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Graham and Doddsville - Issue 10 - Fall 2010

Graham and Doddsville - Issue 10 - Fall 2010

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Published by g4nz0
Graham & Doddsville
An investment newsletter from the students of Columbia Business School
Issue X Inside this issue:
Danilo Santiago and Claudio Skilnik — Rational Asset Management U.S. Physical Therapy (USPH) - Ryan Coyle ‗11 CoreLogic, Inc. (CLGX) - Alex Latushkin ‗11 2011 CIMA Conference p. 2

Fall 2010

Finding Conviction When Others Panic — Steven Romick
Mr. Romick, CFA, who joined FPA in 1996, is the Portfolio Manager of the FPA Crescent Fund. Mr. Romick was previously Chairman of Crescen
Graham & Doddsville
An investment newsletter from the students of Columbia Business School
Issue X Inside this issue:
Danilo Santiago and Claudio Skilnik — Rational Asset Management U.S. Physical Therapy (USPH) - Ryan Coyle ‗11 CoreLogic, Inc. (CLGX) - Alex Latushkin ‗11 2011 CIMA Conference p. 2

Fall 2010

Finding Conviction When Others Panic — Steven Romick
Mr. Romick, CFA, who joined FPA in 1996, is the Portfolio Manager of the FPA Crescent Fund. Mr. Romick was previously Chairman of Crescen

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Published by: g4nz0 on May 10, 2012
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02/01/2013

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tired of unlearning MBA‘s
-he wanted to teach someonefrom the ground up.
(Continued on page 3)
Mr. Romick, CFA, who joined FPA in 1996, is thePortfolio Manager of theFPA Crescent Fund. Mr.Romick was previouslyChairman of CrescentManagement and con-sulting security analystfor Kaplan, Nathan & Co.He earned a B.S. in Edu-cation from Northwest-ern University.
G&D: You started the Cres-
cent fund in 1993, but let‘s
go back earlier than that
 – 
 you had an interesting op-portunity coming out of Northwestern University toenter the investment man-agement industry. Can youtalk about that and whatyour experience with invest-ing was up to that point?Steven Romick (SR): I had noexperience investing up tothat point. I was on my wayto law school at USC to getmy JD/MBA because I hap-pened to have done reasona-
bly well in school and I didn‘t
really know what I wanted todo. I figured I could push off the real world for a couplemore years. But, I got a joboffer from a friend of myfather, who said that he was
Finding Conviction When Others Panic
 
 — 
Steven Romick Low Decile, High Return
 — 
Donald G. Smith
Donald G. Smith is theCIO of Donald Smith &Co. He began his career as an analyst with CapitalResearch Company andsubsequently worked atCapital Guardian TrustCo. In 1980, Donald be-came the CIO of HomeInsurance Company, andPresident of Home Port-folio Advisors, Inc., whichhe bought in 1983 andchanged the name toDonald Smith & Co., Inc.Mr. Smith was awarded aB.S. in Finance and Ac-counting by the Univer-sity of Illinois, an MBA byHarvard University and a J.D. from UCLA LawSchool and was admittedto the Bar Association of California.
G&D: Briefly describe thehistory of your firm and howyou got started?DS: Donald Smith & Co. wasfounded in 1980 and nowhas $3.6 billion under man-agement. Over 30 yearssince inception our com-pounded annualized return is15.3%. Over the last 10years our annualized returnis 12.1% versus
0.4% forthe S&P 500. We have
(Continued on page 11)
Fall 2010Issue X
Editors:
Garrett JonesMBA 2011Daniel KaskawitsMBA 2011Anna BaghdasaryanMBA 2012Joseph JaspanMBA 2012
Inside this issue:
Danilo Santiago andClaudio Skilnik 
 — 
 Rational AssetManagementp. 2U.S. Physical Therapy(USPH) - Ryan Coyle
‗11
 p. 20
 
CoreLogic, Inc.(CLGX) - Alex
Latushkin ‗11
 p. 222011 CIMAConferencep. 34Steven Romick, Portfolio Man-ager, FPA Crescent FundContact us at:
newsletter@grahamanddodd.com
Visit us at:
Graham & Doddsville 
An investment newsletter from the students of Columbia Business School
 
Donald G. Smith. DonaldSmith & Co.
 
We are pleased to presentyou with Issue X of 
Graham& Doddsville,
Columbia Busi-
ness School‘s student
-ledinvestment newsletter co-sponsored by the HeilbrunnCenter for Graham & DoddInvesting and the ColumbiaInvestment ManagementAssociation.This issue features an inter-view with Steven Romick,portfolio manager of FPACrescent Fund. Mr. Romick outlines his free-range capi-tal allocation approach andwalks through his prefer-ence for large-cap, interna-tionally exposed companies
Welcome to
Graham & Doddsville 
The Value of Process
 — 
Rational Asset Management
G&D: Why don‘t you in-
troduce yourselves and ex-plain how you got to knoweach other and got startedwith Rational Asset Manage-ment?Danilo Santiago (DS): Wemet at Columbia BusinessSchool, but we both gradu-ated from the University of Sao Paulo with engineeringdegrees. This is important,because we have a commonanalytical background and acommon investment meth-odology background. We
(Continued on page 24)
Danilo Santiago, CBS'01 and Claudio Skilnik,CBS '02 are both engi-neers who graduatedfrom the University of Sao Paulo and co-founded Rational AssetManagement Co.("Rational"). Rational isthe Investment Manager for the Rational ValueFund ("RVF"), which is along-short equity hedgefund with a well definedinvestable base of 85companies that closelyrepresent the U.S. econ-omy. Since its inceptionin April 2008, RVF hasattained an unleverednet adjusted alpha inexcess of 20% whencompared to the S&P500 performance.Page 2
with pricing power. He also
discusses the fund‘s recent
investment in distressedmortgages.The issue also features aninterview with Donald G.Smith, who volunteered forBen Graham at UCLA. Hisfund concentrates on thebottom decile of price totangible book stocks andhas compounded 15% over30 years.We also talk with Danilo
Santiago, CBS ‗01 and Clau-dio Skilnik, CBS ‗02, who
operate a long-short fundwith a unique strategy of focusing on a stable set of 85 companies.We also aim to offer spe-cific investment ideas thatare relevant today. The cur-rent issue includes two stu-dent investment ideas, in-cluding U.S. Physical Ther-apy (USPH), presented by
Ryan Coyle ‗11 and Core-
Logic, Inc. (CLGX) by Alex
Latushkin ‗11.
 Please feel free to contactus if you have comments orideas about the newsletteras we continue to refine thispublication for future edi-tions. Enjoy!
Pictured: Bruce Greenwald andMarty Whitman at the ColumbiaInvestment Management Con-ference in February.
Danilo Santiago, CBS ‗01— 
Rational Asset Management
Claudio Skilnik, CBS ‗02 — 
 Rational Asset Management
 
G&D: So what advicewould you give to youngmen and women looking tostart their own fund, givenwhat you know now?
SR: I don‘t think it is a mis-
take for all young men andwomen, but for me it was
what I didn‘t know that I
taught myself over time. Iput myself in front of a lotof people and tried to havethem teach me. I was fortu-nate, because within thefirst couple of months of working for Mr. Nathan Iended up having lunch at a
“Honestly, people shouldn‟t
have given memoney then.With what Iknow now, and what I thought I
knew then, it‟s
such a vastdifference.People took achance on me,and I learned as I
went. I‟m better 
now than I was
then.” 
 
Page 3Issue X
Steven Romick 
 
hotel down in Laguna Beachwith a guy wearing pajama
bottoms. I‘d never seen
anyone wear silk paisleypajamas in the middle of theday before, but it was JohnTempleton. I got to havedinner with Leon Cooper-man, I think when he wasrunning GSAM at the time.I got to sit down with thesepeople and just listen, like afly on a wall. In Mr. Na-
than‘s office I had a desk 
pushed up to his and everytime he spoke with a com-pany I listened in on theextension.G&D: Then in 1993, youstarted the Crescent Fund.How did you position thefund?SR: I felt that most mutualfunds were style box con-
strained, and didn‘t take
advantage of a deep tool-box. I spent a lot of timelooking at high-yield bondsand some distressed debt in
the late 80‘s, and I got aflavor for it. I didn‘t think 
there were a lot of publicfunds out there that in-vested in such diverse assetclasses, but felt that such avehicle made sense for peo-ple. For years, I had to fightthe idea that I was a stylebox manager.
(Continued on page 4)
G&D: That was your experi-ence at Kaplan, Nathan, &Co.?SR: It was James Nathan,who graduated from Co-lumbia Business School withMario Gabelli and Leon Co-operman sometime in the
‗60s. I worked with him for
11 years, and he helped mestart my business duringthat time.G&D: So you started yourown money managementfirm in 1990, but the Cres-
cent Fund didn‘t begin until
1993. Can you talk aboutthose first three years?SR: I managed separate ac-counts. Honestly, people
shouldn‘t have given me
money then. With what Iknow now, and what I
thought I knew then, it‘s
such a vast difference. Peo-ple took a chance on me,
and I learned as I went. I‘m
better now than I was then.I think that in the moneymanagement business,knowledge is cumulative, orrather should be cumulativerather than repetitive, andone should improve thelonger one is in the busi-
ness. I‘m much more com-
fortable wearing the skin of an investor than I was back then. I guess I was too ig-norant to realize that whenI was younger.
(Continued from page 1)

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