earlier, you’re finding opportunity
Deutsche Bank 2.7% in a number of large banks. Describe your
Vanguard Group 2.6%
investment case for one of them, Japan’s
Norges Bank 1.7%
Primecap Mgmt 1.6% Mitsubishi UFJ Financial [Tokyo: 8306].
Short Interest (as of 2/15/19): AG: Low interest rates and the flatten-
Shares Short/Float n/a ing of yield curves is clearly bad news for
banks, but valuations that were modest
to begin with have in some cases gotten
to levels we consider unreasonable. The
150
banks we own all have credible paths to
improving returns on equity, have healthy
120 balance sheets, and are returning surplus
capital to their shareholders through
dividends and stock buybacks. But their
90 shares discount extremely negative pros-
pects, trading at significant discounts to
tangible book value. Lloyds is currently
60 trading at around 80% of tangible book.
2018 2019
Citigroup is at around 70%. For Mitsubi-
shi UFJ, which is the largest bank by assets
in the world outside of China, that num-
ber is only 45%.
The Japanese macroeconomic environ-
ment, to put it mildly, has been inhospi-
table to banks like MUFG. The govern-
ment’s zero-interest-rate policy continues
to dampen returns on assets and net inter-
the growth potential and integrated hard- est margins. In MUFG’s case, net interest
ware/software nature of the business income in Japan has been halved over the
makes it much more valuable than a typi- past 10 years.
cal industrial enterprise. We think apply- But the company has hardly been
ing a 15x EV/EBIT multiple is justified in standing still and has built an impressive
arriving at a value for it, which combined growth platform outside its home market.
with the market values of the Siemens It bought a 23% stake in U.S. investment
Gamesa and Siemens Healthineers stakes bank Morgan Stanley at the height of the
accounts for the parent company’s entire financial crisis, and the two companies
current enterprise value. now collaborate on a variety of fronts. It
That leaves us with zero ascribed value owns Union Bank of California, the 13th-
to businesses with total annual revenue largest bank in the U.S. It also owns Thai-
of €49 billion. That includes the tradi- land’s fifth-largest bank, and this year will
tional power-generation business, where build to a nearly 75% stake in the fifth-
we aren’t counting on revenue growth largest bank in Indonesia. Just last month,
www.valueinvestorinsight.com Value Investor Insight 5

MUFG bought the global supply-chain
financing business of General Electric.
Overall, roughly 40% of total loans now
come from overseas.
Are those efforts driving the improved re-
turn on equity you see coming?
NW: The bank today earns a return on
equity of 6%, which is low compared to
global peers, lower than the 8% or so
they’ve earned over time, and lower still
than the 9-10% target ROE management
has set. Part of that should come from in-
cremental, more-profitable growth outside
INVESTMENT SNAPSHOT
Mitsubishi UFJ Financial
(Tokyo: 8306)
Business: Tokyo-based bank holding compa-
ny providing a wide range of commercial bank-
ing, investment banking, asset management,
trading and treasury products and services.
Share Information
(@2/27/19, Exchange Rate: $1 = ¥111):
Price ¥579
52-Week Range ¥515 – ¥756
Dividend Yield 3.3%
Market Cap ¥7.38 trillion
Financials (TTM):
Revenue ¥5.19 trillion
Pre-Tax Profit Margin 32.0%
Net Profit Margin 23.6%
8306 PRICE HISTORY
1,000
800
600
400
2017
THE BOTTOM LINE
The company is poised to improve its profitability through continued expansion outside
Japan, aggressive share buybacks and substantial cost cutting in Japan, says Nigel
Waller. Valuing listed operating and investment stakes at market value and the main
banking business at 0.6x tangible book, he arrives at a fair value for the shares of ¥925.
Sources: Company reports, other publicly available information
February 28, 2019
I N V E S T O R I N S I G H T : Oldfield Partners
Japan. Part of it will come from a fairly
aggressive program of share buybacks.
There’s also a significant self-help aspect,
from reducing the cost base of the Japa-
nese bank through an announced plan to
cut the number of branches by 50% and
decrease headcount by upgrading technol-
ogy and systems. The goal is to reduce the
bank’s cost/income ratio from 68-69%
today to 60%. In general, any progress to-
ward improving ROE would help drive a
re-rating of the shares.
How are you looking at upside in the
shares from today’s price of around ¥580?
Valuation Metrics
(@2/27/19):
8306 S&P 500 ing-sector regulators since the financial
P/E (TTM) 7.8 20.2 crisis, the responses in places like the U.K.
Forward P/E (Est.) 7.8 16.5
Largest Institutional Owners
(@12/31/18 or latest filing):
Company % Owned
BlackRock 11.4%
Gov't Pension Inv Fund Japan 8.1%
State Street 3.9%
Vanguard Group 2.5%
Nomura Holdings 2.5%
Short Interest (as of 2/15/19):
Shares Short/Float n/a
1,000
800
600
400
2018 2019
www.valueinvestorinsight.com
AG: To value the listed operating hold-
ings – the Morgan Stanley stake being the
largest – and the large portfolio of listed
Japanese equities MUFG owns, we’re
assuming these are worth their current
market values. For the main banking busi-
ness, given our expectation that ROE can
improve at least part of the way toward
management’s goal, we value it at 0.6x
tangible book value. All in, that gives us
a price target of around ¥925. We don’t
assume any benefits from an improving
macro environment in Japan – that would
be optionality on the upside.
You don’t appear to see the same potential
in continental-European banks that you
see in something like MUFG. Why?
NW: If you study the behavior of bank-
and the U.S. have been starkly different
to what we’ve seen in the rest of Europe.
Generally speaking, in the U.S. and the
U.K. regulators took an aggressive stance
toward recapitalizing the sector. That just
hasn’t happened in Europe, with the re-
sult that most European banks have been
very slow to repair their balance sheets,
the sector is less healthy and, as a result,
economic growth has been weaker. That
makes us very wary as investors, especially
when we can find opportunities elsewhere
with equally distressed share prices, but
far healthier balance sheets.
Staying in Japan, what do you think the
market is missing in Kansai Electric Power
[Tokyo: 9503]?
AG: This will give you a feel for how we
approach things. Kansai Electric is a Japa-
nese electric utility whose business had
been dramatically impacted by the govern-
ment’s decision following the 2011 Fuku-
shima nuclear disaster to switch off all of
the country’s nuclear reactors. The com-
pany owned and operated 11 reactors at
the time and was forced to find alternative
fuel sources to meet customer demand. As
a result, its annual spending on fuel went
from around ¥350 billion pre-Fukushima
Value Investor Insight 6

to around ¥1.2 trillion in 2015, when we
first decided to take a look.
Our interest stemmed from indications
that regulators in Japan were set to start
bringing nuclear capacity back on line.
In a country with no indigenous energy
sources, there were strategic, military and
financial reasons that nuclear had to play
a role in supporting the country’s electric
grid. The utilities themselves were spend-
ing heavily to comply with new safety
measures and get reactors ready to return
to service, but analysts were reluctant to
build that into their models for companies
like Kansai. There were still significant
INVESTMENT SNAPSHOT
Kansai Electric Power
(Tokyo: 9503)
Business: Japanese provider of electricity,
heating, natural gas and telecommunications
services primarily to consumer, commercial,
industrial and public-sector end users.
Share Information
(@2/27/19, Exchange Rate: $1 = ¥111):
Price ¥1,683
52-Week Range ¥1,221 – ¥1,849
Dividend Yield 2.1%
Market Cap ¥1.49 trillion
Financials (TTM):
Revenue ¥3.13 trillion
Operating Profit Margin 7.3%
Net Profit Margin 4.8%
9503 PRICE HISTORY
2,000
1,500
1,000
500
2017
THE BOTTOM LINE
Andrew Goodwin doesn't believe the market is correctly incorporating into its expecta-
tions for the company the return to service of nuclear reactors taken down after the 2011
Fukushima disaster. Applying an 8x EV/EBITDA multiple on his 2022 estimates that as-
sume added reactors come on line, he says the share price could then exceed ¥2,500.
Sources: Company reports, other publicly available information
February 28, 2019
I N V E S T O R I N S I G H T : Oldfield Partners
legislative and judicial hurdles to clear for
AG: The simple initial thesis has been
anything to happen, and most investors in complicated by judicial decisions that
the sector seemed to have given up. have delayed certain restarts, and by the
Our thesis at the time was relatively impact of deregulation of electricity mar-
simple. With even a modest return to ser- kets in Japan that has brought increased
vice of some subset of Kansai’s nuclear ca-
competition to Kansai at a time when it
pacity – which we believed would happen has been more vulnerable because of its
– heavy losses would turn into profits andinflated cost base.
the stock, then trading as cheaply as any But the basic investment thesis is still
utility in the world relative to assets, had
intact. Four of the company’s seven viable
considerable upside. reactors are back on line, with the remain-
ing three expected to restart by 2022. Giv-
Looking at the stock price, it’s been a en the significant reduction in fuel costs
rocky road, but so far so good. Update us accompanying that, with all seven reactors
on your thesis today. functioning the company estimates that
annual operating profits, expected to be
around ¥200 billion this year, could come
in at closer to ¥325 billion. We think that’s
Valuation Metrics reasonable, especially given the company’s
(@2/27/19): opportunity to gain share as it again be-
9503 S&P 500 comes the lost-cost producer in most of its
P/E (TTM) 9.8 20.2 markets.
Forward P/E (Est.) 9.7 16.5
Largest Institutional Owners How do you see that impacting the share
(@12/31/18 or latest filing): price, now at around ¥1,680?
Company % Owned
Gov't Pension Inv Fund Japan 7.1% AG: Looking out three years, our esti-
Mizuho Financial 5.4% mates assume seven reactors are up and
Nippon Life Insurance 3.5%
running and that the operating-profit im-
Vanguard Group 2.1%
Nomura Holdings 2.0% pact of that is roughly what the company
envisions. On those 2022 estimates we
Short Interest (as of 2/15/19): apply an 8x EV/EBITDA multiple, which
Shares Short/Float n/a is the average sector valuation for utilities
worldwide. That could result in a share
price north of ¥2,500.
2,000
Turning to your home market, describe
why you’re high on the prospects for tele-
1,500 com provider BT Group [BT].
AG: BT Group is the leading operator in
1,000 both the broadband and mobile services
markets in the United Kingdom. With
around 10 million broadband subscrib-
500
2018 2019 ers, it has over a 45% market share of the
installed base. In mobile it has about 30
million subscribers and also has leading
market share.
It wasn’t that long ago that BT was
the highest rated of the European tele-
coms, but the company's share price has
been cut in half over the last three years.
A number of things have contributed to
www.valueinvestorinsight.com Value Investor Insight 7

that, including lack of regulatory visibil-
ity around new investment in fiber-to-the-
home infrastructure, heightened com-
petitive pressures in the U.K. consumer
segment, heavy spending to acquire sports
broadcasting rights, and demands on cor-
porate cash from a large pension deficit
and a big dividend.
The fiber-to-home effort is a huge
capital commitment, expected to cost BT
something like $6 billion over the next
eight years. Politicians in the U.K. are keen
to see this happen – the U.K. has been a
laggard on this front – but it’s still unclear
exactly the return BT will be allowed on
INVESTMENT SNAPSHOT
BT Group
(London: BT.A)
Business: Provider with operations in 180
countries of fixed-line, broadband, mobile and
network communications services to consum-
ers, businesses and the public sector.
Share Information
(@2/27/19, Exchange Rate: $1 = £0.75):
Price £2.15
52-Week Range £2.01 – £2.69
Dividend Yield 6.7%
Market Cap £21.15 billion
Financials (TTM):
Revenue £23.52 billion
Operating Profit Margin 17.6%
Net Profit Margin 10.1%
BT.A PRICE HISTORY
5.00
4.00
3.00
2.00
2017
THE BOTTOM LINE
Many of the factors contributing to the company's share price being cut in half over the
past three years have either passed or are getting better, says Andrew Goodwin, which
he believes will translate into both better operating performance and improvement in the
stock's valuation. At 12x his March 2021 EPS estimate, the shares would trade at £3.20.
Sources: Company reports, other publicly available information
February 28, 2019
I N V E S T O R I N S I G H T : Oldfield Partners
the investment it has already started to company has been aggressive in announc-
make. That understandably worries the ing discounts on its new fiber products,
market, but our view is that this type of taking further steam out of competing ef-
improvement in the country’s communi- forts. We also think it’s a huge win that BT
cations infrastructure won’t ultimately be finally came to an agreement with Sky, the
discouraged by overly tight regulation of satellite-TV provider, for the companies to
the only operator who can deliver at scale. show each other’s content. The more con-
These types of things are clearly difficult tent there is that doesn’t require a satellite
to predict, but we generally feel the regu- dish to access, the better for broadband
latory relationship is past its worst point providers like BT.
and is likely to improve.
There have been concerns about new How worried are you about cash-flow
broadband service providers rising up to constraints?
challenge BT, but most of those alterna-
tives are struggling to raise funding. The
NW: We’ve looked at a number of dif-
ferent scenarios, and while there’s a pos-
sibility the company may have to delay
somewhat the pace of the fiber rollout,
Valuation Metrics we generally believe the cash-flow genera-
(@2/27/19): tion will cover expected calls on it to fund
BT.A S&P 500 the dividend, the pension and the capital
P/E (TTM) 10.5 20.2 spending for fiber.
Forward P/E (Est.) 8.5 16.5
Largest Institutional Owners How cheap do you consider the shares at
(@12/31/18 or latest filing): today’s £2.15 price?
Company % Owned
BlackRock 5.2% NW: The P/E today on our March 2019
Equiniti Financial Serv 3.8%
adjusted EPS estimate of 27 pence is right
Invesco Asset Mgmt 3.7%
around 8x, and the current dividend
Vanguard Group 3.4%
Capital Group 2.7% yield is over 6.5%. As the fiber-to-home
rollout continues and the growth profile
Short Interest (as of 2/15/19): improves, we think it’s reasonable to as-
Shares Short/Float n/a
sume the shares could re-rate from their
depressed level. At even a 12x P/E – quite
conservative relative to history – on our
March 2021 estimates the share price
5.00
would be around £3.20.
One potential backstop for valuation in
4.00 this case is that Deutsche Telecom [Xetra:
DTE] owns 12% of the company. It has
expressed interest in the past in acquiring
3.00 BT, and if the valuation gets any lower we
wouldn’t be surprised to see it renew its
interest.
2.00
2018 2019
You published an essay last November
titled “Value Investing in an Age of Dis-
ruption,” in which you defended value
investors against the charge of being “dis-
ruption deniers.” What prompted that?
AG: We’ve had a long period since the fi-
nancial crisis when value has lagged from
www.valueinvestorinsight.com Value Investor Insight 8

a performance standpoint, which has
prompted questions from investors, and
more specifically consultants, that imply
that value investing has become less rel-
evant when rampant business disruption
is increasing the likelihood of value traps.
Our point is that disruption has al-
ways been a normal part of investment
life, creating opportunity and threat for
companies of all shapes and sizes. History
provides us with a long list of examples of
companies that failed to meet a disruptive
threat and disappeared. But history is also
littered with speculative periods where
growth investors made and then lost for-
tunes as they overestimated the prospects
of disrupters, how quickly the benefits of
disruption would come, or simply got car-
ried away with the valuations accorded to
the shiny and new.
The challenge for us hasn’t changed.
We’re on the search for bargains and have
to fully understand disruptive threats and
judge whether they are being correctly
priced by the market or not. We’re stick-
ing firmly with the time-tested theory that
Your Guide Through
Perilous Seas
Subscribe now and receive a full year of
Value Investor Insight – including
weekly e-mail bonus content and
access to all back issues – for only $349.
That’s less than $30 per month!!
Subscribe Online »
Mail-in Form »
Want to learn more? Please visit www.valueinvestorinsight.com
February 28, 2019
I N V E S T O R I N S I G H T : Oldfield Partners
low valuations are the single most impor-
tant determinant of future returns. We’ll
dispense with that only if the company’s
prospects are indeed permanently disrupt-
ed and if that disruption doesn't appear to
be priced into the shares. That has always
been the case.
ON STYLE DRIFT:
Many of our peers have drift-
ed in response to the com-
mercial pressures of keeping
up with growth-led markets.
NW: While value in general as a style has
been questioned, so has our specific con-
trarian, valuation-first approach. Ques-
tioners include more references to “qual-
ity,” suggesting that we could have done
better by focusing more on higher-quality
growth companies. We believe the era of
www.valueinvestorinsight.com
quantitative easing has led to significant
distortions in asset markets of all types,
raising valuations across the board. That’s
led to investors flocking to anything they
perceive to have sustainable growth, with
less regard for valuation.
Of course, company quality and growth
rates are important attributes in a stock,
but we contend that many of our peers
have drifted in response to the commercial
pressures of keeping up with growth-led
markets. In 2016, the only year in the last
ten when value outperformed growth, our
global equity strategy was the number one
performer among large-cap global equity
managers in the InterSec universe. Criti-
cally, 94% of investment managers under-
performed the MSCI World Value Index in
that year. We saw similar patterns at the
end of 2018 too.
Over the long term, we know that
the traditional value style outperforms
growth. As quantitative easing subsides,
we're as confident as ever that a classic,
contrarian, valuation-first investing ap-
proach will deliver. VII
Value Investor Insight 9

Investor Insight: Thyra Zerhusen
Fairpointe Capital’s Thyra Zerhusen, Marie Lorden, Jean Orr, Fran Tuite and Brian Washkowiak explain why they
believe mid-caps outperform, what they look for in conversations with management, why they often don't rush to cut
their losses, and what they think the market is missing today in Wabtec, Copa Holdings, Meredith and Molson Coors.
Mid-cap stocks, your area of expertise,
have generally performed well versus
bigger and smaller peers over time. Why
would you argue that’s been the case?
Thyra Zerhusen: We do believe there are
some structural advantages to investing
in mid-caps. Versus small companies, we
think mid-caps are generally less risky be-
cause their business models are more es-
tablished, their capital structures are more
mature and their management teams are
more experienced. Because they’re not
growing as fast as small companies, their
stocks generally trade at lower valuations.
Versus large companies, mid-caps of-
ten have higher growth potential and are
more likely acquisition targets. Our strate-
gy in particular gravitates to more-focused
companies with strong market positions
and solid balance sheets, the types of firms
other companies want to buy. They’re also
firms that don’t generate much corporate-
finance business, so Wall Street research
may be more apt to overlook them. Since
2008, the incidence of takeovers in our
portfolio has been 20% higher than in the
S&P MidCap 400 index.
Overall, if you look at the past 20 years,
mid-caps have outperformed. The S&P
MidCap index has increased at a 10.0%
annualized rate since 1999, vs. 5.8% for
the larger-cap S&P 500 and 8.4% for the
smaller-cap Russell 2000.
You describe access to management as an
important benefit of investing in mid-caps.
Why is that important to you?
TZ: We want to be material sharehold-
ers in each portfolio company and have
full opportunity to engage with manage-
ment. Because we focus so much on long-
term strategy and opportunity, we spend
our time with management talking about
where they're taking the business and why.
In our mind, you can only develop a real
February 28, 2019
I N V E S T O R I N S I G H T : Thyra Zerhusen
understanding of that from sitting down
with them, as opposed to just reading
financial reports and earnings-call tran-
scripts. They generally appreciate that we
take a fundamental, long-term approach,
and are also more apt to listen to us when
we – as we often do – offer our own per-
spective on what they should be doing.
While we don’t like to overpay for
them, we love growing companies that
over time can become large-caps. That of-
ten happens because there is a visionary Thyra Zerhusen
founder or CEO who can articulate where
things are going and is capable of steering Breaking Barriers
the company in that direction. To give an
Founded in 2011 by co-CEO and Chief
example, years ago we saw that in Jensen
Investment Officer Thyra Zerhusen, most
Huang of Nvidia [NVDA]. We had bought
of Fairpointe Capital’s 15 employees are
the stock in the lower-teens and for some
women, including the firm’s other co-
time it went nowhere. It then started to
CEO, three portfolio managers and the
click and moved up to $17 or $18 and
director of research. Among their thoughts
we thought, “That’s pretty good, maybe
on women making their way in the financial
we should take profits and move on.” But
industry:
we then had Jensen in our office for two
hours and he described why he believed Thyra Zerhusen: “I always recommend
this was just the tip of the iceberg for the having a solid technical background, such
graphics-processing chips the company as in science, math or engineering. I didn’t
sold and that he couldn’t imagine selling know much about the stock market when I
out to an IBM or Intel, which had been ru-
started out, but I had experience in analy-
mored at the time. He had all of his money
sis and problem solving that proved ex-
in Nvidia stock. We held on to our shares
tremely valuable.”
and ended up selling out at a multiple of
the price at the time, primarily because the Marie Lorden, portfolio manager: “You
market capitalization got too big for us. need to find mentors, men or women, who
[Note: NVDA shares, as high at $290 last take the time to teach. There are a num-
October, recently traded around $155.] ber of initiatives under way, but we as an
industry also need to do a much better job
What are some Nvidia-like stocks you on outreach to women at younger ages.”
own today?
Sara Hostalet, research analyst: “I’m lucky
TZ: We like to find companies with prod- at Fairpointe to have accomplished wom-
ucts or services that are critical to custom- en here to help me along my journey. But
ers’ success and make their businesses that’s not always an option. I tell people
more efficient and profitable. Having to pursue what you’re passionate about,
proprietary technology or other sustain- even if that doesn’t come with many lead-
able competitive advantages is also very ers who look like you. Sometimes you have
important. Broadly speaking we would to pave your own way.”
put companies like Cree [CREE], which
www.valueinvestorinsight.com Value Investor Insight 10

makes innovative lighting and semicon-
ductor products, and Akamai Technolo-
gies [AKAM], whose technology optimizes
online content and application delivery, in
this category. Akamai’s founder and CEO,
Tom Leighton, was in our offices earlier
this month and we believe has an exciting
vision for where he’s taking the company
that isn’t well recognized by the market.
Jean Orr: Another good example is Tera-
data [TDC]. In a world where massive
amounts of data are being generated, there
is a premium on software and services that
facilitate the analysis of that data, and we
believe Teradata’s proprietary technology
puts them in a unique position to capital-
ize on the era of big data. It's in the middle
of a transition away from selling turnkey
systems toward providing subscription
cloud services, and while we believe the
underlying business is strong, the account-
ing impact of that transition can make the
financials look not-so-great in the interim.
As the reported results better reflect the
underlying business, which we expect as
we go through the year, we think the busi-
ness’s long-term potential will start to be
better recognized in the share price.
Describe how you generate ideas.
Marie Lorden: Ideas come from every-
where, but it’s typically valuation that at-
tracts our attention. We screen on quan-
titative criteria including top-line growth,
balance sheet strength, and valuation mul-
tiples relative to the company’s own histo-
ry, to competitors and to the market. The
common theme tends to be that investors
are focusing on some short-term issue or
issues in a company that we believe has a
compelling long-term story.
Some fairly recent examples of that?
Brian Washkowiak: In the latter half of
last year we established a position in Ow-
ens Corning [OC], which manufactures
insulation, roofing and fiberglass compos-
ites. We’ve owned the company in the past
and believe it has the potential to benefit
from both organic end-market growth and
February 28, 2019
I N V E S T O R I N S I G H T : Thyra Zerhusen
a proven ability to take market share over
time. The stock had been trending fairly
sharply down through most of 2018, but
in our view the problems were primarily
transitory, from things like fixable manu-
facturing issues at a couple of plants and
relatively good weather negatively impact-
ing the roofing business. There were also
heightened concerns about the health of
the housing-construction market, which
we consider more cyclical than permanent.
[Note: At around $55 at the end of 2018’s
third quarter, Owens Corning shares re-
cently traded at just over $50.]
TZ: Another representative example
would be Manpower [MAN], the tempo-
rary-staffing business. The stock can be
sensitive to what is considered important
news at the time, but which doesn’t tend
to impact the company’s revenues and
margins over the long term. The shares
fell sharply around the advent of Brexit,
for example, and while we missed it then,
we got another chance last year when they
traded off due to uncertainty surround-
ing changes to French labor subsidies that
support temporary staffing. We thought
BRAINSTORM
any impact from that would be more
than offset by upside elsewhere, including
WITH THE BEST
from the strong labor environment in the
U.S. [Note: Manpower shares at the end
of September traded at around $86; they Through in-depth interviews,
closed recently at $84.50.] Value Investor Insight
spotlights the strategies and
Would you say there are any industry or
sector themes in your portfolio today?
current ideas of today’s
most-successful investors.
JO: Every idea stands on its own, but we
do own a number of what are considered
traditional media companies, including
See why it’s one of the
Meredith [MDP], Tegna [TGNA] and the best “value” investments
New York Times Co. [NYT]. We believe you can make!
the business models for local TV stations
in the U.S. remain compelling even in to-
day's media landscape and that unique Sign up now for a
original content is an increasingly valu- one-year subscription
able commodity. The New York Times
has obviously been disrupted by the rise
of digital media and online advertising,
but we think they’ve done a good job of
adapting to the new world and figuring
out how to deliver and get paid for their
www.valueinvestorinsight.com Value Investor Insight 11

unparalleled content in a variety of new
ways. They now get a majority of their
revenue from subscribers and the value
of what they provide and the number of
people who want it will continue to go up.
ML: I would mention one sector we tra-
ditionally avoid, which is financials. We
have a hard time finding unique advantag-
es among financial-services providers and
often don’t feel we can understand their
assets and liabilities as well as we should.
Occasionally being underweight financials
can hurt us when those stocks are doing
well, but we’ve looked at it over the 20
years of running the portfolio and our
relative avoidance of financials has so far
been a pretty material net positive.
We see you’ve owned agriculture com-
modity supplier Bunge [BG] to greater or
lesser degrees since 2002. How has it con-
tinued to maintain your interest?
BW: This is an example of a cyclical com-
pany that we believe over a long period
of time can benefit from secular global
demand growth for agricultural com-
modities and from its increasing scale and
operational expertise in select geographies
around the world.
We try to add to positions like this
when they for recurring cyclical reasons
trade at the lower end of historical valua-
tion ranges and then trim them when they
trade at the higher end of those ranges. In
Bunge’s case, our position size can vary
significantly, but for the most part the
long-term story has remained attractive
relative to the valuation, so we’ve main-
tained a position in the stock. Recently the
shares have gotten somewhat more inter-
esting given the ongoing concerns about
tariffs and trade. [Note: At around $53,
Bunge shares trade at 13.3x consensus
2020 EPS estimates.]
Describe in more detail the upside you
see today in railroad-equipment supplier
Wabtec [WAB].
Fran Tuite: The company is formally
known as Westinghouse Air Brake Tech-
February 28, 2019
I N V E S T O R I N S I G H T : Thyra Zerhusen
nologies, and dates back to when George train-control [PTC] safety systems, to air
Westinghouse first developed air brakes conditioning, to lavatories. GE’s strength
for trains going back to the 1850s. It be- is in freight trains, where among other
came an independent company in 1989 things it is a leading global supplier of lo-
and has a long history of organic and ac- comotives. Both companies have a healthy
quisition-related growth, good operating mix of original-equipment and higher-
margins and high returns on capital. margin aftermarket service and parts rev-
The big news around the company enues – we estimate aftermarket revenues
today is its just-completed acquisition of will be more than 50% of the total for the
GE Transportation, in a roughly $10 bil- combined company.
lion deal that we believe will turn out to While the stock popped when the deal
have been done at a very attractive price. was formally completed [on February
Wabtec has a strong franchise in passen- 25th], it had done poorly for months prior
ger trains, where it provides a wide variety to that. The deal with GE was complicated
of equipment and systems, from positive- to begin with – the S-4 filing on it with the
INVESTMENT SNAPSHOT
Wabtec Valuation Metrics
(NYSE: WAB) (@2/27/19):
Business: Global manufacture and sale of a WAB S&P 500
wide range of passenger and freight railroad P/E (TTM) 23.5 20.2
equipment and systems; merger with GE Forward P/E (Est.) 16.9 16.5
Transportation closed on February 25th.
Largest Institutional Owners
Share Information (@2/27/19): (@12/31/18 or latest filing):
Company % Owned
Price 75.30
52-Week Range 65.09 – 115.40 BlackRock 8.6%
Dividend Yield 0.7% Vanguard Group 8.3%
Market Cap $7.28 billion Capital Group 8.2%
T. Rowe Price 5.9%
Financials (TTM): Farallon Capital 5.7%
Revenue $4.32 billion
Operating Profit Margin 11.3% Short Interest (as of 2/15/19):
Net Profit Margin 7.2% Shares Short/Float 13.8%
WAB PRICE HISTORY
120 120
100 100
80 80
60 60
2017 2018 2019
THE BOTTOM LINE
"Noise" and uncertainty around its just-completed merger with GE Transportation are
obscuring positive secular and cyclical trends working in the company's favor, says Fran
Tuite. By 2022 she believes the company through revenue growth, margin expansion and
debt reduction can earn $10 per share. At a 15x P/E, the stock would then trade at $150.
Sources: Company reports, other publicly available information
www.valueinvestorinsight.com Value Investor Insight 12

SEC was over 700 pages – and the terms
were amended multiple times. That creat-
ed the type of uncertainty investors don’t
tend to like. The stock was further hurt
by concerns about the global locomotive
cycle, which has not been strong for some
time now, and worries that GE share-
holders who got Wabtec stock in the deal
would dump their shares, putting further
downward pressure on the price.
Our basic thesis is that all that noise
obscures the long-term positives ahead
for the combined company. The secular
trends for rail transportation are positive,
as it is a more efficient and environmen-
tally healthy means of transporting people
and freight. Safety is an increasing con-
cern, and the company’s PTC technology
and other related products and systems
are state of the art in that area. Cycles ebb
and flow, but the combined company now
has a multi-year backlog of more than $23
billion, against an $8 billion revenue run
rate expected this year.
We also think value will be created
from the merger itself. The two companies
don’t overlap much at all, which should
provide cross-selling benefits. Manage-
ment is also targeting $250 million in cost
synergies, which we think could be con-
servative. We’re expecting the deal to be
cash accretive in the first full year.
How are you looking at valuation at to-
day’s share price of $75.30?
FT: The stock currently trades at well
below long-term averages on pro-forma
earnings and EBITDA. If we look out to
2022, we believe Wabtec through revenue
growth, operating-margin expansion and
delevering of the balance sheet can earn
something on the order of $10 per share.
If the stock traded at 15x then we’d have a
nice return, but we don’t think it would be
unreasonable for a business of this quality
to earn a higher valuation than that. That,
of course, would make the upside higher.
We also think there’s potential for
Wabtec to get added to a major index,
even the S&P 500. We never count on
things like that, but it would likely drive
name recognition for a not very well
February 28, 2019
I N V E S T O R I N S I G H T : Thyra Zerhusen
known company and incrementally in- America. Its main hub is in Panama City,
crease demand for the shares. Panama, which is extremely well located
to serve markets as far north as Seattle,
Your portfolio typically focuses on U.S. Washington and as far south as Buenos
companies. Explain your interest in Latin Aires, Argentina. Panama City also has
American airline Copa Holdings [CPA]. uniquely good weather year-round, a key
reason that in 2018 Copa was named the
BW: Our interest here was at least partly most-on-time airline in the world.
fostered by our previous ownership of The company controls 80% of the
Southwest Airlines in the U.S. We believe gates in Panama City and we expect it to
the two companies share a similar oper- continue to capitalize on its strength there
ating philosophy, based on efficiency and to both add new destinations and to in-
providing customer value. crease flight frequencies to existing desti-
Copa flies to 81 destinations in 33 nations. That’s helped by the fact that air
countries in North, Central and South traffic in Latin America has historically
INVESTMENT SNAPSHOT
Copa Holdings Valuation Metrics
(NYSE: CPA) (@2/27/19):
Business: Latin American provider of airline CPA S&P 500
passenger and cargo services reaching 80 P/E (TTM) 42.3 20.2
destinations in 33 countries; main subsidiaries Forward P/E (Est.) 10.3 16.5
are Copa Airlines and Copa Columbia.
Largest Institutional Owners
Share Information (@2/27/19): (@12/31/18 or latest filing):
Price 87.72 Company % Owned
52-Week Range 67.38 – 140.33 Baillie Gifford 10.3%
Dividend Yield 2.9% Fidelity Mgmt & Research 6.7%
Market Cap $3.70 billion JPMorgan Inv Mgmt 5.5%
BlackRock 4.8%
Financials (TTM): Orbis Inv Mgmt 4.1%
Revenue $2.68 billion
Operating Profit Margin 12.5% Short Interest (as of 2/15/19):
Net Profit Margin 3.3% Shares Short/Float n/a
CPA PRICE HISTORY
150 150
120 120
90 90
60 60
30 30
2017 2018 2019
THE BOTTOM LINE
While the company's operating margins have taken a hit in large part due to negative
currency exposures, Brian Washkowiak believes its attractive hub, strong market position
and fuel-efficient aircraft fleet will allow it to return to its historical profitability relatively
quickly. At 15x his EPS estimate two to three years out, the stock price would be $135.
Sources: Company reports, other publicly available information
www.valueinvestorinsight.com Value Investor Insight 13

grown at a rate of two to three times the
level of GDP growth, which is a dynamic
we expect to continue.
The operating model reflects both the
company’s strong market position and
the efficiency of its aircraft fleet. They fly
mostly Boeing 737s, including the newest
Max 9 versions, as well as a smaller fleet
of Embraer 190s. Overall, the average age
of the fleet is only eight years, which trans-
lates into higher overall fuel efficiency.
That’s an important reason why operating
margins over the past five years have aver-
aged close to 16%.
We also like that the company runs a
conservative balance sheet. At the end of
the fourth quarter it held $858 million in
cash and investments, against about $1.3
billion in debt. That results in a net debt to
EBITDA ratio of less than 1, which is typi-
cal for them. The balance-sheet strength
combined with strong cash flow allows
them to continually invest in the fleet and
drive plane operating costs down.
The shares, at a recent $87.75, haven’t
exactly been firing on all cylinders, down
more than 35% from their highs less than
a year ago. What turns that around?
BW: Operating margins recently have
fallen below average, in large part due
to currency devaluations hurting them in
Brazil, and to a lesser degree in Argentina.
That’s helped drive down the share valua-
tion, which on both a P/E and EV/EBITDA
basis are below normal for the company.
Here we’re basically expecting operat-
ing margins to get back to the 15-16%
level and for the earnings multiple to im-
prove to a more-normal 14-15x. Assum-
ing even modest revenue growth, with
improved operating margins we believe
within the next two to three years the
company can earn around $9 per share.
At a 15x P/E, that would translate into a
$135 share price.
We also like that there’s a fairly good
dividend yield here, currently 2.9%, and
that the company has plenty of room to
continue to increase ancillary revenues
related to things like add-on fees and its
frequent-flyer program.
February 28, 2019
I N V E S T O R I N S I G H T : Thyra Zerhusen
Walk through your broader investment consists of the traditional magazine busi-
case today for Meredith. ness, built around brands including Better
Homes & Gardens, Family Circle, Parents
TZ: We have followed Meredith for a long and Shape, now combined with Time Inc.
time, but what increased our interest was magazines such as People and InStyle.
it agreeing in late 2017 to buy Time Inc. at They exclusively target women and the
what we thought was a very good price. company has continued to improve its
The stock initially moved up from the ability to deliver content and advertising
low-$50s to the low-$70s after the deal across print, digital and video platforms.
was announced, but the enthusiasm died The second segment is called the Local
quickly and the shares went back to the Media Group, which primarily consists
low-$50s in the early part of 2018. That of 17 local television stations in the U.S.
provided an entry point for us. The stations are not always in the biggest
The company operates in two primary markets, but 13 are in top-50 markets, the
segments. The National Media Group biggest of which are Atlanta, Phoenix, St.
INVESTMENT SNAPSHOT
Meredith Valuation Metrics
(NYSE: MDP) (@2/27/19):
Business: Owns and operates 17 local tele- MDP S&P 500
vision stations in the U.S., as well as national P/E (TTM) n/a 20.2
media brands including People, Family Circle, Forward P/E (Est.) 10.8 16.5
Parents and Better Homes & Gardens.
Largest Institutional Owners
Share Information (@2/27/19): (@12/31/18 or latest filing):
Company % Owned
Price 56.95
52-Week Range 47.30 – 62.40 BlackRock 14.1%
Dividend Yield 4.0% State Street 12.6%
Market Cap $2.59 billion Vanguard Group 9.4%
Ceredex Value Adv 6.7%
Financials (TTM): Barrow, Hanley, Mewhinney & Strauss 6.4%
Revenue $3.05 billion
Operating Profit Margin 13.2% Short Interest (as of 2/15/19):
Net Profit Margin (-1.9%) Shares Short/Float 22.6%
MDP PRICE HISTORY
80 80
70 70
60 60
50 50
40 40
2017 2018 2019
THE BOTTOM LINE
The company deserves more recognition for the reach and quality of its national and local
media assets than the market is giving, says Thyra Zerhusen. As it integrates its acquisi-
tion of Time Inc., she thinks the company in its 2020 fiscal year can earn $8 per share.
Even at the current forward P/E, that would translate into 50% upside in the share price.
Sources: Company reports, other publicly available information
www.valueinvestorinsight.com Value Investor Insight 14
 I N V E S T O R I N S I G H T : Thyra Zerhusen

Louis and Portland. Most tend to be #1 or
#2 in their markets for local news, which
I’ve learned from following this business
for a long time is key in maintaining audi-
ence levels.
Revenues overall come roughly 55%
from advertising, with most of the rest
from consumer subscriptions. In terms of
profitability, the local-TV business gener-
ates roughly two-thirds of the company’s
operating profit, on less than one-third the
total revenue.
How are you processing the secular trends
in the two businesses and how they’re
working for or against the company?
JO: The stock today trades at less than
0.9x sales and only 10.8x consensus EPS
for the fiscal year ending this June. We be-
lieve the company can hit its goals of $550
million in annual cost synergies within
two years of the merger, of reducing its
debt post-acquisition by $1 billion, and of
generating at least $1 billion in EBITDA
for the year ending in June 2020. We es-
timate that would all translate into more
than $8 in fiscal 2020 EPS. Even without
multiple expansion that would provide an
excellent return on the stock. If earnings
come in at that level, however, we’d expect
the multiple to expand as well.
From one tough market to another, de-
scribe why you’re bullish on the prospects
for brewer Molson Coors [TAP].
ML: The company is the second-largest
brewer by volume in the U.S., Canada and
the U.K., mainly on the strength of mass-
market brands such as Coors Light, Miller
Lite, Molson and Carling. The U.S. ac-
counts for around 70% of total revenues,
with the remainder split relatively evenly
between Canada and Europe.
We’re not blind to the decline in the
beer market, particularly in North Amer-
ica and among the broad-reach brands

TZ: We generally think the local-TV busi-
ness remains viable even in a cord-cutting
world. People still want local content and
as local newspapers continue to struggle,
TV is becoming an increasingly important
content source. We also see opportunity
for local broadcasters to improve their
competitive situations as federal regula-
tions around market concentration have
been relaxed. We’ve already seen a num-
ber of deals, including those in which big
station owners have swapped stations to
improve relative market positions. Finally,
I’d add that with the current state of po-
litical discourse in the U.S., political ad-
vertising at the local level is likely to be a
healthy business for some time to come.
Things are more complicated on the na-
tional-media side, but we believe Meredith
stands to benefit from its unique expertise
and positioning in targeting women. It
has a total subscriber base of more than
40 million and has more than 175 million
direct consumer relationships in the U.S.,
exceeded only by Google, Verizon, Face-
book, Microsoft and Amazon. With an
unmatched level of content and an ever-
improving sophistication in delivering it
to its target market, we’re confident that
the advertising side of this business will
remain solid and may even be able to take
share in the fast-growing digital end of the
market.
What upside do you see in the shares from
today’s $57 price?
INVESTMENT SNAPSHOT
Molson Coors Valuation Metrics
(NYSE: TAP) (@2/27/19):
Business: Based in Colorado, global pro- TAP S&P 500
duction, marketing and sale of beer; primary P/E (TTM) 11.9 20.2
brands include Coors, Coors Light, Miller, Forward P/E (Est.) 12.3 16.5
Miller Lite, Molson and Blue Moon.
Largest Institutional Owners
Share Information (@2/27/19): (@12/21/18 or latest filing):
Company % Owned
Price 61.11
52-Week Range 54.17 – 81.96 Vanguard Group 10.2%
Dividend Yield 2.7% BlackRock 7.6%
Market Cap $13.21 billion Independent Franchise Partners 4.4%
Dodge & Cox 4.4%
Financials (TTM): JPMorgan Inv Mgmt 4.1%
Revenue $10.77 billion
Operating Profit Margin 13.6% Short Interest (as of 2/15/19):
Net Profit Margin 10.4% Shares Short/Float 5.0%
TAP PRICE HISTORY
120 120
100 100
80 80
60 60
40 40
2017 2018 2019
THE BOTTOM LINE
Marie Lorden believes the company's multiple product, marketing and distribution initia-
tives can at least offset the secular challenges facing its U.S. mass-market beers. Debt
repayment and cost savings can then drive earnings per share growth that she thinks
within the next two years can result in a 50% increase in the company's share price.
Sources: Company reports, other publicly available information

February 28, 2019 www.valueinvestorinsight.com Value Investor Insight 15


that Molson Coors sells. Our basic view,
though, is that the negative industry back-
drop is more than priced into the stock
and that the company has both the finan-
cial flexibility and management acumen to
surprise on the upside in creating share-
holder value.
The company generates consider-
able free cash flow – estimated at around
$1.4 billion this year – and is not at all
standing still when it comes to product
development, marketing and geographic
expansion. It’s broadened its product line
successfully in craft beer with brands like
Blue Moon, in Mexican beer with Sol, in
non-alcoholic beers and in other catego-
ries like hard cider, hard sparkling water
and even fermented tea. It recently formed
a joint venture in Canada with HEXO
to create non-alcoholic, cannabis-infused
drinks for the Canadian market.
On the marketing front the emphasis
is on better engaging with 21-to-34-year-
old drinkers and generating interest in
the company’s full portfolio of brands. In
January they named a new chief market-
ing officer, Michelle St. Jacques, who is the
first woman to hold that role at the com-
pany and who came from Kraft Heinz,
where she was a senior vice president and
head of global brands. Turning the volume
situation around is not an easy task, but
revitalizing the marketing and advertising
program is a good place to start.
After merging with MillerCoors in
2016, the company also in our view has
considerable opportunity to leverage the
international distribution platforms that
acquisition brought to sell more of its
North American brands in a number of
new markets overseas. New international
management was installed just over a year
ago and we’ve already seen successes in
cross-selling brands across borders. We
expect that to continue.
There’s also money to be saved. They’re
on track to take out $700 million in costs
over three years ending this year and have
just announced another $450 million sav-
ings initiative for 2020 to 2022. Most of
it is coming out of general and administra-
tive expenses as the full integration from
the 2016 merger continues.
February 28, 2019
I N V E S T O R I N S I G H T : Thyra Zerhusen
At a recent $61, how inexpensive do you
consider the shares?
ML: The stock today trades at 1x book
value and at a P/E on trailing-12-month
earnings of less than 12x. Those are both
at the very bottom of the ranges over the
past five years.
We believe the multi-front efforts the
company is making can at least offset the
secular industry challenges to revenue.
Earnings per share can then grow nicely
as debt is paid down and cost-savings ini-
tiatives drive operating-margin improve-
ment. From earnings growth and some
ON ADMITTING MISTAKES:
We believe one of our advan-
tages is to have a long-term
outlook and the patience to
wait for it to be realized.
improvement in valuation, we think the
shares could increase 50% within two
years. We also like that management has
committed to a 20-25% dividend-payout
ratio, which could take the dividend yield
before long from today’s price into the
4-5% range.
Let’s talk about an idea or two that haven’t
gone your way. Have you lost patience yet
with medical-waste-disposal company Ste-
ricycle [SRCL]?
TZ: We originally were attracted by the
company’s well-defended position in re-
moving and disposing medical waste,
which is a business for which we expect
there to be steadily increasing demand. In
2015, in an effort to complement the main
business, the company bought Shred-it,
which provides services to remove and
destroy mostly paper documents. The
integration of Shred-it hasn’t gone well,
which has been an overhang on the stock.
Stericycle has also faced a lot of pricing
pressure in its small-quantity medical-
waste segment. That’s all been made worse
www.valueinvestorinsight.com
now by an ongoing implementation of a
new enterprise-resource-planning system,
which is very much needed, but in the
interim is costing a lot of money without
producing much in the way of tangible
benefits.
While we sold some of our position
for tax-harvesting purposes near the end
of last year, we do think management is
acting with a sense of urgency and has the
right people in place to get the operating
performance where it should be. From to-
day’s price [of around $45], if that hap-
pens there should be considerable upside
in the stock.
Why did you give up on oil-services com-
pany Transocean [RIG]?
BW: We initially bought the shares when
oil prices turned sharply down a few years
ago, thinking the company’s fleet of deep-
water rigs was well positioned and well
managed and that the business would come
out on the other side of the cycle in very
good shape. As the downturn got worse
and lasted longer than we anticipated, we
concluded that the supply rationalization
necessary in the deep-water segment of
the market wasn’t going to happen very
quickly and that that segment of the mar-
ket would likely be the last to come back.
Additionally, the balance sheet turned out
not to be as resilient to the downcycle as
we expected. All that led us to admit we’d
made a mistake and we moved on.
You’ve been criticized at times for not ad-
mitting mistakes as soon as you should. Is
that fair?
TZ: We of course make mistakes, as ev-
erybody does, and in retrospect certainly
wish at times that we’d admitted them
earlier. But the reality is that we’re always
looking forward, using the latest and best
information and analysis we have. We be-
lieve one of our advantages is a willing-
ness to have a longer-term outlook and
the patience to wait for it to be realized.
That’s served us well. We won’t be right
every time, but there’s no reason to change
that now. VII
Value Investor Insight 16
 U n c o v e r i n g V a l u e : U.S. Xpress

On the Road Again

Truckload-shipper U.S. Xpress may not have quite been ready for prime time when it came public last June, but at a
much lower price and with subdued built-in expectations, the stock today may provide an interesting opportunity.

Despite the best-laid plans of their
management and investment-banking
sponsors, initial public offerings can of-
ten land with a resounding thud. That
was certainly the case for U.S. Xpress, the
nation’s fifth-largest truckload shipper,
which last June returned to public markets
after a decade-long hiatus.
The company, based in Chattanooga,
Tennessee, wasn’t operating from particu-
lar strength out of the gate. It needed the
offering proceeds of nearly $250 million
to upgrade its aging fleet of trucks without
further taxing its stretched balance sheet.
Rather than come public on an upcycle,
spot-market pricing for truckload ship-
ping was under pressure. As if that weren’t
enough, U.S. Xpress then whiffed its first
two quarterly earnings reports, the first
primarily attributed to having to meet un-
expected and costly service demands of a
large customer, and the second due to an
unusual number of inadequately insured
sive effort to provide cross-border truck-
ing services between the U.S. and Mexico.
He has prioritized paying down debt and
otherwise reducing interest costs, while
also revamping compensation plans to re-
flect an emphasis on closing the roughly
400-basis-point operating ratio – operat-
ing expenses as a percentage of sales – gap
between USX and its peers. “A lot of what
they’re doing is just blocking and tack-
ling,” says Scott. “But it all adds up.”
Bolstered by the supportive freight
cycle he expects as the U.S. economy re-
INVESTMENT SNAPSHOT
U.S. Xpress
(NYSE: USX)
Business: U.S. provider of trucking and
freight-brokerage services; taken private in
2007, returned to public markets in 2018.
Share Information (@2/27/19):
Price 8.99
mains reasonably healthy over at least
the next 12 to 18 months, Scott estimates
that USX by next year can reduce its op-
erating ratio to 92% – high-quality peers
are closer to 90% – which with low- to
mid-single-digit revenue growth would
translate into something on the order of
$1.70 in earnings per share. While he says
better-quality truckers often trade at P/E
multiples of 15-20x, with even a "penal"
12x multiple U.S. Xpress shares would
then trade at $20, more than double the
current price. VII
Valuation Metrics
(@2/27/19):
USX S&P 500
P/E (TTM) 10.8 20.2
Forward P/E (Est.) 5.8 16.5
Largest Institutional Owners
(@12/31/18 or latest filing):

accidents. Throw in some tax-loss selling,
and by December the shares had fallen be-
low $5, 70% off the $16 IPO price.
In adversity, of course, can lie oppor-
tunity. With plenty of bad news behind it,
Mitchell Scott of Choice Equities Capital
Management today sees USX as an at-
tractive “reversion-to-the-mean” invest-
ment opportunity. The company’s spend-
ing to upgrade its fleet will dampen free
cash flow through this year, he says, but
should help it lower operating costs going
forward. Beyond that, management has
passed to a next generation and CEO Eric
Fuller is leading a top-to-bottom opera-
tional overhaul meant to bring company
performance to public-peer standards.
Among many initiatives, as Fuller puts
it, to "methodically evaluate our capital
allocation, improve our operational ex-
ecution and target industry-leading prof-
itability," he has replaced two-thirds of
his direct reports while implementing a
number of programs to improve driver
retention. He sharply curtailed an expen-
52-Week Range 4.83 – 16.94 Company % Owned
Dividend Yield 0.0%
Zimmer Partners 8.5%
Market Cap $434.2 million
T. Rowe Price 4.4%
Financials (TTM):
BlackRock 3.9%
Revenue $1.80 billion
Operating Profit Margin 5.0% Short Interest (as of 2/15/19):
Net Profit Margin 1.4%
Shares Short/Float 5.8%
USX PRICE HISTORY
20 20
15 15
10 10
5 5
0 0
2017 2018 2019
THE BOTTOM LINE
Mitchell Scott believes the company's broad-based effort to match peers' operating per-
formance will show tangible results by next year. Applying a 12x P/E to his $1.70 2020
EPS estimate, he thinks the shares then can more than double from their current level.
Sources: Company reports, other publicly available information

February 28, 2019 www.valueinvestorinsight.com Value Investor Insight 17


Stunning Success?
Axon Enterprise sees itself, according to CEO Patrick Smith, as "the tech company that’s going to make the world less
violent.” That lofty goal is accompanied by lofty expectations built into the company's stock. Are they justified?
Every worthwhile stock investment re-
quires some leaps of faith. Smart investors
look to mitigate the risks of such leaps
through comprehensive research, rational
analysis and buying only with an ample
margin of safety, but in the end, they’re
betting that their future version of events
with respect to a company is more accu-
rate than the conventional wisdom built
into that company’s stock. Bets made
when the evidence is less clear are likely to
hit higher highs or, of course, lower lows.
Axon Enterprise presents an illustrative
case in point. Known as Taser Internation-
al until 2017, the company’s traditional
business is selling conducted-electric
weapons used in law-enforcement appli-
cations as a less-lethal alternative to guns.
As that business has matured, Axon’s em-
phasis today is on providing body and in-
car cameras to law-enforcement end users
– to “depict the truth and help prevent
civil unrest,” it says – as well as associated
cloud-based systems for storing and man-
aging the digital evidence captured.
Taking a page out of the fast-growing-
tech-company playbook, to promote wide
adoption of its systems the company typi-
cally offers to provide the cameras, initial
training, and a one-year subscription to its
Evidence.com system at no cost. The idea
is to sell customers on the full service’s
ability to improve safety, promote trans-
parency, reduce litigation exposure, and
save valuable time by reducing manual re-
porting and record-keeping. Once custom-
ers are sold on the concept, they're more
likely to sign up for lucrative long-term
subscriptions.
The investor’s analytical challenge with
Axon today is that while its free-trial pro-
grams are being set up at a rapid clip, ex-
penses are mounting in advance of related
revenues and it’s still early to get a clear
read on what those revenues will turn out
to be. What will the ultimate take rate be
when free-trial periods end? What will
annual subscription pricing need to be to
February 28, 2019
U n c o v e r i n g R i s k : Axon
make the business pay off for the com- ary 27th after it announced disappointing
pany while still fitting into often-strapped earnings – but the shares are hardly cheap
law-enforcement budgets? Importantly, at 60x this year’s consensus EPS estimate.
what sustainable competitive advantages Even if revenues and earnings grew, re-
will Axon have? While fans buy into its spectively, at the 20% and 25% annual
mission “in service of an intensifying sur- rates over the next five years that some
veillance state,” as The New Yorker put it bulls expect, the stock would have to trade
in recent profile of the company, promi- at a 32x P/E in five years to generate even
nent competitors such as Motorola and a 10% annual return from today. Given
Panasonic, among many smaller firms, are all that could derail the company’s grand
looking to do the same thing. vision, the potential reward in this case
The market's enthusiasm for Axon has doesn’t seem to justify taking the leaps of
cooled – its stock fell nearly 8% on Febru- faith required. VII
INVESTMENT SNAPSHOT
Axon Enterprise Valuation Metrics
(Nasdaq: AAXN) (@2/27/19):
AAXN S&P 500
Business: Manufacture and sale of personal-
defense products and services, including P/E (TTM) 111.0 20.2
Forward P/E (Est.) 60.3 16.5
Taser devices and in-field video systems.
Share Information (@2/27/19):
Price 55.49 Largest Institutional Owners
(@12/31/18 or latest filing):
52-Week Range 34.85 – 76.45
Dividend Yield 0.0% Company % Owned
Market Cap $3.26 billion BlackRock 16.9%
Financials (TTM): Vanguard Group 11.1%
Revenue $420.1 million Janus Capital 6.8%
Operating Profit Margin 5.9%
Short Interest (as of 2/15/19):
Net Profit Margin 6.9%
Shares Short/Float 8.7%
AAXN PRICE HISTORY
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
2017 2018 2019
THE BOTTOM LINE
Borrowing from the fast-growing-tech-company playbook, the company is pushing vol-
ume over profits in its high-potential video-systems business. While that may be a sound
strategy, the optimism built into the shares may not be so conducive to returns either.
Sources: Company reports, other publicly available information
www.valueinvestorinsight.com Value Investor Insight 18
 EDITOR'S LETTER

Cautionary Tale
In announcing early in 2010 its naming
of Fairholme Fund's Bruce Berkowitz as
its domestic-equity Fund Manager of the
Decade, Morningstar lauded his straight-
forward approach, saying "Berkowitz
looks for good businesses with solid cash
flows, has a contrarian bent, and has timed
his bets well."
The timing of his being named manager
of the decade wasn't as opportune. Though
Fairholme Fund's assets ballooned, reach-
ing $20 billion by early 2011, the fund's
performance for most of the past ten years
has been dismal. Over the past 10 years,
according to Morningstar, it has earned
an 8.8% annual return, vs. 16.4% for the
S&P 500. In the past five years, while the
market is up nearly 11% per year, the fund
has declined at a 2.8% annual rate.
Decimated by large holdings in high-
profile, long-held losers like Sears and St.
Joe Co., the Fairholme Fund today is a
shadow of its former self. It has $1.1 bil-
lion in assets, more than 40% of which is
in cash and a third of which remains in St.
Joe, the Florida real estate developer for
which Berkowitz is board chairman.
We recount this sad tale not to revel in
anyone's misfortune, but as a reminder of
how difficult it is to stay on top in the in-
vesting game and what's required to do so.
As GQG Partners' Rajiv Jain put it suc-
cinctly in our interview with him last De-
cember, "Investing is nothing but a jour-
ney of learning from mistakes and getting
better at it. If you’re not willing or able to
do that – however you define yourself as
an investor – you won’t survive over the
long term." A hard truth, indeed.
"Fear is the foe of the faddist"
Every day, in real time, market pundits
offer a steady stream of "reasons" behind
market moves. Maybe it was a presidential
tweet, or a sideways glance by the Federal
Reserve chairman, or a data point from
China. There have to be clear reasons the
market is down 0.4%, what are they!
As an antidote to such blather, we offer
the following quote from Warren Buffett's
1994 Berkshire Hathaway annual letter:
We will continue to ignore political and
economic forecasts, which are an ex-
pensive distraction for many investors
and businessmen. Thirty years ago, no
one could have foreseen the huge ex-
pansion of the Vietnam War, wage and
price controls, two oil shocks, the res-
ignation of a president, the dissolution
of the Soviet Union, a one-day drop in
the Dow of 508 points, or treasury bill
yields fluctuating between 2.8% and
17.4%. But, surprise – none of these
blockbuster events made the slightest
dent in Ben Graham's investment prin-
ciples. Nor did they render unsound
the negotiated purchases of fine busi-
nesses at sensible prices. Imagine the
cost to us, then, if we had let a fear of
unknowns cause us to defer or alter
the deployment of capital. Indeed, we
have usually made our best purchases
when apprehensions about some mac-
ro event were at a peak. Fear is the
foe of the faddist, but the friend of the
fundamentalist. A different set of ma-
jor shocks is sure to occur in the next
30 years. We will neither try to predict
these nor to profit from them. If we can
identify businesses similar to those we
have purchased in the past, external
surprises will have little effect on our
long-term results. VII

Value Investor Insight™ is published monthly a

www.valueinvestorinsight.com (the “Site”), by Value
Investor Media, Inc. Co-Founder and Chairman, Whitney Tilson;
Always on the lookout for
Co-Founder, President and Editor-in-Chief, John Heins. Annual
subscription price: $349.
better investment ideas?
©2019 by Value Investor Media, Inc. All rights reserved. Subscribe now and receive a full year of
All Site content is protected by U.S. and international copyright Value Investor Insight – including weekly
laws and is the property of VIM and any third-party providers
of such content. The U.S. Copyright Act imposes liability of up
e-mail bonus content and access to all back
to $150,000 for each act of willful infringement of a copyright. issues – for only $349.
Subscribers may download Site content to their computer
That’s less than $30 per month!
and store and print Site materials for their individual use only.
Subscribe Online »
Any other reproduction, transmission, display or editing of the Or call:
Content by any means, mechanical or electronic, without the E-Mail Form »
prior written permission of VIM is strictly prohibited.
205-722-2197
Mail-In Form »
Terms of Use: Use of this newsletter and its content is
governed by the Site Terms of Use described in detail at Want to learn more? Please visit www.valueinvestorinsight.com
www.valueinvestorinsight.com. See a summary of key terms on
the following page of this newsletter.
Contact Information: For all customer service, subscription
or other inquiries, please visit www.valueinvestorinsight.com, or
contact us at Value Investor Insight, 1655 N. MacFarland Blvd.,
Suite 171, Tuscaloosa, AL 35406; telephone: 205-722-2197

February 28, 2019 www.valueinvestorinsight.com Value Investor Insight 19

General Publication Information and Terms of Use

Value Investor Insight is published at www.valueinvestorinsight.com (the “Site”) by Value Investor Media, Inc. Use of this newsletter and
its content is governed by the Site Terms of Use described in detail at www.valueinvestorinsight.com/misc/termsofuse. For your convenience,
a summary of certain key policies, disclosures and disclaimers is reproduced below. This summary is meant in no way to limit or otherwise
circumscribe the full scope and effect of the complete Terms of Use.

No Investment Advice
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
would be illegal. This newsletter is distributed for informational purposes only and should not be construed as investment advice or a recom-
mendation to sell or buy any security or other investment, or undertake any investment strategy. It does not constitute a general or personal
recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and
value of securities referred to in this newsletter will fluctuate. Past performance is not a guide to future performance, future returns are not
guaranteed, and a loss of all of the original capital invested in a security discussed in this newsletter may occur. Certain transactions, includ-
ing those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.

Disclaimers
There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this
newsletter. Value Investor Media will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of
the information contained in this newsletter, caused in whole or in part by its negligence in compiling, interpreting, reporting or delivering
the content in this newsletter.

Related Persons
Value Investor Media’s officers, directors, employees and/or principals (collectively “Related Persons”) may have positions in and may, from
time to time, make purchases or sales of the securities or other investments discussed or evaluated in this newsletter.

It is the policy of all Related Persons to allow a full trading day to elapse after the publication of this newsletter before purchases or sales are
made of any securities or financial instruments discussed herein as Investment Snapshots.

Compensation
Value Investor Media, Inc. receives compensation in connection with the publication of this newsletter only in the form of subscription fees
charged to subscribers and reproduction or re-dissemination fees charged to subscribers or others interested in the newsletter content.

February 28, 2019 www.valueinvestorinsight.com Value Investor Insight 20