A R L I N G T O N VA L U E C A P I TA L
I N V E S T M E N T P H I L O S O P H Y We view stock as ownership in a business. We let volatility work to our advantage. Arlington strives to be conservative, and invest with a margin of safety. We exercise patience and discipline to only invest in exceptional opportunities. Above all, we think vigilance towards risk is central to solid investment returns. 2
I N V E S T M E N T P H I L O S O P H Y We view stock as ownership in a business: The over-arching principle of our investment discipline is to approach buying stock as though we were buying the whole business outright and retaining management. Employing an owner’s mentality helps us tune out distracting noise, allowing us to focus on the long-term fundamentals of the business as opposed to the daily gyrations of the share price. We let volatility work to our advantage: On average, individual stock prices fluctuate more than 75% in a 52-week period. We don’t believe volatility equates to risk. We welcome volatility as volatile markets occasionally offer extraordinary opportunities. 3
I N V E S T M E N T P H I L O S O P H Y Arlington strives to be conservative and invest with a margin of safety: When analyzing a business, we strive to be conservative and realistic in our assumptions. We are disciplined investors, and purchase stocks only when favorably priced. We exercise patience and discipline to only invest in exceptional opportunities: Fiercely competitive markets combined with a limited mental aptitude makes it difficult to find attractive investments - where the risk/reward equation is extremely favorable. Because exceptional opportunities are rare, we want to make meaningful investments when such opportunities are identified. [Speaking about Berkshire Hathaway growing from 10 million to 120 billion over 40 years] “Success wasn’t based on hyperkinetic activity. It was achieved through nondiversi fj cation, a hell of a lot of patience, and intensely opportunistic behavior on a few occasions… If you took the top 15 decisions out, you would have a pretty modest record.” - Charlie Munger / Vice Chairman, Berkshire Hathaway 4
I N V E S T M E N T C R I T E R I A A N D P R O C E S S Our success depends on exercising patience and discipline to only invest in situations that meet our criteria: Total universe of publicly traded companies. Ability to understand the business: We focus on businesses we thoroughly understand. This eliminates a significant number of potential investments and results in Arlington owning many of the same companies numerous times. Staying Power: We focus on companies with staying power. We look for long-term durability and low rates of change. Quality Management Teams: We look for honest, intelligent management teams with proven track records. Attractive Price: We only invest when the price is attractive, which provides both a margin of safety and favorable prospective returns. Strictly adhering to our criteria often results in a concentrated portfolio. 5
P E R F O R M A N C E AVM Ranger, LP (as of 12/31/2014) AVM Ranger, LP AVM Ranger, LP Annualized Return Since Inception Cumulative Return Since Inception 40% 750% 37.9% 707.5% 650% 35% 550% 30% 450% 25% 350% 20% 250% 150% 15% 85.0% 50% 9.9% 10% -50% June-08 Dec-08 June-09 Dec-09 June-10 Dec-10 June-11 Dec-11 June-12 Dec-12 June-13 Dec-13 June-14 Dec-14 5% AVM Ranger S&P 500 0% S&P 500 AVM Ranger Calendar Year Gross Net S&P 500 AVM Ranger, LP Gross Net S&P 500 2008 (July inception) 15.2% 13.0% -28.5% Annualized Return 37.9% 31.0% 9.9% 2009 91.2% 73.3% 26.5% 2010 31.4% 25.6% 15.1% 1 Cumulative Return 707.5% 478.3% 85.0% 2011 3.0% 1.4% 2.1% 1 Performance reflects a July 24, 2008 inception 2012 35.7% 29.2% 16.0% 2013 51.5% 42.6% 32.4% 2014 31.8% 25.9% 13.7% In July 2008, Arlington Value Capital launched AVM Ranger Fund, LP . AVM Ranger Fund, LP is our primary fund has generated a 37.9% annualized return (before fees) and has outperformed the S&P 500 by approximately 28% per annum since inception. 6 *PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESUL TS
P E R F O R M A N C E Arlington Value Management, LLC (AVM): Dec 1999 1 - June 2011 15-Year Combined Return: Dec 1999 1 - Dec 2014 1,898.7% 2000% 2000% 1500% 1500% 1000% 1000% 595.1% 500% 500% 400% 400% 300% 300% 200% 200% 100% 100% 86.5% 11.7% 0% 0% -50% -50% 50# 50# 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 0 0 0 0 0 0 1 1 1 1 1 1 0 0 0 0 0 0 1 1 1 1 1 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - c c n c c n c c n c n c n c n c n c c n c c n c c c c n c c n c c n c n c n c n c n c c n c c n c c n n n n n n n n n n n n e u e u e u e u e u e u e u e u e u e u e u e u e u e u e u e e u e u e u e u e u e u e u e u e u e u e u e u e u e u e u e D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J AVM S&P 500 AVM AVM Ranger S&P 500 AVM Calendar Rtrns (since inception) Gross Net S&P 500 15-Year Combined Return* Gross Net S&P 500 2000 58.5% 58.5% 2 -8.4% Cumulative Return 1,898.7% 1,101.7% 86.5% 2001 42.4% 39.9% -11.8% 2002 -22.7% -24.6% -22.1% Annualized Return 22.1% 18.0% 4.2% 2003 56.6% 53.0% 28.7% *Assumes client started with AVM and switched to AVM Ranger at fund’s 2004 21.1% 18.2% 10.9% inception in July 2008 2005 -32.7% -34.4% 4.9% 2006 12.5% 9.8% 15.8% 2007 13.0% 10.3% 5.5% Prior to AVM Ranger LP, Arlington Value Management LLC (AVM) was 2008 13.3% 10.6% -37.0% our primary fund. From mid 2008 through mid 2011, AVM and AVM 2009 62.2% 58.4% 26.5% Ranger were managed side by side. After Q2 2011, AVM LLC was merged into 2010 23.4% 20.5% 15.1% 2011 ( Ti rough June) 8.4% 7.1% 6.0% AVM Ranger LP . The above chart shows the combined returns since inception. Annualized Return 18.4% 15.9% 1.0% 1 Performance reflects a December 23, 1999 inception 2 AVM LLC did not charge a fee until Q1 of 2001 7 *PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESUL TS
P E R F O R M A N C E Top Performing Funds Since July 2008 1 Annualized 11.5-Year Top Performing Funds Annualized (July 2008 1 through Dec 2014) return since (December 1999 2 through June 2011) 11.5-Year July 2008 Arlington Value Management is closed return AVM RANGER FUND, LP 37.90% ARLINGTON VALUE MANAGEMENT, LLC 18.36% PIMCO StocksPLUS Long Duration Institutional 19.83% Lord Abbett Micro Cap Value I 17.57% PRIMECAP Odyssey Aggressive Growth 18.57% CGM Focus 17.53% AllianzGI Ultra Micro Cap Instl 18.43% Hotchkis and Wiley Small Cap Value I 17.34% Walthausen Small Cap Value 17.98% RS Partners A 16.51% Fidelity Small Cap Discovery 17.91% Robeco Small Cap Value II 15.9% Delaware Pooled Focus Smid-Cap Gr Eq 17.74% Wells Fargo Advantage Small Cap Value 15.65% PIMCO Fundamental IndexPLUS 17.70% Paci fj c Advisors Small Cap Value A 15.56% Hotchkis and Wiley Value Opps A 17.46% Wasatch Micro Cap 15.08% Lord Abbett Micro Cap Growth I 17.39% America Century Small Cap Value Instl 14.78% Reynolds Blue Chip Growth 17.13% Lord Abbett Small Cap Value 14.71% S&P 500 INDEX 9.93% S&P 500 INDEX 0.97% 1 All performance comparisons above are from July 24, 2008 through Dec 31, 2014 2 All performance comparisons above are from December 23, 1999 through June 30, 2011 The two tables above demonstrate how Arlington has stacked up against the S&P 500 and the top 10 performing funds of the approximately 5,000 and 3,000 US equity funds tracked by Morningstar over the approximately 6.5 years since AVM Ranger Fund’s inception and the 11.5 year lifespan of Arlington Value Management LLC respectively. The average return for all funds is likely below the returns for the index as it is widely noted that most funds underperform the index over time. Performance for all funds is gross of management fees. Arlington Value Management LLC was merged into AVM Ranger LP in Q3 2011. The 11.5-year data represents Arlington Value Management LLC’s return from its inception in December of 1999 through June 2011. Data Source: Morningstar (as of Dec 31, 2013). AVM Ranger LP is a private offering and is NOT tracked by Morningstar 8 *PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESUL TS
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