Fuhrmann Capital 2012 Stock Market Outlook

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FUHRMANN CAPITAL LLC

Investment Presentation

Woodland Country Club

December 10, 2011



DISCLAIMER

• THIS PRESENTATION IS FOR INFORMATIONAL AND EDUCATIONAL PURPOSES ONLYAND SHALL NOT BE CONSTRUED TO CONSTITUTE INVESTMENT ADVICE. NOTHINGCONTAINED HEREIN SHALL CONSTITUTE A SOLICITATION, RECOMMENDATION ORENDORSEMENT TO BUY OR SELL ANY SECURITY OR OTHER FINANCIALINSTRUMENT.

• INVESTMENT FUNDS MANAGED BY RYAN FUHRMANN MAY OWN STOCK IN THECOMPANIES DISCUSSED HEREIN. THERE IS NO OBLIGATION TO UPDATE THE

THAT ARE INCONSISTENT WITH THE VIEWS EXPRESSED IN THIS PRESENTATION.

• THERE IS NO REPRESENTATION OR WARRANTIES AS TO THE ACCURACY,COMPLETENESS OR TIMELINESS OF THE INFORMATION, TEXT, GRAPHICS OR OTHERITEMS CONTAINED IN THIS PRESENTATION. ALL LIABILITY IS EXPRESSLY DISCLAIMEDFOR ERRORS OR OMISSIONS IN, OR THE MISUSE OR MISINTERPRETATION OF, ANYINFORMATION CONTAINED IN THIS PRESENTATION.

• ALL INVESTMENTS INVOLVE RISK AND PAST PERFORMANCE IS NO GUARANTEE OFFUTURE RESULTS AND FUTURE RETURNS ARE NOT GUARANTEED.

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MAIN DISCUSSION POINTS

Two main obstacles investors must

overcome to be successful:

• The investment industry

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THE MARKETS THEMSELVES

• Short-term randomness vs. long-

term fundamentals

• --unable to rely on traditional investing

rules-of-thumb

• Appealing asset classes today

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SHORT TERM FEARS

Market concerns right now:• Sovereign debt worries in Europe• Indebtedness of developed economies• Slowing global growth

• Inflation• Regulation• The role of speculators in the marketplace

How will this all to play out? Bottom line:

no quick fixes, and uncertainty createsopportunity.

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STAY FOCUSED ON LONG TERM

What is important in investing? Only need tounderstand two things to be successful:

• Market psychology – highs and lows create opportunity• How to value a company – bottoms-up philosophy

ears wor s emse ves ou s ory as so ar provenit:

• Standard business cycle fluctuations – 2008 just more severe• “Central bankers alone cannot solve the world’s economic problems.”

- Ben Bernanke• “These scares are nothing new in financial history. Sometimes, the

scares are financial, and sometimes they are political. I can recall

worse scares than the current one.”

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A WELL-GROUNDED INVESTMENT

PHILOSOPHY• “I am beginning to perceive that investors tend to follow

trends and fashion rather than taking the trouble to lookfor value. This must offer opportunity for theprofessional investment manager, as a result of the shortterm mispricing of securities.” - Longleaf Partners

“prior to the great bull market in August 1982.” DavidDreman

• “Over the long term, the value of businesses will bedriven by their fundamentals (their ability to grow theirassets and allocate capital), and the market willaccurately reflect that.”

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REAL RETURNS on GLOBAL EQUITY

SECURITIESLast 20 years: abnormal return periods

Source: Dimson, E., Marsh, P. and Staunton, M., Credit Suisse Global Investment Returns Yearbook 2009 . 9



INVESTMENT TAKEAWAYS

Beware of the market’s investment biases:• Myopic trading strategies

• Obsession over macro-trends• “Trading” volatility as an asset

• Extrapolation of existing trends• Herd mentality

e r g t way to nvest cons sts o ta ng a ong-termperspective, focused on:

• A contrarian bias “Stock prices rise when results defyexpectations. The greater the skepticism, the greater thepotential.”

• A focus on valuing companies/other income-producing assets

• A healthy skepticism of what the market is “saying”• Turning off CNBC!

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WHAT DRIVES THE MARKET?

Perspective: Investment performance follows fundamentals over thelong haul.

Source: Investorfriend.com 11



AVAILABLE ASSET CLASSES

The investable universe consistsprimarily of:

• Public Equity• Real Estate• Venture Capital• Cash• Hedge Funds• Private Equity•

Fixed Income• Commodities/Hard Assets

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REAL RETURNS on GLOBAL EQUITY

SECURITIES, BONDS & BILLS

Source: Dimson, E., Marsh, P. and Staunton, M., Credit Suisse Global Investment Returns Yearbook 2011. 13



AN EMPHASIS ON COMPANIES

The lost decade for stocks:

– Focus on the “underlying”

– A P/E multiple comparison (2000 vs. 2011)

• Wal-Mart (47x vs. 13x)

• J&J (40x vs. 13x)

• Cisco (99x vs. 11x)

• Microsoft (70x vs. 9x)

– Bodes well for the coming 3,5,10 years

– Returns over the long-term are compelling,especially for larger firms

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THE INVESTMENT INDUSTRY

Drags on performance: – Diversification

• Asset Allocation

• Style boxes

– – Not properly defining risk

– Fees

– Performance chasing/trend following

– Asset gathering versus asset management

– Fiduciary vs. suitability standards – Fraud!

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THE INVESTMENT INDUSTRY

• The “right way” to achieve outperformance: – Focused approach

– Invest in the “new normal”

– Time arbitrage

– Low fees

– Go anywhere

– Contrarian

– Fiduciary model

• Key differences in creating vs. preserving wealth

• Argument is that through common sense aninvestor can accrue quite a bit of wealth overthe long haul

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RECOMMENDATIONS

• 2012 Outlook: – Appeal of

• Blue-chip stocks – Low valuations

– Solid fundamentals

– Appealing yields

– – International/Emerging market exposure

• Real Estate

• Cash

• Specific equity recommendations:• MetLife (MET)

•HSBC (HBC)• Microsoft (MSFT)

• Petrobras (PBR)

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FUHRMANN CAPITAL

– Portfolio Management• Individual clients

• Investment partnership – Accredited investors

– Private placement

– Skin in the game

•• Venture capital

– Advisory services• Small businesses

• Plan sponsors – 401(k) plans

– Communicate investment ideas through investment writing

– Registered Investment Advisor (RIA) in the state of Indiana

– Local!

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BACKGROUND

RYAN C. FUHRMANN, CFA• Education – University of Wisconsin-Madison

• Bachelors Degree Finance 1996

– University of Texas at Austin• MBA 2002

• Background

– Portfolio mana ement• Northern Trust

• Bank of America

• Fuhrmann Capital

• Fuhrmann Limited Partnership

• Credentials/Other – Chartered Financial Analyst (CFA) charter holder

– Advisor to Butler University’s Student Managed Investment Fund (SMIF)

– Eiteljorg Museum of American Indians and Western Art – Agave boardmember

– www.RationalAnalyst.com

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Q&A

Questions?

– Market Outlook

– Recommendations

– Follow up

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FOR FURTHER READING

Credit crisis post-op:

– Fatal Risk – A Cautionary Tale of AIG’s CorporateSuicide

– The Big Short

– Too Big to Fail

Investing classics:

– The Intelligent Investor

– Where are all the Customer Yachts?

– Berkshire Hathaway annual shareholder letters

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Documents

Fuhrmann Capital 2012 Stock Market Outlook