1. 1 Fundamental Stock Analysis The Market is NOT Efficient Fundamental analysis can uncover individual companies selling in the public market at significant discounts to intrinsic business value. We are a “value” equity manager Buying assets @$.50 on the $1.00 Buying businesses @ reasonable multiples of earnings, cash flow, book value growth rates

2. 2 EFFICIENT MARKET THEORY

3. 3 BLOWS DEALT TO EMT:

4. 4 BLOWS TO THE EMT:

5. 5

6. 6 VALUE INVESTING - AN EXAMPLE Carson Pirie Scott - A $13 Stock (1984)

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9. 9 VALUE INVESTING - AN EXAMPLE Carson Pirie Scott - A $13 stock (1984)

10. 10 VALUE INVESTING - AN EXAMPLE Carson Pirie Scott - A $13 stock (1984)

11. 11 VALUE INVESTING - AN EXAMPLE Carson Pirie Scott - A $13 Stock (1984)

12. 12 VALUE INVESTING - AN EXAMPLE Carson Pirie Scott - A $13 Stock (1984)

13. 13 VALUE INVESTING - AN EXAMPLE Carson Pirie Scott - A $13 Stock (1993) - “The Sequel”

14. 14 VALUE INVESTING - AN EXAMPLE Carson Pirie Scott - A $13 Stock (1993) - “The Sequel”

15. 15 VALUE INVESTING - AN EXAMPLE Carson Pirie Scott - A $13 Stock (1993) - “The Sequel”

16. 16 VALUE INVESTING - AN EXAMPLE Carson Pirie Scott - A $13 Stock (1993) “The Sequel”

17. 17 VALUE INVESTING - AN EXAMPLE Carson Pirie Scott - A $13 Stock (1993) - “The Sequel”

18. 18 VALUE INVESTING - AN EXAMPLE Carson Pirie Scott - A $13 Stock (1993) - “The Sequel”

19. 19 VALUE INVESTING - AN EXAMPLE Time, Inc. - A $105 Stock (January, 1989)

20. 20 VALUE INVESTING - AN EXAMPLE Time, Inc. - A $105 Stock (January, 1989 )

21. 21 VALUE INVESTING - AN EXAMPLE Time, Inc. - A $105 Stock (January, 1989 )

22. 22 VALUE INVESTING - AN EXAMPLE Time, Inc. - A $105 Stock (January, 1989)

23. 23 VALUE INVESTING - AN EXAMPLE Time, Inc. - A $105 Stock (January, 1989)

24. 24 VALUE INVESTING - AN EXAMPLE CBS - A $155 Stock (February, 1992)

25. 25 VALUE INVESTING - AN EXAMPLE CBS - A $155 Stock (February, 1992)

26. 26 VALUE INVESTING - AN EXAMPLE CBS - A $155 Stock (February, 1992)

27. 27 VALUE INVESTING - AN EXAMPLE CBS - A $155 Stock (February, 1992)

28. 28 VALUE INVESTING - AN EXAMPLE CBS - A $155 Stock (February, 1992)

29. 29 VALUE INVESTING - AN EXAMPLE CBS - A $155 Stock (February, 1992)

30. 30 VALUE INVESTING - AN EXAMPLE Fingerhut - A $14.375 Stock (March, 1997)

31. 31 VALUE INVESTING - AN EXAMPLE Fingerhut - A $14.375 Stock (March, 1997)

32. 32 VALUE INVESTING - AN EXAMPLE Fingerhut - A $14.375 Stock (March, 1997)

33. 33 VALUE INVESTING - AN EXAMPLE FINGERHUT - A $14.375 Stock (March, 1997)

34. 34 VALUE INVESTING - AN EXAMPLE FINGERHUT - A $14.375 Stock (March, 1997)

35. 35 VALUE INVESTING - AN EXAMPLE Fingerhut - A $14.375 Stock (March, 1997)

36. 36 VALUE INVESTING - AN EXAMPLE Fingerhut - A $14.375 Stock (March, 1997)

37. 37 VALUE INVESTING - AN EXAMPLE Fingerhut - A $14.375 Stock (March, 1997)

38. 38 VALUE INVESTING - AN EXAMPLE Fingerhut - A $14.375 Stock (March, 1997)

39. 39 VALUE INVESTING - AN EXAMPLE Fingerhut - A $14.375 Stock (March, 1997)

40. 40 VALUE INVESTING - AN EXAMPLE Fingerhut - A $14.375 Stock (March, 1997)

41. 41 VALUE INVESTING - AN EXAMPLE OF WHAT CAN GO WRONG! Liz Claiborne - A $31 Stock (February, 1992)

42. 42 VALUE INVESTING - AN EXAMPL OF WHAT CAN GO WRONG! Liz Claiborne - A $31 Stock (February, 1992)

43. 43 VALUE INVESTING - AN EXAMPLOF WHAT CAN GO WRONG! Liz Claiborne - A $31 Stock (February, 1992)

44. 44 VALUE INVESTING - AN EXAMPLE OF WHAT CAN GO WRONG! Liz Claiborne - A $31 Stock (February, 1992)

45. 45 VALUE INVESTING - AN EXAMPLE OF WHAT CAN GO WRONG! Liz Claiborne - A $31 Stock (February, 1992)

46. 46 VALUE INVESTING - AN EXAMPLE OF WHAT CAN GO WRONG! LIZ CLAIBORNE - A $31 Stock (February, 1992)

47. 47 VALUE INVESTING - AN EXAMPLE OF WHAT CAN GO WRONG! Liz Claiborne - A $31 Stock (February, 1992)

48. 48 What Worked!

49. 49 1998 Performance by Capitalization Tier

50. 50 What Worked!

51. 51 10 Largest Market Caps - S&P 500 As of 12/31/98 Source: Baseline

52. 52 Small Capitalization(1) Performance Relative to S&P 500 Index

53. 53 The List of Positives Favoring Small Caps and Mid Caps is Long

54. 54 Small Cap Cycles Dating back to 1926, every five-year period of small cap underperformance was followed by significant periods of small cap outperformance. The last five years has been the greatest period of underperformance on record. Today, small caps' superior earnings growth and low valuations lead us to conclude that we are about to witness an historic era of small cap outperformance. Data from "Predicting size Effect Reversals" by Marc R. Reinganum as published in Small Cap Stocks by Klein/Lederman. Comparison is between the largest market cap decile and declie 5, corresponding roughly to the S&P 500 Index and Small Cap stocks of less than $1 billion in market cap. Data for the last 5 years is the cumulative difference between the Vanguard Index 500 and the Vanguard Index Small Stocks through June 1998.

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