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December, 2009

December, 2009. Research-driven investment philosophy. Focus on intrinsic business value. Multiple approaches to valuation. Bottom-up portfolio construction. Disciplined decision process. Independent thinking can lead to better investment performance. Investment Philosophy.

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December, 2009

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  1. December, 2009

  2. Research-driven investment philosophy. • Focus on intrinsic business value. • Multiple approaches to valuation. • Bottom-up portfolio construction. • Disciplined decision process. Independent thinking can lead to better investment performance. 1

  3. Investment Philosophy Three key attributes: • High-quality businesses trading at a discount to intrinsic value. • Businesses whose value will grow over time. • Honest, capable management teams that think and act like owners. Would you want to own the whole business? If not, don’t buy the stock. 2

  4. Price and Value Converge Over Time Value grows over time. Stock rises as price/value gap closes. Identify stock at a discount to value. 3

  5. Example: H&R BlockInformation as of 12/31/09. Not intended as a recommendation. • High returns on capital near 20%. • Strong free cash flow due to low capital needs. • Tax complexity, pricing power and new office openings drive revenue growth. • Tax business alone worth more than current stock price. • Activist shareholder forced changes in management. • New management team focusing on core business. 4

  6. Portfolio Management • Avoid over-diversification by holding 20-30 securities. • Full range of market capitalization, no artificial limits. • Weightings reflect risk, confidence in outcomes. • Long-term time horizon reduces turnover. • Asset allocation based on needs of client. • Conservative bond portfolio reduces credit and interest rate risks. 5

  7. Representative Equity Portfolio Industry holdings are based on clients portfolios as of 12/31/09. Holdings are subject to change and are not intended as recommendations. 6

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