SOR

Key Points

• Objective: To outperform the Russell 2000 Value over full market cycles with less risk, defined as peak-to-peak or trough-to-trough. Uses a bottom-up, fundamental-based approach.
• Investment Process: Four pillars: 1) Balance sheet strength for staying power through crises. 2) Valuation with margin of safety using free cash flow discount models. 3) Strong management with calculated risks and long-term focus. 4) Sector/industry analysis to avoid value traps in secular decline industries. 5) Performance during market weakness: Protects capital better than benchmark and peer group; outperforms in down markets, trails in robust markets.
• Specific Holding: Discussion of IAC, bought after a 65%+ decline. Reasons include ownership in Angi and MGM, integration issues resolved, and undervalued Dotdash Meredith unit with growth potential.

Forward-Looking Statements

• Aims to outperform the Russell 2000 Value over full market cycles with a consistent, long-term process. Focuses on compounding money steadily. Confident in continuing to meet objectives due to disciplined, bottom-up approach and long-term view.

There are no distinct product segments discussed. As of December 31st, the AUM of the strategy was about $500 million.

Risks Identified

• Past mistake of buying cheap companies in secular decline industries (leading to value traps).
• Market overreacts to quarterly earnings, creating opportunities but also risks.
• Uncertainty in near-term economic environment and recessions, managed through long-term perspective.

Q: What has to happen for small-cap to outperform large-cap companies over a sustained period of time?

A: Better valuations for small-caps relative to large-caps; historically rising rates have helped small-caps vs large-caps; coming out of recessions, small-caps have led the way in 8 out of the last 10 recessions.