| APM Alumni Updates:
Mark Robinson (APM S07) accepted a position at Wind Point Partners, private equity group, as an associate.
David Holzman (APM F08) has been promoted to Chief Operating Officer at Allied Business Group in Kansas City.
Matt Michaelis (APM F94) has accepted a position on the Board of Directors of Emprise Bank.
Adam Hall (APM F06) has accepted a position with Realm Partners, LLP in London.
Grant Humphries (APM S07) was promoted to Vice President, Corporate Finance for Citigroup, Kansas City.
Steve Baru (APM F06) has accepted a position with TIAA-CREF in Denver, Colorado.
Doug Goehl (APM F06) was promoted to Director, Men's Distribution at Payless ShoeSource and Director at Collective Brands.
Michael Moore (APM F08) accepted a position with Ernst & Young in the Tax Services Group.
Jakub Lichwa (APM F07) has accepted an offer to work as an Associate Analyst for Moody's. He is responsible for the banking sector in Poland. |
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Speakers for Spring 2011
31 - Jan.
Terry Matlack, MD and James Mick, Tortoise Capital
7 - Feb.
Marc Hensel, VP Plains Exploration
21 - Feb.
Allan Kells, VP Cerner
28 - Feb.
Allen Ford, Professor
7 - Mar.
Mark Mitchell, SGI, PI
14 - Mar.
Alex Verbov
4 - Apr.
Derek Smashey, PM Scout Funds
11 - Apr.
Greg Greensburg and Doug Jamison, CEO Harris & Harris
11 - Apr.
Jeff Fahler, CFO and Jeff Aberdeen, Controller Commerce Bancshares
18 - Apr.
Stuart Berkley and Brian Perott, FCI Advisors
25 - Apr.
Alberto Bassetto, Jayhawk Capital
2 - May.
Paul Maxwell and Ryan Sprott, Great Range Capital
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c/o Kacy Schmidt
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APM Alum Fills in to Teach Spring Semester
With Professor Shenoy at the University of Almeria in Spain, two-time APM alum and former teaching assistant Jeff Morrison (APM F98 and S05) managed the class for the Spring Semester. Morrison took APM from Kent McCarthy in the Fall of 1998 and served as a teaching assistant that Spring. He liked the class so much he took it again as a graduate student from Professor Shenoy in 2005, so it only made sense that he take a shot at teaching the class as well. "It's a real privilege to be able to teach in the School of Business, especially teaching a class that left a lasting impact on me as a student at KU," Morrison said.
Morrison brings a breadth of experience to the class. Presently he serves as the Director of Operations and Client Development for Lawrence Regional Technology Center, a high-tech business incubator. He started his professional career with Commerce Bank & Trust in Kansas City, Missouri, and remained in the banking industry as the Vice President of Credit Administration for a $300 million community bank. Prior to joining LRTC in 2010, Morrison was the manager for a small private equity firm for more than seven years, investing in early stage technology companies and commercial real estate. Morrison received both his MBA and BS in Business Administration from the University of Kansas.
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APM Class Gets Tax Lesson From Distinguished Professor
 Group 3: Alexander Young, Chris Brito, Garrett Frankamp and Johnny Williams
Professor Allen Ford, one of KU's most distinguished professors, stopped by the APM class on February 28 for a discussion on taxes. Professor Ford has a Ph.D. in Accounting from the University of Arkansas and is the KPMG Peat Marwick Distinguished Professor of Accounting. His class discussion ranged from taxes on capital gains and losses to preferential tax treatment of gains and losses to taxes on certain stock activities (wash sales, writing calls, etc.). He showed the class the true impact that taxes have on investments and revenue. Such information gave the class a better idea of how to handle taxes in a taxable portfolio. Ford also has a long-term relationship with class founder, Kent McCarthy, going back to McCarthy's time as an undergraduate student at KU. Ford taught McCarthy in intermediate accounting and tax and, as Ford recalls, one or two other accounting classes. McCarthy even helped coach Ford's daughter's softball team. As McCarthy grew in his career at Goldman Sachs, he and Ford stayed in contact, and often discussed McCarthy's idea for the Applied Portfolio Management class. Everyone involved with APM is grateful for Ford's support of the program and his contributions to its success. |
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Is it Time for Natural Gas Exposure?
 Group 1: Matt Farmer, John Pecis, David Webb and Danielle Kopp
The APM class started the semester with Tortoise Capital Advisor's Terry Matlack (MD) and James Mick (Investment Analyst). Tortoise Capital's investment focus is energy infrastructure MLPs. The first case of the semester dealt with whether the APM portfolio should be more exposed to a midstream natural gas company called Copano Energy (CPNO). Copano provides pipelines and other services to natural gas producers.
As most APM alumni have experienced during the course of the first case, we all know it is an eye-opening learning experience filled with plenty of frustration and growing pains. That said, Matlack and Mick (APM F99) presented a clear and thorough argument supporting our collective investment thesis. Their advice focused on the drivers of CPNO and a positive future outlook. They began their argument by posing two questions, "Where does CPNO need to be positioned in its operations geographically? What needs to happen in those locations?" The answer was: Copano needs to be in natural gas fields, i.e., the Eagle Ford Shale, where exploration and production companies ARE drilling for natural gas. More natural gas discoveries lead to increased use of CPNO's pipelines.
The problem for CPNO right now doesn't stem from poor operations, but from an abundance of natural gas. New technological breakthroughs in horizontal drilling have increased supply to new all-time highs and have somewhat devalued CPNO's position in the market. Despite low prices, many natural gas production companies are still drilling to maintain their drilling rights with landowners. This will continue to supply CPNO with natural gas and the higher value natural gas liquids (NGLs) to process in the short-term. Longer-term, increased natural gas prices or a higher mix of NGLs is important for the growth of CPNO.
Copano is well positioned geographically for increased demand in natural gas, and has a management team with a proven track record of adapting to short-term environment changes. |
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Cerner: The Company to Beat in Health Care IT
 Allan Kells and Jason Plagman of Cerner visited the APM class on February 21. Kells is the Vice President of Investor Relations at Cerner. Plagman is a Senior Analyst. Cerner is the largest stand-alone health care IT company in the world. The company feels its greatest asset is its footprint in its industry. The footprint refers to the impact clients have on the industry. Kells stressed their culture and competitive advantage is built around unparalleled human capital, and believes this advantage will maintain Cerner's competitiveness and industry position. Kells and Plagman discussed the future of health care IT in the United States with respect to health care reform. Since health care accounted for 17.5% of the United States' GDP, many are searching for ways to cut costs in this sector. Kells said that with the American Reinvestment and Recovery Act (ARRA), health care IT will become a larger player as the health care system strives to become more efficient and cost focused. The ARRA provides more than $35 billion in incentives to health care providers using IT systems provided by Cerner and competitors. Cerner believes its technology will significantly cut costs and save time for clients. With Cerner's system, it can take as little as two months to process payments; the fastest cycle in the industry. Cerner is also a major international player. Even though 84% of Cerner's revenue is from the United States, it has a growing presence in Europe, Australia and South America. |
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Mark Hensel: Why PXP is the Company to Own in 2011
 Group 2: Dev vrat Khanna, Joanna Vosburg, Julia Valentine and Zach Rossin
Marc Hensel (APM S96), Vice President of Acquisitions & Divestitures at Plains Exploration & Production Company (PXP), visited the APM class on February 7. Hensel has been responsible for PXP's mergers and acquisitions, divestiture, and business development activities since February 2002. He's a busy guy. Besides the M&A business, he's responsible for the company's real estate portfolio and executes Plains Resources Inc.'s corporate development initiatives. Hensel earned a BA in economics and an MBA from the University of Kansas. At the beginning of this year, Plains completed its divestment of its Gulf of Mexico shallow water shelf properties, selling them to McMorRan Exploration Company (NYSE: MMR) for $86 million in cash and 51 million shares of MMR. Plains' management continues to shop the company's deep water gulf assets, as well. Hensel explained Plains' new operating strategy is to operate most of its own oil assets, concentrating on on-shore assets. The company plans to maintain total company liquid volumes between 50 to 60% of total production. Hensel believes the company is trading at a lower valuation compared to peers because of its high leverage, which it would like to reduce.
As Plains continues to develop new ways to separate and process crude oil, development costs will decrease and margins will increase. New techniques have resulted in a 13% decrease in the use of electricity, as well as lower gathering and transportation costs, compared to the industry. A critical item to watch for the performance of PXP stock is the planned divestiture of the company's deep water assets in the Gulf of Mexico. Estimates of sale proceeds vary widely, but the class anticipates a sales price in excess of $1 billion to be positive for the performance of our holdings in PXP. |
Strategizing With Mark Mitchell  Group 4: Austin Peterson, Banks Floodman, Caleb Holmes and Sean O'Neill The APM class had the pleasure of having Mark Mitchell, CFA, of Security Global Investors, lead a class discussion about portfolio management. Mitchell currently serves as co-manager on the SGI value team with Jim Schier, currently managing $715M in assets across three strategies (large cap value, large cap core, and all cap value). The team combines to manage $4.2B with 10 total managers, analysts and traders located in Overland Park.
Mitchell joined SGI in 2002 and has more than 20 years of experience in the financial services industry. Before joining SGI, Mitchell was vice president and equity portfolio manager at GE Asset Management (GEAM). Prior to this role, he held several other positions at GEAM, including sector portfolio manager/research analyst and senior financial analyst in the firm's Taxable Fixed Income Group. Mitchell holds a bachelor's degree in finance from the University of Nebraska and completed the GE Financial Management Program (FMP). He has been quoted in a variety of notable industry publications including Smart Money, Worth Magazine and Barron's.
Mitchell explained how he pools and selects ideal candidates for his value fund by analyzing a company's ROIC profile and its enterprise value (EV) to industry competitors. It is much more difficult for a company to increase its ROIC after it has been competitively diminished. This is called the "Value Trap," which he recommends avoiding.
Mitchell also described a few important disciplines that help limit portfolio losses. The first is the importance of writing down the reason a security was purchased to help in avoiding "Thesis Creep." The second is to have sell discipline. If your written thesis changes or the security reaches its full valuation, then sell. The third is to always use conservative assumptions when modeling cash flows, particularly because of the margin for error on discounted cash flow valuations and the weight given to terminal value. |
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Jonathan Horne
We are sorry to report Jonathan Horne, 39, of Kansas City, Kan., passed away March 12, 2011. His memorial service was held on March 27. We offer our condolences to his wife, Michelle. Jonathan was a student in the Spring 2007 APM class. He also participated in the winning R.I.S.E. team. |
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First Quarter Performance Update
The first quarter saw significant turmoil in the world markets due to the earthquake and tsunami in Japan and the widespread protests and unrest in the Middle East. The portfolio managed to return a positive 0.63%, underperforming the S&P and DJIA by 3.61% and 4.93% respectively.
The best performers in the portfolio were NIC, Inc. with a 28.32% return, JOY Global, with a return of 14.10%, and Kansas City Southern, with a return of 12.37%. More modest performers were Blackrock and Kellogg, with a 6.2% and a 6.49% return respectively.
Poor performing markets in China and rising jet fuel prices drove the underperformance of the portfolio this quarter. Some of the poor performers this last quarter were China Cord Blood -26.6%, China Green Holdings Ltd. -15.13%, A-Power Energy Generation Systems -14.1%, Allegiant Travel Co. -12.16%, Ryanair Holdings -9.88%, and Golden Meditech -6.90%.
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Current
Quarter |
Year to
Date |
Last 4
Quarters |
Last 3
Years | | SP500 | 5.4 | 5.4 | 13.4 | 0.2 | | SP600 | 7.4 | 7.4 | 24.0 | 22.5 | | NASDAQ | 4.8 | 4.8 | 16.0 | 22.0 | | APM | 1.0 | 1.0 | 2.3 | -13.5 |
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