Contrarian Research April 2013

8/12/2019 Contrarian Research April 2013

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CONTRARIAN R ESEARCH R EPORTCOMPENDIUM

April 2013

Featured Companies

Booz Allen Hamilton Holding Corp. (BAH) Boardwalk Pipeline Partners, LP (BWP)

Biglari Holdings Inc. (BH) Spirit AeroSystems Holdings, Inc. (SPR)


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CONTRARIAN R ESEARCH R EPORT COMPENDIUM

Murrays MusingsGrowth versus Value 3

Industry ThoughtsGrowth versus Value, Continued 6

Facts & FiguresEducation and Training versus Advertising Spending 7The Ten Largest MLPs 8

Featured Companies

Booz Allen Hamilton Holding Corporation (BAH) 11Boardwalk Pipeline Partners, LP (BWP) 12Biglari Holdings Inc. (BH) 13Spirit AeroSystems Holdings, Inc. (SPR) 14

Post-Musings Structural Anomalies 15

AppendicesThe Wealth Index (RCH) 16Money Manager Index 20International Money Manager Index 21


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Murrays Musings

GROWTH VERSUS VALUE

The subject of the Musings is the ever-popular subject of Growth versus Value, which is

expressed in the modern era by various style indexes. A common way of disaggregatinggrowth from value is to aggregate companies by growth and value factors. Commonly usedgrowth factors include three-year change in earnings per share, three-year change inrevenue per share, and momentum, which means the rate at which the stock price is rising.Commonly used value factors are: price to book ratio (P/B), price to earnings ratio (P/E),and price to sales ratio (P/S). Companies are scored according to these factors and then

placed in appropriate baskets.

It is not infrequently the case that the same company can be in both the growth and thevalue basket. For instance, the S&P 500 Growth Index and the S&P 500 Value Index bothcount Exxon in their top ten holdings. IBM, one of the top ten companies in the ValueIndex, is also in the Growth Index. Wells Fargo and J.P. Morgan are in the Value Index,

but Bank of America is in the Growth Index. Viacom is in the Growth Index; AT&T is inthe Value Index.

Let us begin to make some comparisons. The P/E ratio of Bank of America, based on 2013consensus estimates, is 12.4x, J. P. Morgan is 9.25x, and Wells Fargo is 10.61x. By thismetric Bank of America is the most expensive, so one can see why it would be ranked inthe Growth Index. However, does anyone genuinely consider Bank of America a growthstock?


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Table 1: Price/Book Value Ratio for Banks in theS&P Growth Index and Value Index

Bank of America 0.57xJP Morgan 0.93xWells Fargo 1.28xFifth Third 1.04xSun Trust 0.74xCitigroup 0.76xKeyCorp 0.91xUS Bancorp 1.63xBank of New York 0.92xM&T Bank 1.31xSource: Bloomberg

The table above shows the price to book ratios for the large banks that are included in both

indexes. By this metric, one can clearly see that Bank of America at 0.57x book is thecheapest of all the banks, but it is included in the Growth Index. U.S. Bancorp, the mostexpensive of all the banks on a P/B basis, is also included in the Growth Index. TheGrowth Index has the unique honor of including the most expensive and the leastexpensive bank, on a P/B basis.

Wells Fargo has a P/B of 1.28x, and M&T Bank has a P/B of 1.31x. Clearly, these ratiosare almost identical, yet Wells Fargo is in the Value Index and M&T Bank is in the

Growth Index. These four companies, Bank of America, U.S. Bancorp, Wells Fargo, andM&T Bank, have been disaggregated into different indices based on these characteristicsand, ironically, Berkshire Hathaway, a well-known value investing entity, owns stock in allfour of these banks.


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growth potentials of currently attractive products have largely beenexploited?

3) How effective are the companys research and development efforts inrelation to size?

4) Does the company have an above average sales organization?

If those four points define the important characteristics of a growth stock, it should be self-evident that these are not features for which one can screen. In a computer database, giventhe data field of revenue, it would be very difficult to screen for the subset of companieswith growing revenue due to acquisitions as opposed to that subset of companies withgrowing revenue due to organic growth. Analysts could determine that difference, butfundamental research would be required. In principle, one could build a universe ofcompanies whose common characteristic is revenue growth above a certain size, let usassume 10% per annum, entirely from organic sources, and what follows in the table below

is such a universe.

Table 2: Candidates for an Organic Growth Index

Apple (AAPL) Target (TGT)Google (GOOG) Starbucks (SBUX)Oracle (ORCL) Anadarko Petroleum (APC)Qualcomm (QCOM) Biogen (BIIB)Amazon (AMZN) Nike (NKE)Visa (V) Priceline (PCLN)Amgen (AMGN) American Tower (AMT)Gilead (GILD) Precision Castparts (PCP)eBay (EBAY) Cognizant Tech Solutions (CTSH)MasterCard (MA) Crown Castle International (CCI)


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hundred years ago, the Belgian sociologist, Quetelet, the founder of modern statisticalscience, would make certain assertions about how many people were going to commitsuicide in a given year. How can anyone know who is sufficiently depressed to commitsuicide and when they might do so? One cannot know that for any individual, but Queteletwas looking at the populations of different countries and, in a universe of that size, one canmake an assertion that has a fair degree of validity. There is a way to engage in non-

mechanical passive investing by using fundamental analysis to find a feature of a companythat is predictive of growth in earnings, yet at the same time be passive and not make anassertion about which of those companies will continue to grow and which will not.

Industry Thoughts

GROWTH VERSUS VALUE , CONTINUED

Let us continue with the subject of growth versus value. Well begin with the case ofPepsi. Is Pepsi a growth stock or a value stock? It resides in the S&P 500 Growth Index so,on that basis, it is a growth stock, and it has characteristics that one might assume areassociated with growth. It has a P/E ratio of 17.55x based on 2013 earnings, it trades at5.34x book value and, from 2003 to 2012, its revenues advanced at a rate of 10.36%.

However, much of the advance in revenues was not organic. For instance, revenue growthwas achieved in large measure by the acquisition of Pepsis own bottling companies,which had simply been un-owned affiliates. In 2001, Pepsi acquired Gatorade. In 1988,Pepsi acquired Tropicana Orange Juice. In fact, for decades, Pepsi has expanded its


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3.12x book value, it nearly doubled its revenues between 2003 and 2012, and it is in theS&P 500 Growth Index.

At the moment, however, Procter &Gamble is not growing. In fact, it is divesting brandswith a view to improving margins. The fact that its revenue nearly doubled between 2003and 2012 was largely a function of acquisitions, many of which it is now in the process of

shedding. For instance, it recently sold its electric toothbrush business to Church &Dwight, its Papermate Pens to Newell Rubbermaid, its Right Guard and Soft & DriDeodorant to Dial (Dial was since acquired by Henkel), its pharmaceuticals business toWarner Chilcott, its Pringles Potato Chips to Kelloggs, and Jif Peanut Butter and FolgersCoffee to Smuckers.

Growth versus value is a meaningful distinction, but not based on the quantitativedefinition thats being used. Organic revenue growth versus non-organic revenue growth,

or no revenue growth, are much more meaningful attributes. Companies that increaserevenues organically, meaning from increased demand for existing products or internallydeveloped new products by 10% per annum is what was once meant by growth companies.The industry would do well to return to that definition. Unfortunately for the industry,those are factors for which one cannot readily screen, because the analysis of those factorsrequires human, not computer, intervention.

Facts & FiguresEDUCATION AND TRAINING VS ADVERTISING SPENDING


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For comparison, let us say that the total advertising expenditures are something less thanhalf of the U.S. education expenditures. Students are in the classroom, theoretically, sevento eight hours a day, five days a week and then most of them have homework assignments.To provide educational facilities, the government (or sometimes the private sector) needsto maintain a tremendous infrastructure that includes buildings, equipment, personnel, and

so forth. Advertising expenditures work on the platform of existing media. If an advertiserchooses to advertise on television, radio, newspapers, or the internet, the advertiser ismaking use of an existing platform, which some other entity established for the purpose ofadvertising. You can see how the two numbers are not commensurate.

Furthermore, if it is television advertising, it is not eight hours straightalthough manyadvertisers would like it to be soit is usually for about 20 minutes out of every hour. Yet,the advertisers manage to spend $131 billion annually. Obviously, the advertisers are

attracting a great many people, but they cant attract individuals when theyre at work norcan they attract students who are in school. They can only attract those people in the offhours. Spending $131 billion a year to attract peoples attention when they are nototherwise engaged in productive activities is an incredible number when you think about it.

THE TEN LARGEST MLP S

Lets examine the MLP industry. Table 3 provides the yields of the Top 10 master limited partnerships (MLPs) in the Alerian MLP Index. If these ten MLPs were merged into asingle publicly traded firm, it would have an aggregate market capitalization of $182.5

billion. If that merged company were included in the S&P 500, it would be the 15th largest


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Of these ten MLPs, Kinder Morgan is already in the S&P 500, but that index does not havea large MLP exposure. Something that is bound to happen is that the S&P 500, as a puremathematical proposition, will need to increase its MLP exposure if it is going to berepresentative of whats happening in the marketplace. If the S&P 500 were to do that, itwould create a problem because, since these MLPs have, at the moment, an aggregatemarket capitalization of $182 billion, to add a market capitalization of that magnitude into

the S&P 500 would mean eliminating ten names from the current list, otherwise it wouldhave to be the S&P 510 instead of the S&P 500.

These are some of the dilemmas that arise in the world of indexation. The MLPs are ofsufficient number that including them in the S&P 500, which purports to replicate thecharacter of the American stock market, creates problems. If the MLPs continue issuingshares at the current rate, it is just a matter of time before the S&P 500 MLP exposure willhave to increase significantly. Whenever one applies a fixed decision rule against an

organically living agglomeration of companies, it will almost always create a problem.

Table 4 provides goodwill and intangibles as a percent of shareholders equity for the Top10 MLPs in the Alerian MLP Index. Two of them have essentially no goodwill as a percentof shareholders equity. The highest figure, 412%, is for Energy Transfer Equity.Effectively, if there is more than a 100% ratio of goodwill intangibles as a percentage ofshareholders equity, there is no tangible equity. The ratio for Energy Transfer Partners is77.9%, so it has very little tangible equity. Kinder Morgan is currently in the S&P 500 andis the most popular of the MLPs. Its ratio is 50.3%. Another consequence is that thecompany is more leveraged than it appears to be. It has equity, but only as a result of

buying assets at a price above book value, but the claim of the bondholder is on thoset


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comparable figure for The Southern Company is 1 to 1. Long-term debt to tangible equityin the case of Kinder Morgan is 2.88 to 1, and in the case of The Southern Company, it is 1to 1.

Table 5: Kinder Morgan (KMP) versus The Southern Company (SO)

KMP SO

Long-Term Debt to Equity 1.43:1 1:1Long Term Debt to Tangible Equity 2.88:1 1:1Capital Expenditures to Depreciation 164.2% 224.2%Dividends and Distributions to Net Income or Payout Ratio 186.4% 70%Source: Company Reports

Both companies are growing and both need to make capital expenditures that are in excessof their historical depreciation amounts. In the case of Kinder Morgan, the capitalexpenditures are 164.2% of depreciation expense. For The Southern Company, it is evenhigher at 224.2%. The comparison stops there. The dividends and distributions in relationto net income or the payout ratio of Kinder Morgan is 186.4%. It is not only paying out allof its net income, it is actually paying out all of the appreciation. It funds capitalexpenditures by issuing shares and borrowing money.

The Southern Company has a 70% payout ratio, so it reinvests some of its earnings into thecompany, although even that is inadequate to fund its required capital expenditures. It sells

bonds and equity to fund the difference, but it does so in such a manner that its debt ratiosremain relatively constant, because it retains enough money to make sure that itsshareholders equity is rising for organic reasons. For Kinder Morgan, while it is true itsshareholder equity is rising, it is rising because it is making acquisitions and/or issuing


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Featured Companies

BOOZ ALLEN HAMILTON (BAH)

Booz Allen Hamilton has a market capitalization of $1.8 billion and a March 31 fiscal

year. This company is essentially a consulting company with a focus almost entirely on thedefense industry. Even though it is entirely defense, it deals with 1,200 U.S. governmentagencies. To serve the United States Defense Department, it is not unusual to deal withcivilian agencies, because military personnel need to be fed, housed, and receive certain

post-employment benefits. Booz Allen is involved in many projects of that nature. Thecompany deals with nearly all the U.S. Government cabinet level departments.

Booz Allen has $13 billion of backlog, which is about 2x annual revenue. Unfortunately,

due to the sequestration and various budgetary initiatives imposed by Congress, thiscompany, trades at 9.4x estimated fiscal 2014 earnings. The analysts who follow thiscompany assume that profits and revenues will decline by 10% largely as a factor of

budget reduction and sequestration. That assumption may or may not be a good one. If it isan appropriate assumption, it doesnt appear to be very likely that a decline in revenue willcontinue for the simple reason that many of the projects the company works on are at thehighest level of national security.

For instance, there is a huge cyber security threat directed against the United States andthere are very few companies with the expertise to deal with that problem. One of thereasons Booz Allen has that expertise is that 76% of its employees hold security clearanceand have already worked in that field Those qualifications represent an asset that certainly


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One way the company can grow is simply by paying down debt, because it has copiouscash flow. However, it is not entirely clear that the revenues and earnings are going todecline. There is a school of thought that believes the United States government might becompelled by circumstance to increase its expenditures in this area. If the United Statesgovernment should decide to increase its expenditures, the companies in question will onlysee it a year or two after. Therefore, Booz Allen might not see it until the 2015 fiscal year.

As soon as the governments intentions are apparent, they will be reflected in the stock price. It is a very inexpensive stock. The bad news, such as it is, is clearly reflected in thecurrent price of the stock, but there are many good prospects that are not reflected in that

price.

Q: Are CACI and Booz Allen similar companies?

A: They are similar, but with the difference that a greater percent of the work appears to be

top secret and at the highest level in Booz Allen than in CACI. CACI does a lot of work inlogistics and Booz Allen does not have a tremendous amount of exposure in that area.Logistics in this case is really the art of supplying the military. As the United Statesmilitary withdraws from different areas of the world, there will be less effort on logistics,and it is hard to imagine that there will not be more effort on cyber security. How muchmore effort is impossible to determine, and thats one of the reasons why the stock tradesat its current P/E.

One cannot determine with any degree of precision how much the United Statesgovernment will increase spending on cyber security, if it increases it at all; perhaps it willeven decrease it. We have no way of knowing, because they wont tell us. It is a reasonable

ti h th t th g t i lik l t k b it high i it If


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Boardwalk owns 14,000 miles of pipeline that begins somewhere in Ohio and ends in theGulf Coast. When that pipeline system was constructed, no one was really aware of theMarcellus trend. Oil and gas is being found in the Marcellus trend in ever-increasingmeasure. However, it doesnt necessarily have an outlet for delivery or storage capacity.Among other assets, Boardwalk Pipeline owns 201 billion cubic feet of gas storagecapacity and 20 million barrels of liquid storage capacity.

In addition to the Marcellus Shale, there is also the so-called Utica Shale in Ohio.Extending the pipeline to Pennsylvania, West Virginia, and Kentucky to access Marcellustrend involves being in a position to access the Utica trend. This access would involve theextension of a 14,000-mile pipeline by just several hundred miles. A relatively smallcapital expenditure could mean a big increase in throughput. There is also a smaller projectdesigned to bring gas to Northern Florida.

One of the reasons that Boardwalk Pipeline so infrequently finds its way into the ever- popular master limited partnership ETFs and funds is that the company is 53% controlled by Loews. Therefore, its liquidity characteristics are much more limited than thosenormally associated with a company with a $6.4 billion market cap. From the point of viewof float, it is effectively a small cap company and, therefore, from the point of view of

passive management and indexation in MLPs, it is systemically ignored. Incidentally, ithas a much higher yield than a typical MLP. In 24 months, that yield could meaningfullyincrease at a very small risk to the company.

BIGLARI HOLDINGS I NC . (BH)

l ld d f d l h


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corporate expenses, $20 million of pretax income out of the restaurants if they weregrouped in a separately traded business. That income is worth a certain amount of money,and there are about $350 million worth of investments, most of which are in CrackerBarrel stores.

The company is seeking more capital and, at the moment, is in the process of engaging in a

$15 million rights offering. Rights offerings are fairly unusual in the United States,although they are popular in other countries. Due to a lack of analytical coverage, theconcentration of the business, the difficulty of classifying it, and the rights offering, BiglariHoldings is just another example of one of those structural anomalies that no one paysattention to. However, the person running this company has done a credible job of creatingshareholder value. It is simply not recognized in the stock price.

SPIRIT AEROSYSTEMS HOLDINGS I NC . (SPR)

Spirit AeroSystems has a $2.7 billion market capitalization. It builds components ofairframes like fuselages and wing systems. Since the business is cyclical, because it isassociated with the civilian aircraft business, it trades at 9.4x estimated earnings. Boeing, acyclical company with a very large defense component, trades at 13.6x earnings. Certainwell-managed manufacturers of components that are perceived as providing somethingunique, like Precision Castparts, trade at 19.9x earnings at the moment. In the world ofcomponent manufacturers, Spirit AeroSystems is at the lower end of the valuation range.

There is a huge wave of civilian aircraft that is going to be delivered in the next five or sixyears because, given all the problems the airlines had in the last ten to twenty years, in


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However, that company generates, even now, 6.3% net margins. Therefore, 7% netmargins are achievable. One of the reasons that people pay very little attention to thiscompany is that it is 64% owned by Onex Corporation. As a result, while it has a $2.7

billion market capitalization, in reality, it has only one-third of that amount in float makingit effectively a very small capitalization stock that investors, especially indexes, tend toignore it. That is where the opportunity lies.

Post-Musings

STRUCTURAL A NOMALIES

Each of the companies recommended in this edition have one or more structural anomaliesassociated with them. Booz Allen Hamilton is the aftermath of a publicly traded IPO, and

there is an unwillingness to buy companies with a great amount of debt, even thoughfinancing can now be acquired at lower rates than have ever. If interest rates stay low, thenin the fullness of time, they can help to generate an incredibly high return on equity. Theother side of the coin of low interest rates would be to take some money out of bonds,which produce very little return, and buy some companies that are beneficiaries of low

borrowing rates and are leveraged. However, very few people will employ that strategy.

In the case of Boardwalk Pipeline, a big block of its shares is controlled by Loews and,

therefore, it doesnt have the liquidity commensurate with typical MLPs that repeatedlyissue large numbers of shares. Spirit AeroSystems has a lot of profit potential. Its businessis in the middle of a cyclical uptrend of huge dimensions, but it doesnt have the liquidityas a stock to be eligible for inclusion in many indexes The same goes three or four times


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WEALTH INDEX (Ticker: RCH Index) As of March 31, 2013 Since Incep.Annua lized Total Return 1 Year 3 Years 5 Years 7 Years 10 Years 15 Years 20 Years 1991 - Mar '13Wealth Index 11.97% 16.25% 13.47% 9.68% 14.18% 8.73% 11.38% 13.04%S&P 500 13.96% 12.67% 5.81% 5.01% 8.53% 4.27% 8.53% 9.50%S&P 500 Eq. Wgt. 17.54% 14.25% 9.24% 6.69% 12.04% 7.51% 10.53% 11.96%Russell 3000 14.56% 12.97% 6.32% 5.14% 9.15% 4.68% 8.66% 9.81%Russell 2000 16.30% 13.45% 8.24% 4.59% 11.52% 6.04% 8.84% 10.81%

Excess Return vs. S&P 500 -1.99% 3.58% 7.65% 4.67% 5.65% 4.46% 2.85% 3.54%Excess Return vs. S&P 500 Eq. Wgt. -5.57% 2.00% 4.23% 2.99% 2.14% 1.21% 0.85% 1.08%Excess Return vs. Russell 3000 -2.60% 3.28% 7.15% 4.54% 5.03% 4.04% 2.72% 3.23%Excess Return vs. Russell 2000 -4.34% 2.80% 5.23% 5.09% 2.66% 2.69% 2.54% 2.24%*Note : Calc ulated Using Tota l Returns

Since Incep.Risk Ad justed Return 1 Year 3 Years 5 Years 7 Years 10 Years 15 Years 20 Years 1991 - Mar '13Wealth Index 0.92 0.91 0.52 0.42 0.69 0.36 0.52 0.61S&P 500 1.34 0.84 0.31 0.30 0.58 0.26 0.56 0.64S&P 500 Eq. Wgt. 1.49 0.84 0.40 0.33 0.67 0.41 0.62 0.72Russell 3000 1.37 0.83 0.32 0.30 0.59 0.28 0.56 0.65Russell 2000 1.26 0.67 0.34 0.21 0.57 0.28 0.45 0.56*Note : Ca lculate d A s Annualized Tota l Return Divided By Annualized Tota l Return Vo lati l ity (Uses Mont hly Tota l Returns)

Since Incep.Information Ratio 1 Year 3 Years 5 Years 7 Years 10 Years 15 Years 20 Years 1991 - Mar '13Wealth Index vs. S&P 500 (0.41) 0.65 0.72 0.48 0.64 0.39 0.27 0.34Wealth Index vs. S&P 500 Eq. Wgt. (2.02) 0.47 0.68 0.50 0.38 0.11 0.09 0.11Wealth Index vs. Russell 3000 (0.62) 0.67 0.74 0.52 0.63 0.38 0.28 0.34Wealth Index vs. Russell 2000 (0.91) 0.41 0.59 0.64 0.35 0.22 0.23 0.21*Note : Ca lculate d As Annua lized Excess Tota l Return Divided By Annua lized Excess Tota l Return Volat i li ty (Uses Mo nthly Exce ss Tota l Returns)

We a l th In d e x Ba t t in g A v e ra g e Roll. 1 Year Roll. 3 Year Roll. 5 Yearvs. S&P 500 59.77% 67.67% 68.75%vs. S&P 500 Eq. Wgt. 57.81% 62.07% 56.73%

vs. Russell 3000 62.50% 68.10% 75.00%vs. Russell 2000 60.55% 64.66% 72.12%*Note : Calc ulated Using Tota l Returns

Since Incep.Annua lized Volati l ity 1 Year 3 Years 5 Years 7 Years 10 Years 15 Years 20 Years 1991 - Mar '13Wealth Index 13.04% 17.90% 25.82% 22.82% 20.46% 23.97% 21.84% 21.28%S&P 500 10.39% 15.01% 18.92% 16.72% 14.82% 16.17% 15.16% 14.85%S&P 500 Eq. Wgt. 11.73% 16.95% 23.00% 20.07% 18.04% 18.45% 16.88% 16.55%Russell 3000 10.63% 15.66% 19.66% 17.35% 15.42% 16.60% 15.44% 15.11%Russell 2000 12.92% 20.10% 24.42% 21.67% 20.13% 21.43% 19.62% 19.31%*Note : Calc ulated Using Tota l Returns

Since Incep.Annua lized Track ing Error 1 Year 3 Years 5 Years 7 Years 10 Years 15 Years 20 Years 1991 - Mar '13vs. S&P 500 4.84% 5.51% 10.62% 9.70% 8.89% 11.34% 10.59% 10.46%vs. S&P 500 Eq. Wgt. 2.76% 4.27% 6.18% 5.95% 5.67% 10.82% 9.89% 9.60%

vs. Russell 3000 4.22% 4.92% 9.68% 8.81% 8.04% 10.55% 9.81% 9.64%vs. Russell 2000 4.75% 6.75% 8.91% 7.98% 7.52% 12.22% 11.23% 10.82%*Note : Calc ulated Using Tota l Returns

Since Incep.Wealth Index Beta 1 Year 3 Years 5 Years 7 Years 10 Years 15 Years 20 Years 1991 - Mar '13vs. S&P 500 1.18 1.14 1.27 1.26 1.27 1.35 1.29 1.28

& 00 0 0 0 0 0


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WEALTH INDEX (Ticker: RCH Index) As of March 31, 2013No. Ticker Security Name Individual Name Position

1 PEGA Pegasystems Inc Alan Trefler Chairman/Chief Executive Officer/Founder2 L Loews Corp Andrew H. Tisch Co-Chairman3 IACI IAC/ InterActiveCorp Barry Diller Chairman4 EXPE Expedia Inc Barry Diller Chairman5 SYNT Syntel Inc Bhrat Desai Chairman/Co-Founde6 JWN Nordstrom Inc Blake W. Nordstrom President/Significant Owner7 PAYX Paychex Inc Blas Thomas Golisano Chairman/Founde8 CMCSA Comcast Corp Brian L. Roberts Chairman/President/Chief Executive Office9 NEU NewMarket Corp Bruce C. Gottwald Chairman

10 ARII American Railcar Industries Inc Carl C. Icahn Chairman11 CVI CVR Energy Inc Carl C. Icahn Chairman-by-Proxy/Significant Owner12 CHK Chesapeake Energy Corp Carl C. Icahn Director-by-Proxy/Significant Owner13 NAV Navistar International Corp Carl C. Icahn Director-by-Proxy/Significant Owner14 HAIN Hain Celestial Group Inc/The Carl C. Icahn Director-by-Proxy/ Significant Owner

15 MENT Mentor Graphics Corp Carl C. Icahn Director-by-Proxy/Significant Owner16 TTWO Ta ke-Two Intera ctive Softwa re Inc C arl C . Ic ahn Direc tor-by-Proxy/ Signific ant Owner17 WBMD WebMD Health Corp Carl C. Icahn Director-by-Proxy/Significant Owner18 BEN Franklin Resources Inc Charles B. J ohnson Chairman19 AMCX AMC Networks Inc Charles Francis Dolan Chairman20 CVC Cablevision Systems Corp Charles Francis Dolan Chairman21 SCHW Charles Schwab Corp/The Charles R. Schwab Chairman/Founde22 SATS EchoStar Corp Charles William Ergen Chairman23 DISH DISH Network Corp Charles William Ergen Chairman/Co-Founde24 WERN Werner Enterprises Inc Clarence L. Werner Chairman Emeritus/Founder25 BKE Buckle Inc/The Daniel J . Hirschfeld Chairman26 YHOO Yahoo! Inc David Filo Chief Yahoo/Co-Founder/Significant Owne27 DOLE Dole Food Co Inc David H. Murdock Chairman28 GLRE Greenlight Capital Re Ltd David M. Einhorn Chairman/Co-Founde

29 CACC Credit Acceptance Corp Donald A. Foss Chairman30 DHI DR Horton Inc Donald R. Horton Chairman/Founde31 SHLD Sears Holdings Corp Edward S. Lampert Chairman32 AN AutoNation Inc Edward S. Lampert Direc tor-by-Proxy/Significant Owner33 SHOS Sears Ho meto wn and Outle t Sto res Inc Ed ward S. Lamp ert Direc to r-b y-Pro xy/Sig nificant Owner34 DKS Dick's Sporting Goods Inc Edward W. Stack Chairman/Chief Executive Office35 TSLA Tesla Motors Inc Elon R. Musk Chairman/Chief Executive Office36 FC NC A First C itizens Ba nc Sha res Inc /NC Fra nk B. Holding Sr. Vic e C ha irma n37 BRKR Bruker Corp Frank H. Laukien Chairman/President/Chief Executive Office38 MOLX Molex Inc Frederick A. Krehbiel Co-Chairman39 FDX FedEx Corp Frederick Wallace Smith Chairman/President/Chief Executive Office40 BOKF BOK Financial Corp George B. Kaise Chairman41 BF/B Brown-Forman Corp George Garvin Brown IV Chairman42 MCY Mercury General Corp George J oseph Chairman/Founde43 DST DST Systems Inc George L. Argyros Board Member/Significant Owne44 HTH Hilltop Holdings Inc Gerald J . Ford Chairman45 RAX Rackspace Hosting Inc Graham M. Weston Chairman46 KRO Kronos Worldwide Inc Harold C. Simmons Chairman47 C LR C ontinental Resourc es Inc /OK Harold G. Hamm C hairman/ Chief Exec utive Offic er/ Founder48 BRCM Broadcom Corp Henry Samueli Director/Founder/Chief Technology Officer/Significant Ow49 SPG Simon Property Group Inc Herbert Simon Chairman Emeritius


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WEALTH INDEX (Ticker: RCH Index) As of March 31, 2013No. Ticker Security Name Individual Name Position

76 TTEC TeleTech Holdings Inc Kenneth D. Tuchman Chairman/Chief Executive Office77 UA Under Armour Inc Kevin A. Plank Chairman/President/Chief Executive Officer/Founde78 M GM MGM Resorts International Kirk Kerkorian Director Emeritus/ Significant Owner79 FOSL Fossil Inc Kosta N. Kartsotis Chairman/Chief Executive Office80 GOOG Google Inc Lawrence E. Page Chief Executive Officer/Co-Founde81 ORCL Oracle Corp Lawrence J oseph Ellison Chief Executive Officer82 LYB LyondellBasell Industries NV Len Blavatnik Direc tor-by-Proxy/ Significant Owner83 LTD L Brands Inc Leslie Herbert Wexne Chairman/Chief Executive Office84 CRM Salesforce.com Inc Marc R. Benioff Chairman/Chief Executive Officer/Co-Founder85 C PB C ampbell Soup C o Mary Alic e Dorranc e Malon Family Board Members/ Signific ant Owners86 TR Tootsie Roll Industries Inc Melvin J . Gordon Chairman/Chief Executive Office87 AFSI Amtrust Financial Services Inc Michael Karfunkel Chairman88 DELL Dell Inc Michael S. Dell Chairman/Chief Executive Officer/Founder89 CCL Carnival Corp Micky Meir Arison Chairman/Chief Executive Office

90 GRMN Garmin Ltd Min H. Kao Chairman/Chief Executive Office91 MSM MSC Industrial Direct Co Inc Mitchell J acobson Chairman92 CFX Colfax Corp Mitchell P. Rales Chairman/Co-Founde93 BXP Boston Properties Inc Mortimer B. Zuc kerman C hairman/ Chief Exec utive Offic er/ Co-Founder94 CERN Cerner Corp Neal L. Patterson Chairman/President/Chief Executive Office95 WEN Wendy's Co/The Nelson Peltz Chairman96 QCOM QUALCOMM Inc Paul Eric J acobs Chairman/Chief Executive Office97 PGR Progressive Corp/The Peter Benjamin Lewis Chairman98 ARG Airgas Inc Peter McCausland Chairman/President/Chief Executive Officer/Founde99 APOL Apollo Group Inc Peter V. Sperling Chairman

100 HRG Harbinger Group Inc Philip A. Falcone Chairman/Chief Executive Office101 NKE NIKE Inc Philip H. Knight Chairman102 OPK Opko Health Inc Phillip Frost Chairman/Chief Executive Office103 TEVA Teva Pharmaceutical Industries Ltd Phillip Frost Chairman

104 EBAY eBay Inc Pierre M. Omidyar Chairman/Co-Founde105 RES RPC Inc R. Randall Rollins Chairman106 ROL Rollins Inc R. Randall Rollins Chairman107 RL Ralph Lauren Corp Ralph Lauren Chairman/Chief Executive Officer/Founder108 HALO Halozyme Therapeutics Inc Randal Kirk Board Member/Significant Owne109 OXY Occidental Petroleum Corp Ray R. Irani Chairman110 URBN Urban Outfitters Inc Richard A. Hayne Chairman/President/Chief Executive Office111 HST Host Hotels & Resorts Inc Richard E. Marriott Chairman112 CAB Cabela's Inc Richard N. Cabela Chairman/Co-Founde113 FAST Fastenal Co Robert A. Kierlin Chairman/Founde114 ITW Illinois Tool Works Inc Robert C. McCormack Board Member/Significant Owne115 PSMT Pricesmart Inc Robert E. Price Chairman116 GPS Gap Inc/The Robert J . Fishe Family Board Members/Significant Owners117 TCO Taubman Centers Inc Robert S. Taubman Chairman/President/Chief Executive Office118 PCYC Pharmacyclics Inc Robert W. Duggan Chairman/Chief Executive Office119 MNST Monster Beverage Corp Rodney C. Sacks Chairman/Chief Executive Office120 PAG Penske Automotive Group Inc Roger S. Penske Chairman/ Chief Executive Office121 CVA Covanta Holding Corp Samuel Zell Chairman122 AXE Anixter International Inc Samuel Zell Chairman123 ELS Equity Lifestyle Properties Inc Samuel Zell Chairman124 EQR Equity Residential SamuelZell Chairman


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Important Disclosures Horizon Kinetics ISE Wealth Index, Horizon Kinetics ISE Globa l Wealth Index, and Horizon Kinetics Asia Ex-

J apan Wealth Index (the Indexes) were created in conjunction with the International SecuritiesExchange, LLC (ISE), which operates a lea ding U.S. options excha nge a nd offers option trading on over2,000 underlying equity, EFT, index, and FX produc ts.

Any returns or performanc e provided in this presentation is provided for illustrative purposes only and do notdemonstrate actual performance. Past performance is not a guarantee of future investment results. It is notpossible to invest directly in the Indexes. Exposure to the Indexes is only ava ilable through investab leinstruments. Horizon Kinetics, its subsidiaries and ISE may rec eive compensation in connec tion with licensingthe Indexes to third parties. Horizon Kinetics or its subsidiaries may sponsor, end orse, sell, promote o r

mana ge investment funds or other vehicles that seek to provide an investment return based on the returnsof the Indexes. There is no assurance that investment products based on the Indexes will accurately trackthe performance of the Indexes or provide positive investment returns. Inclusion of a sec urity within theIndexes is not a recommend ation by Horizon Kinetics or its subsidiaries to buy, sell, or hold such sec urity, noris it considered to be investment advice.

This presentation may show the performance of the Indexes for a period of time prior to when the Indexeswere officially launched. Such information ma y reflect hypothetical historica l performanc e and a s suchmay be ba cktested. Anyone interested in better understanding the methodology for the Indexes, including

details on the manner in which the Indexes are rebalanced, the timing of such rebalancing, the criteriaused in determining additions and deletions to the Indexes as well as other index calculations may contactHorizon Kinetics at [email protected] or (646) 495-7333.

In situations where backtested performance of data has been employed, prospective application of themethodology used to construct the information of such Indexes may not result in performancecommensurate with the backtest returns shown. The backtest period does not necessarily correspond tothe entire available history of the Indexes. A limitation associated with the hypothetical information of theIndexes is that generally the calculations of the Indexes are being prepared with the benefit of hindsight.

Bac ktested da ta reflects the a pplication o f the Indexes methodology and selection o f Indexes constituentsin hindsight. No hypothetical record can completely account for the impact of financial risk in actualtrading. For example, there are numerous factors related to the equities markets in general which cannotbe, and have not been accounted for in the preparation of the Indexes information, all of which can


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P a g e | 16

Horizon Kinetics LLC 2013

Money Manager Index

From Jan 1983 to Feb 2013 Annualized returnYear Jan Feb Mar Apr May Jun Jul Aug S ep Oct Nov Dec Yr. End Index Yearly return (since inception)1983 1.00 0.81 0.76 0.87 0.75 1983 0.75 (60.5)% (50.2)%

1984 0.75 0.71 0.70 0.66 0.67 0.67 0.61 0.83 0.79 0.76 0.67 0.65 1984 0.65 (13.5)% (26.5)%

1985 0.92 0.93 0.99 0.95 1.20 1.30 1.32 1.38 1.28 1.50 1.86 2.02 1985 2.02 2 11.8% 33.7%

1986 2.46 2.78 2.47 2.31 2.36 2.33 2.03 2.23 1.98 2.37 2.34 2.34 1986 2.34 15.9% 28.2%

1987 3.21 3.27 3.16 2.55 2.37 2.30 2.39 2.47 2.22 1.56 1.44 1.52 1987 1.52 (35.0)% 9.9%

1988 1.80 1.87 1.78 1.79 1.69 1.94 1.92 1.96 2.01 1.97 1.95 2.07 1988 2.07 36.0% 14.3%

1989 2.42 2.37 2.54 2.63 2.64 2.64 2.93 3.12 3.07 3.05 3.23 3.26 1989 3.26 57.8% 20.2%

1990 3.12 3.15 3.53 3.06 3.47 3.45 3.30 2.70 2.68 2.40 2.52 3.02 1990 3.02 (7.3)% 16.1%

1991 3.08 3.49 3.70 3.68 3.71 3.61 3.86 4.05 4.07 4.69 4.47 5.72 1991 5.72 89.4% 23.0%

1992 5.76 5.61 5.30 5.12 4.98 4.99 5.93 6.06 6.19 6.56 7.25 7.36 1992 7.36 28.6% 23.6%

1993 8.06 8.04 8.20 7.94 8.15 8.57 9.05 10.00 9.99 9.31 8.97 8.90 1993 8.90 21.0% 23.4%

1994 9.52 8.73 8.05 7.85 7.81 7.53 7.66 8.31 8.15 8.52 7.88 7.95 1994 7.95 (10.6)% 19.9%

1995 7.74 8.38 8.72 8.77 9.20 9.35 9.93 10.78 11.22 10.53 10.89 10.40 1995 10.40 30.8% 20.8%

1996 11.12 11.50 11.33 11.62 11.86 12.53 11.91 12.36 13.32 14.03 14.42 15.02 1996 15.02 44.4% 22.4%

1997 16.04 16.81 15.32 17.27 18.42 20.29 22.28 21.39 25.31 24.95 24.95 25.50 1997 25.50 69.8% 25.2%

1998 25.67 29.00 29.89 30.60 28.90 30.44 27.67 21.33 21.74 25.16 27.27 25.41 1998 25.41 (0.4)% 23.3%

1999 26.00 23.71 23.92 26.77 28.94 29.74 28.78 26.74 25.89 27.73 28.54 30.55 1999 30.55 20.2% 23.2%

2000 31.07 31.19 36.01 35.60 35.20 40.32 43.58 45.75 45.62 48.69 44.05 49.84 2000 49.84 63.1% 25.2%

2001 50.23 46.41 44.27 46.96 48.90 49.98 50.67 49.70 46.47 44.81 48.04 51.91 2001 51.91 4.2% 23.9%2002 53.62 53.74 55.11 52.52 52.83 50.48 42.58 44.92 41.54 42.66 45.78 43.17 2002 43.17 (16.8)% 21.4%

2003 42.72 41.18 42.36 45.98 49.02 50.71 53.47 53.97 53.46 56.12 55.83 58.49 2003 58.49 35.5% 22.1%

2004 64.38 65.08 64.63 61.68 60.86 62.30 58.71 64.08 65.73 68.86 73.53 78.16 2004 78.16 33.6% 22.6%

2005 76.46 77.94 74.06 72.83 77.02 80.25 83.59 83.07 86.03 89.19 96.58 97.35 2005 97.35 24.6% 22.7%

2006 107.62 111.44 110.75 111.88 101.89 100.61 100.62 104.98 114.61 116.64 113.78 118.05 2 006 118.05 21.3% 22.6%

2007 125.73 123.77 122.62 127.58 133.57 134.68 126.61 124.07 133.57 148.09 135.13 135.56 2 007 135.56 14.8% 22.3%

2008 127.53 115.76 115.94 121.58 130.51 115.68 119.94 120.55 109.69 72.70 62.95 67.91 2008 67.91 (49.9)% 18.1%

2009 57.51 51.76 65.63 79.49 85.67 90.79 99.97 101.69 107.32 107.36 110.94 115.01 2009 115.01 69.4% 19.7%

2010 106.84 110.32 118.13 114.91 100.18 88.17 97.65 89.64 103.59 108.29 108.64 119.58 2 010 119.58 4.0% 19.1%

2011 122.80 128.28 127.94 127.97 126.06 121.03 115.49 104.25 91.32 102.44 103.79 103.98 2 011 103.98 (13.1)% 17.8%

2012 109.46 120.12 125.37 121.64 108.44 114.12 113.56 118.33 123.18 127.91 131.76 135.00 2 012 135.00 29.8% 18.1%

2013 151.20 155.13 2 013 155.13 14.9% 18.6%

S.No. Ticker

1 AMG us equity

2 ALNC us equity

3 BLK us equity

4 WDR us equity

5 EV us equity

6 T ROW us equity

7 BEN us equity

8 LM us equity

9 FII us equity

10 FIG us equit y Fort ress Invest ment Group

11 P ZN us equit y P zena Invest ment Management

Affiliated Manager $22,947 1377 11/30/1997 201,331

Name Initial Amount Invested Shares Purchased Date of Investment Current Index Value

BlackRock $23,205 1658 9/30/1999 397,389

Alliance $7,633 491 4/30/1994 21,811

Eaton Vance $2,641 3998 1/31/1986 152,699

Waddell & Reed $27,513 1587 3/31/1998 65,111

Franklin Resources $908 1263 4/30/1985 178,418

T . Rowe Price $2,423 2014 4/30/1986 143,366

Federated Inv $26,381 2206 5/31/1998 51,755

Legg Mason $1,000 462 8/31/1983 13,172

$102,249 3389 2/28/2007 22,131

$122,426 6317 10/31/2007 40,746


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P a g e | 17

Horizon Kinetics LLC 2013

International Money Manager Index

From Jan 1983 to Feb 2013 Annualized returnYear Jan Feb Mar Apr May Jun Jul Aug Sep O ct Nov Dec Yr. End Index Yearly return (since i nception)

1986 1.00 1.02 1986 1.02 10.0% 10.0%

1987 1.25 1.37 1.48 1.48 1.37 1.33 1.39 1.40 1.33 0.81 0.76 0.73 1987 0.73 (27.7)% (23.3)%1988 0.75 0.92 1.02 0.95 0.80 0.89 0.88 0.82 0.86 0.88 0.89 0.93 1988 0.93 26.4% (3.4)%

1989 1.03 1.02 1.06 1.17 1.19 1.18 1.25 1.16 1.17 1.20 1.21 1.28 1989 1.28 3 7.8% 8.1%

1990 1.24 1.24 1.18 1.19 1.22 1.24 1.26 1.26 1.23 1.24 1.25 1.33 1990 1.33 3.7% 7.0%

1991 1.34 1.52 1.56 1.58 1.57 1.47 1.52 1.64 1.81 1.89 1.94 1.92 1991 1.92 44.8% 13.5%

1992 2.01 1.93 1.88 2.14 2.19 2.13 2.08 1.99 1.95 1.77 1.76 1.96 1992 1.96 1.9% 11.5%

1993 1.98 2.03 2.20 2.39 2.42 2.45 2.54 3.05 3.01 3.07 3.01 3.30 1993 3.30 68.7% 18.1%

1994 3.72 3.39 3.17 3.04 2.99 2.89 3.01 3.14 3.13 3.19 3.15 3.15 1994 3.15 (4.7)% 15.1%

1995 3.07 3.12 3.28 3.41 3.56 3.59 3.87 3.76 3.76 3.77 3.70 3.73 1995 3.73 18.6% 15.4%

1996 3.76 3.85 3.70 3.79 3.96 3.90 3.75 3.96 4.16 4.47 4.90 4.86 1996 4.86 30.3% 16.8%

1997 5.11 5.37 4.99 4.96 5.43 5.94 6.57 6.32 7.45 7.24 6.80 7.19 1997 7.19 47.9% 19.3%

1998 7.12 8.05 8.78 9.25 8.95 8.74 8.91 6.67 6.08 7.01 7.51 7.71 1998 7.71 7.3% 18.3%

1999 7.99 8.21 8.68 9.07 8.71 8.61 8.63 8.43 8.47 8.79 9.80 10.79 1999 10.79 39.9% 19.8%

2000 11.23 12.27 13.95 13.50 13.73 15.39 15.85 16.82 17.07 16.31 14.43 16.76 2000 16.76 55.4% 20.7%

2001 17.42 15.88 13.46 15.14 15.84 15.15 14.21 13.61 10.77 11.43 13.90 14.12 2001 14.12 (15.8)% 19.1%

2002 14.74 13.78 15.09 15.11 16.38 14.14 12.92 12.10 11.23 11.06 11.33 10.50 2002 10.50 (25.6)% 15.7%2003 10.18 9.52 9.69 10.62 12.17 13.04 13.98 15.38 16.67 17.88 18.16 18.07 2003 18.07 72.1% 18.4%

2004 20.00 22.41 29.98 35.46 26.68 30.80 25.37 25.20 23.67 23.34 27.56 31.48 2004 31.48 74.2% 20.9%

2005 32.19 32.57 31.88 27.79 27.36 29.05 30.38 31.49 33.39 32.24 32.95 37.18 2005 37.18 18.1% 20.8%

2006 41.01 40.97 43.69 46.45 42.39 41.58 40.60 43.32 43.55 43.70 44.58 49.38 2006 49.38 32.8% 21.3%

2007 50.95 51.18 53.59 56.09 58.16 56.37 53.90 48.65 50.96 57.03 48.21 45.75 2007 45.75 (7.3)% 19.8%

2008 38.71 39.71 38.59 40.18 39.25 35.10 34.59 33.33 26.09 18.72 14.50 15.79 2008 15.79 (65.5)% 13.3%

2009 14.62 13.24 14.96 19.63 22.82 23.73 26.14 27.05 28.41 28.53 28.69 29.83 2009 29.83 89.0% 15.8%

2010 28.50 27.58 29.90 29.58 25.53 24.72 27.82 26.74 30.36 33.68 31.85 34.52 2010 34.52 15.7% 15.8%

2011 34.91 36.17 36.51 39.63 37.86 35.31 35.83 32.76 29.28 32.04 31.23 30.59 2011 30.59 (11.4)% 14.7%

2012 32.12 34.36 35.67 35.08 31.03 32.92 32.66 34.17 36.33 37.28 38.11 40.73 2012 40.73 33.1% 15.2%

2013 43.61 42.58 2013 42.58 4.5% 15.3%

S.No.123456789

101113151618

73 31/11/1986 3,252

15,537

Ticker Name Ini tial Amount Invested Shares Purchased Date of Investment Current Index Value

FCAM LN Equity F&C Asset Management Plc $1,203 485 5/31/1989 756IGM CN Equity IGM Financial Inc $1,000

IVZ US Equity Invesco Plc (Previously Amvescap) $1,357 1,153 1/31/1991

15,739SDR LN Equity Schroders Plc $1,208 505 3/31/1991 15,272RAT LN Equity Rathbone Brothers Plc $1,208 736 3/31/1991

84,825ADN LN Equity Aberdeen Asset Mgmt Plc $1,208 1,827 3/31/1991 11,929CIX CN Equity CI Financial Corp. $2,585 3,224 6/30/1994

15,309EMG LN Equity Man Group Plc $2,862 6,344 10/31/1994 7,345AGF/B CN Equity AGF Management Ltd-Cl B $3,343 1,346 1/31/1996

53,713

16,7178739 JP Equity Sparx Group Co Lt d $11,762 108 12/31/2001 14,424

12/31/2003

ASHM LN Equity Ashmore Group Plc. $36,688 9,873 10/31/2006

7/31/2004 79,379

Index Constituent Changes: 1. Everest Financial Group Limited (EFG AU) was delisted from the Australian Security Exchange effective 7/19/2011 and has been removed from the index. 2. RAB Capital Plc (RAB LN) was delisted from the London Security Exchange effective 9/2/2011and has been removed from the index. 3. Invista Real Estate (INRE LN) was delisted effective 8/10/2012. The divisor has been adjusted accordingly for each of these changes.

134,139CCAP LN Equity Charlemagne Capital Ltd $36,848 22,300 3/31/2006 3,471AZM IM Equity Azimut Holding Spa $21,908 4,977HGG LN Equity Henderson Group P lc $14,447 8,666

PGHN SW Equity Partners Group-Reg $36,848 578 3/31/2006

Contrarian Research April 2013

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