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why so few names you know obviously there has been some rumors of the performance uh up six percent uh for the first quarter I know you can't say that's accurate or not accurate with most of um your portfolio up double digits uh one down to double digits which we'll talk about but give us uh just the take on why so few names and um so for a bunch of reasons I mean I've always had the view that uh you know why why not own the best 10 or 11 Investments as opposed to ideas 12 through 25 or 12 through 100 which is more typical and uh you know I think there are very few great Investments at any one time so the ability to concentrate is an enormously valuable asset of a strategy the problem with it is most it leads to bumpier returns and it leads to uh more attention on on mistakes or things that aren't going well you know I don't know a portfolio manager that doesn't have a stock that's down in his portfolio right but you don't read articles about uh I mean we're getting an awful lot of attention for a pretty high profile situation that's uh that's struggling but I think there's uh you know it depends on what your business model is but if you want to make high rates of return over a long period of time it's hard to do that being very Diversified I mean if you look through the forks 400 wealthiest people in the world most of them made their fortune in one business or a portfolio of two businesses very few made it in a portfolio of 100 so it's if it's that and the other benefit it allows you to run a much simpler investment firm we have an eight-person investment team if we had 30 names we couldn't manage that portfolio the way we do with a small team like a small team you can hire better Talent there's actually an argument that some people are now making that you know buying the index or buying Diversified funds have had much better returns than buying you know those hedge funds that have you know a very specific smaller portfolio approach like yours I haven't seen that article I mean I think we've done very well relative to any index alternative certainly so I mean it depends on how you judge us I think if you judge us on a 90-day basis I have no idea how we're going to do relative to an index but I think this is a strategy that over time should earn a meaningful premium over you know any kind of Benchmark or you shouldn't give us more money yeah so talk to us about the Bill Ackman strategy or that mental checklist that you go through before deciding to go long or shorter position go through how it works and when you come you know maybe you'll override that portfolio manager not but what's the checklist you kind of go through so we look for very high quality businesses what we describe as simple predictable free cash flow generative dominant businesses a business that Warren Buffett would describe as having a mode around it right if you if you believe that the value of anything Financial is the present value of the cash you can take out of it over its life well you need to know how much cash is going to generate over its life so it's a business quality to us is the single most important Criterion for determining what's interesting because if we can't predict the cash flows we don't know it's worth we don't know what it's worth we can't invest and we figure out what it's worth figure out how good the business is how predictable will this cash flows be from a railroad or a Spirits company or a real estate company a shopping mall business uh and then we say okay well where's the trading um and if there's a wide gap between price and value you can buy for 50 cents it's worth a dollar twenty and then we're going to take a hard look and try to understand why it trades at a deep discount and uh once we understand the reasons we decide well these things that we can solve you know can we in light of the situation uh the circumstances can we be influential in changing these these levers that can cause this valuation discrepancy to narrow and is this a business that while we're causing the valuation discrepancy to narrow we can also perhaps contribute to the valuation growing uh those things are true we found something that looks quite interesting for us and um usually this investment philosophy does it take a week a month three months to do the research a year I mean you have 10 names what how long it depends I mean one of the best investments we've ever made it took us four hours to do the work I was during the financial crisis which was that Wachovia Corporation so um was on my BlackBerry uh eating breakfast uh The Brooklyn Diner in front of my building and the story went across the uh it was just you know Wall Street Journal headline Reuters headline excuse me went across saying um that Citigroup to acquire the Wachovia banking subsidiaries for two dollars in Citigroup stock stock was halted this is kind of an interesting transaction because they're buying the subsidiaries for Citigroup stock I figured it's interesting what happens to the holding company so I went back to the you know kind of went upstairs to the office and you know cracked open the 10K and another member of the team Mick McGuire he and I worked on it and uh what was interesting is the Thousand page 10k of Wachovia Corporation I think 900 Pages were on the banking subsidiary there was fewer than 100 pages on the holding company and by buying the banking subsidiary city was leaving a holding company which had cash um you know in Wachovia Securities A.G Edwards they had paid six seven billion four to six months before Evergreen asset management and they were taking a 27 billion dollar loss on the sale of the subsidiary and uh it also had a liability called non-cumulative Perpetual preferred stock which if you ever want to have a liability in your life this is the single greatest liability to have it's a it's a form of equity where you never have to pay a dividend and when you don't pay them they don't accumulate and the worst case is they get a couple directors on the board and you say hi to them each meeting and you have this very interesting I said look this could be the Arbiter hathwood and at the end of the day we figured the ass you know in four hours would be determined the holding company was worth at least 11 to 14 cash a tax refund that you can you could carry back the 27 billion dollar loss recover cash taxes have been paid so you have this cash vehicle you know Wachovia Securities which is a you know good wealth management business you'd own A.G Edwards and other interesting asset you these are businesses you know well and the stock opened after it was halted at a dollar eighty four so we said look it's worthy you know 11 to 14 a dollar eighty four we bought 42 of the volume for the next four days and then it was acquired by and Wells came in and put in a topping bid
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