FREEMAN SCHOOL OF BUSINESS Luther L. McDougal, IV, CFA Whitney National Bank Senior Vice President and Senior Portfolio Manager December 1, 2008 Presentation to the

Surprise is the rule, not the exception.

Many aspects of investing are fun, but your future (your clients’ future) wealth isn’t a game. You should manage it in the most cold-blooded fashion. Emotion, pride, ego, dreams and nightmares have nothing to do with the process, although some investors rely on little else.

Client Profiles Corporations Foundations Trusts Individuals Tax bracket None Very low Very High Varies Income needs None Low HighVaries Liquidity needs Low Moderate Varies Varies Control Vested Stewards NoneVaries Risk level High Moderate Moderate Varies Knowledge Moderate Moderate LowVaries

Asset Allocation – 92% Stock Selection/Timing – 8% Portfolio Performance Source: Brinson, Singer, and Beebower, "Determinants of Portfolio Performance II: An Update," Financial Analyst Journal, Vol. 47, No. 3, May-June 1991, pp

Markets can remain irrational longer than you can remain solvent. John Maynard Keynes

SPX -40% NASDAQ -67% SPX -41% MSCI EM -67%

“In the current market, you should have most of your money in something fairly conservative, such as a coffee can buried under your house. If you want to diversify, you might consider investing in two coffee cans.” Dave Barry

I emphasize this psychological aspect of the matter (asset allocation), because those wonderful statistics on long-term returns are what the market did, not what any individual (or stock or fund) did, or would, if history replayed itself.

In the standard framework, risk is defined by the volatility of the underlying portfolio. Volatility is a one dimensional measure of market risk…the S & P 500 has a daily volatility (standard deviation) of about 1%. Within the confines of the mean-variance framework, this number indicates that we should expect a daily move greater than 2% only about once a month. A 3% move would happen once every three years, while the market crash of October 19, 1987, where the index fell by 20.47% should only happen once in a billion years.

" The word "genius" isn't applicable in football. A genius is a guy like Norman Einstein." NFL Quarterback and Sports Analyst Joe Theisman

While practitioners should understand the basics of investment theory, they should also question theories that travel poorly from the textbook to the real world. In theory, investment markets are relatively simple and follow predictable relationships. In practice, investors and markets are complex and difficult to predict. Effective practitioners are adept at bridging the gaps between theory and practice.

Capital Asset Pricing Model - Diversification - Risk versus Return - Efficient Market - Beta Fama/French 3 Factor Model - Efficient Market - Value vs Growth - Large vs small - Beta of little importance

Core Model The Core Model is an alpha model. It defies the strong form of the efficient market hypothesis, suggesting that some stocks are mispriced and that a well constructed alpha model can provide market beating returns without taking on extra risk to do so. In particular, the model attempts to find the most attractive stocks within each business sector.

Universe – Russell 1000 Quality – S & P stock rating of B+ or better Risk – Sector neutral Diversification - 50 to 80 stocks Core Model Quintiles Fundamental Analysis

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Cons Disc Cons Stpl EnergyFinHealthIndTechMatsTelecomUtilities SAMPLE S&P %13.03%12.29%14.02%13.88%10.48%17.66%2.51%3.03%3.84% 8.33%13.20% 12.87% 13.95%13.82%11.25%16.36%3.37%3.14%3.71% Equity Analysis Holdings as of 9/30/2008 SECTOR ALLOCATION

# OF HOLDINGS AVERAGE CAPITALIZATION AVERAGE QUALITY AVERAGE P/E (TRAILING 4 QTRS) AVERAGE P/E (FORWARD 4 QTRS) AVERAGE YIELD AVERAGE PRICE/BOOK VALUE AVERAGE PRICE/CASHFLOW AVERAGE HISTORICAL GROWTH AVERAGE LONGTERM GROWTH AVERAGE BETA SAMPLE S&P PORTFOLIO PROFILE 63 $45,761 A % % 12% $80,015 A % % 11% 1.00 Equity Analysis Holdings as of 9/30/2008 CORE EQUITY PORTFOLIO CHARACTERISTICS