f3-Binder2

Going to the

Next Level 3

fluent

females focused on flourishing fiscally

summit creek capital

Workbook

3

Fluency – flu•en•cy: noun \’flü-ən(t)-sē

the ability to express oneself easily and articulately Money and investing are highly emotional and typically taboo topics.

Finance has also typically been a male dominated field .

My goal is to create a fun and provocative environment for becoming financially fluent.

Investing is a broad topic and it is easy to become overwhelmed. Each time 3 we meet I will be adding a segment to your notebook which will keep materials topical and timely.

Penny Mandell 208.928.7500 Cell: 208.721.1220

Fun Female Facts

70PERCENT OF NEW BUSINESSES ARE STARTED BY WOMEN

American women over the age of fifty are the healthiest, wealthiest and most active generation of women in history.

50+

- Demographics by Mark Miller

Over the next decade, women will control two thirds of consumer wealth in the United States and be the beneficiaries of the largest transference of wealth in our country’s history. Estimates range from $12 to $40 trillion. Many Boomer women will experience a double inheritance windfall, from both parents and husband. The Boomer woman is a consumer that luxury brands want to resonate with.

PERCENT OF STOCKS OWNED BY WOMEN

40%

– Claire Behar, Senior Partner and Director, New Business Development, FleishmanHillard New York

$12 to $40 trillion 84% EIGHT Y TO NINET Y PERCENT

of today's women will be solely responsible for their own finances at some point in their lives, most likely because of divorce or the death of a spouse.

- the National Center for Women & Retirement

74%

of women feel misunderstood by automotive marketers

of women feel misunderstood by investment marketers

$90

BILLION

worth of consumer electronic purchases in 2007 were influenced by women

3

Personal Values: Journal Exercise (Circle ten emotions that you feel are most important to you based on your gut reaction)

Achievement Adventure Beauty Being free Being generous Brotherhood Charity Comfort Community Creativity Dignity Discovery Family God Growth Happiness Health Honesty Honor Humility Independence Individuality Influence Integrity Intimacy Justice

Kindness Knowledge Leadership Learning Leaving a legacy Leisure Life partner Love Making a difference Parenting Patriotism Peace Physical activity Power Retirement Security Seeing the world Self-discipline Self-esteem Service Simplicity Spirituality Strength Success Time alone Truth Using my talents

Source: Barbara Stanny

3

Money Memories: Journal Exercise (Write your own responses to the following questions)

1.

What is your earliest memory of money?

2.

Were you given an allowance growing up?

3.

Were you paid for chores or grades?

4.

What was your experience being paid (or not being paid)?

5.

How old were you when you first started to earn money?

6.

What did you do? How did you feel?

7.

What was the most you’ve ever made? The least?

8.

How was money handled in your family?

9.

What messages were you given about work and money?

10. What was your mother like with money? Your father?

11. Was there emotional trauma around money?

12. What was your biggest fear about moeny when you were younger?

13. Your parents’ fears? What is your greatest fear now?

Source: This excercise is adapted from “It’s Your Money: Achieving Financial Well-Being by Karen McCall (Cronicle Books, 2000)

3

Money and Emotions

The following exercise will help you shine some light on the emotions you associate with money.

Complete these sentences with the first words that pop into your mind.

1. My biggest fear money is 2. My father felt money was 3. My mother felt money was

4. In my family, money caused 5. My early experience with money was 6. Money equals 7. I’m afraid if I had more money, I would 8. In order to have more money I need to 9. When I have money, I usually 10. If I could afford it, I would 11. People with money are 12. I’d have more money if

Source: Barbara Stanny

3

Twelve Signs You’re in Resistance (There are probably more, but these are the most common.)

1. You’re too busy (“I have no time.”)

2. You procrastinate (“I’ll do it later.”)

3. You’re scared into inaction (“Omygawd, what if?”)

4. You defer decisions (“You do it, you decide.”)

5. You lose interest (“This is boring, it’s not my thing.”)

6. You’re forgetful (“Oh, I meant to, but I forgot.”)

7. You’re disorganized (“Where did I put that?”)

8. You fog up, space out (“What are you talking about?”)

9. You feel paralyzed (“I just can’t think or get going.”)

10. You find reasons not to act (“I can’t because...”)

11. You’re impatient (“This thing is taking way too long.”)

12. You keep running into naysayers (Other people say, “you can’t do that”,

“That’s not possible.”) This form of resistance is especially sneaky. You project your own fear out onto others.

What other signs of resistance can you think of?

Source: Barbara Stanny

3

The Lesson at the Liquor Store So, I’m standing in line at the liquor store, holding 2 bottles of a Chardonnay on sale for $3.99. (Who can refuse a bargain like that?)

An elderly woman is paying the clerk. Behind her, in front of me, a scruffy guy with a bottle of Jack Daniels fumbles with the Lottery machine.

“Maybe I’ll win,” he says to no one in particular.

I say, remembering an article I just read, “Did you hear about the couple who won a $20 million lottery and gave it all away because they didn’t want it?” I remember, at the time, thinking: why anyone would do that?

The elderly woman whips her head up as she takes her package from the clerk and says: “I’d give it away too. What would I do with $20 million?”

And the scruffy guy agrees: “So would I. Hell, I’d probably just spend it all on booze anyway.”

Refusing the temptation to ask him why, then, he was buying a lottery ticket, I proudly declared: “Not me. I’d give some of it away, but there’s a lot I could do with that money.”

You’d think I told them I was about to shoot the Pope. There was a collective gasp, a look of shock, and for a split second, I actually felt ashamed to want millions.

And then I realized- people are about as rich as they want to be. For many, wealth is more a burden than a blessing.

But the real epiphany came when I turned to the woman behind me, and asked what she’d do.

“My first thought,” she said, “was I’d have enough money to paint my house.” Then she chuckled, and added, “It then occurred to me how small I was thinking. I mean, I could buy a brand new bigger house with that money. Maybe I need to start thinking bigger.”

Isn’t that the real issue? Most of us just don’t think big enough.After all, we can only go as far as our self image will allow. Maybe it’s time to stretch our self image.

So, in the spirit of thinking bigger, let’s play the What-if Game Ask yourself this question: What would you do if you won a $20 million lottery? Or put another way: What would you do with your life if money were no issue?

Want bonus points? Answer this: What steps can you start taking now to bring those dreams to life...even if you never win a lottery???

Write and tell me what came up for you. I’m betting you, my readers, will have a different reaction than the liquor store patrons. Am I right?

Warmly,

3

Let’s go through the ABC’s (some broad definitions of terms that pop up frequently in financial news)

A

ASSET ALLOCATION: this is basically the

B

BRICS: coined by Jim O’Neill of Goldman

C

CREDIT CRISIS: aka the great credit

D

DEFLATION: a general decline in prices

concept of diversifying assets ( stocks, bonds, commodities) so that even if one sector is not working another one will be in favor. It is one of the basic tenets of Modern Portfolio Theory (MPT) and many used to believe it was the most critical aspect for investment success.

The problem : in times of crisis all asset classes are highly correlated Sachs this refers to Brazil, Russia, India and China . These countries are all deemed to be at similar stages in economic development and have been the biggest and fastest growing emerging markets.

crisis of 2008- in 2007 US consumption reached 72% of GDP – a record not only in the US but for any major modern market. The consumption binge was not funded by wages but by property and credit. Consumers tripled the amount of equity extraction from their homes from 3% of disposable income in 2001 to over 9% in 2006. By levering overvalued homes consumers went on buying binge.

America not the only player the rest of the world joined in too.

often caused by a reduction in supply of money or credit (see above credit crisis).

Deflation can also be caused by decline in government , personal or investment spending.

Deflationary periods are characterized by high unemployment and often lead to depression.

Central banks try to ward off both severe deflation and inflation.

3

E

EXCHANGE TRADED FUNDS (ETF): this

F

FIDUCIARY STANDARD: Federal and state

G

GOLD: Gold has traditionally been

vehicle combines the diversification of a mutual fund with the trading characteristics of a stock. There are ETFs that track broad indices and there are also highly specific ETFs tracking sectors, commodities and countries.

There are benefits to individual investors in terms of liquidity , pricing and access to markets that are difficult to invest in. Also ETFs are not pooled investments like funds, so you have more control over tax issues. One caveat is that if constructing a portfolio that consists entirely of ETF’s you need to understand all the components so that you don’t have concentrations or dilutive overdiversification. law requires that Registered Investment Advisors (RIA) are held to a fiduciary standard. This law requires that advisors act solely in the best interest of a client even if this creates a conflict with the advisors financial interest. This is not the case for brokers or advisors of broker dealers who may be motivated to sell certain products based on incentives or commission. As part of the financial overhaul package there is great debate about forcing brokers to adhere to a Fiduciary standard. ( it is quite complicated due to all the conflicts of interest that may be present with a large broker dealer) thought of as a hedge against inflation, yet it has continued to rise recently despite falling expectations for inflation. There are several ways to invest in gold, you can buy the physical asset , buy stock in mining companies or buy an ETF which may hold the physical asset, futures or shares of gold mining companies. ( at SCC right now we like IAU + GLD which are ETFs backed by physical gold) .

Gold tends to be popular when the dollar is weak and tends to attract assets in times of uncertainty. Despite its recent run up gold is still off of its all time highs in real dollar terms.

H

3 HIGH FREQUENCY TRADING (HFT): this is a

relatively new phenomenon that seems to be having tremendous impact on the volatility of stocks. HFT involves the execution of computerized trading strategies with extremely short term holding periods.

Computers analyze market data and use algorithms to identify trading opportunities that may literally only be open for nanoseconds. As of this year, HFT trades account for over 70% of the trades taking place in the US. It is a controversial topic as it is believed that many programs place orders then cancel them almost immediately because they were just looking to see what happened. On extremely volatile days HFT programs are often the culprit.

I

INFLATION: the general definition is the

J

JAPAN: Japan has been in recession for

rate at which prices for goods and services are rising. A key measure of inflation is the CPI or Consumer Price Index which is a monthly measure of the prices paid by consumers for a representative basket of goods and services. The rate of inflation has varied dramatically over the last 50 years from nearly zero to 23%. (Sept. 2010 the inflation rate is 1.14%) Many are concerned that the Federal Reserve will acclerate inflation with their latest QE2 plan ( see Q) over fifteen years and is just now starting to emerge. Many economists look to Japan for lessons on our own economic crisis. The US Federal Reserve has gone through the fastest ever series of rate cuts which took rates from 5.25% to near zero- while failing to produce the desired results. This is quite similar to 19901995 when Bank of Japan slashed rates but failed to revive the economy. Basically Japan is being looked at for answers and a desire not to go down the same rout of prolonged economic devastation.

K

KEYNESIAN THEORY: John Maynard Keynes (1883-1946) was a British economist most remembered for his simple

3 explanation of the great depression ( hence the plethora of Keynsian references we see today).

The Keynesian economic theory is based on a circular flow of money with government intervention to keep it flowing.. One person takes their earnings and spends it which goes towards another person’s earnings and this cycle repeats itself. Keynes proposed that a solution for dire economic straits is for government to increase spending either through money supply increase or buying things on the market. Keynesian economics values spending over saving and supports redistribution of wealth when necessary. The Fed’s current attempts to stimulate the market are Keynesian in nature.

L

LIABILITY DRIVEN INVESTMENT: The

main goal of liability driven investment is to gain sufficient assets to meet all liabilities both current and future. Goals are stated not in terms of relative performance but rather in absolute dollar terms. Typically this has been the bastion of large pension plans but more individual investors are looking at liability driven investment solutions. At Summit Creek we take a two pronged approach and combine a liability driven portfolio with a profit seeking portfolio which allows for more growth opportunity while still controlling risk and asset drawdown.

M

MASTER LIMITED PARTNERSHIP (MLP): MLPs combine the tax advantages of a

limited partnership with the liquidity of a common stock. Since MLPs are not taxed at the company level, it effectively lowers the the cost of capital. MLPs make cash distributions, which unlike dividends, are not taxed when received, instead they reduce the investments cost basis ( investors receive a K-1 form rather than a 1099). MLPs are predominantly natural gas and oil pipeline and storage companies. MLPs trade on exchanges so they are liquid and since they distribute all income straight through to investors they offer attractive income opportunity for taxable accounts.

N

NEW NORMAL: coined by the managers at

O

OPTIONS: an option gives you the right

P

PIIGS: this acronym refers to the five

Pimco, Bill Gross and Mohamed El-Erian (Pimco manages over $1.1 trillion in assets.)

The “New Normal” predicts a post-financial – crisis world of lower investment returns , slower economic growth and higher odds of another out of the blue financial shock. It is a world in which the range of financial outcomes and risk are wider than normal. In this context of high unemployment and slow growth investors should not expect that equities will return 8-10%. Realistically investors should be looking for returns of 4-5%. An investor positioned for the new normal would own less equities, more bonds , more global investments and more cash. The “old normal” 70-80% in equities seems excessively risky in this context.

(but not the obligation) to buy or sell a security at a given price. The right to buy is a “call” and the right to sell is a “put”. The specific price designated by the options contract is the “strike price”. Activating an option and thereby trading in the underlying security is called “exercising”. Options have expiration dates, and if not exercised , they can expire worthless. If you believe a stock price is going to rise you could buy a “call” (cheaper than the stock itself ) this gives you the right to buy the stock at that price. Conversely if you believe a stock is going lower you could buy a “put” which gives you the ability to sell at a specified price. If you own a large block of stock, you may want to consider covered call writingwhich is selling puts on the position. You take in the premium and are also locking in a specific sell price if the position is called.

Eurozone nations considered the weakest after the financial crisis : Portugal, Italy, Ireland , Greece and Spain. These countries were recepients of a 750 billion euro stabilization package and have reignited the debate about the efficacy of the Euro as a single currency. Continued economic disparities may well lead to a break up of the Eurozone.

3

3

Q

QE2 –QUANTITATIVE EASING ( round 2):

R

RISK MANAGEMENT: Risk management is

S

STANDARD AND POORS 500 INDEX: this

T

TECHNICAL ANALYSIS: stock market

this is a monetary policy used by the Fed to increase the supply of money by increasing the reserves of the banking system. This policy is invoked when normal methods ,like interest rates near zero , have failed. There is much skepticism surrounding the second round of Fed easing, since arguably the $2.5 trillion injected into the system already did not have the desired impact. critical to successful investing and yet the concept is often misunderstood. Risk management is not the same as risk measurement, nor is it purely focused on risk reduction. True risk management involves seeking to enhance returns while respecting an individual’s risk budget . Individuals need to set a risk budget that is in accordance with their future liabilities- this is more in depth than merely establishing a level of “Risk Tolerance” - since we all tend to overestimate our risk tolerance in up markets . Risk management combines risk diversification with risk hedging and risk insurance. index is considered to be the best gauge of the U.S. large cap equity market. The 500 stocks represent the leading copanies in the leading industries in the U.S. economy. There are over $3 trillion benchmarked to the index through mutual funds or ETFs. analysis falls into two distinct camps“fundamental” which examines the companies, their products, management and balance sheets and “technical” which looks purely at the movements in stocks and indices. Technical analysts are looking at price and volume and view the fundamentals as irrelevant since they believe all relevant information is already in the price of a security. Technical analysis can give a sense of investors emotions and the supply and demand for a security. While there

are many who invest solely based on technical analysis , we at Summit Creek use both technical and fundamental information when investing.

U

UNUSUAL UNCERTAINTY: On July 21

V

Vix and Volatility: VIX is the symbol for

Federal Reserve Chairman Ben Bernanke characterized the U.S. economic outlook as “unusually uncertain”. This was not particularly enlightening or encouraging. This characterization highlights the fact that there are significant cross currents in which is frustrating given the amount of stimulus that has already been injected into the economy. the Chicago Board of Options Exchange Market Volatility Index – this measures the implied volatility of the S& P 500 . It is sometimes referred to as the “fear gauge”despite this nickname the VIX refers to volatility on both the upside and the downsideso a high VIX indicates that investors expect a sharp move in either direction in the next 30 days.

W

WARREN BUFFET: aka the “oracle of

Omaha” Warren Buffet is widely revered as perhaps one of the most successful investors of all time. His company Berkshire Hathaway is the holding company for his investments .

His name has become synonymous with “Value Investing”.

X

GEN X: this is the generation born after the baby boom so it includes those born in the 60’s, 70’s and up till 1981 ( although no formal agreement on end date). Gen X has grown up in a historic span of geopolitical peace and are often associated with the rise of computing and videogames. Unlike their parents who challenged politicians- gen X tends to ignore leaders.

Y

YIELD: yield is the income return on an

investment. For stocks , dividends provide yield while for bonds it is interest.

Yield is expressed in terms of a percentage of the investment cost—Example if you buy a stock for $50 and the yield is $1 the “cost

3

yield” is 2%. If the stock is trading at $55 then the current yield is 1.8%. Bonds have the coupon rate which is stated at issuance, the current yield which reflects the current price, and then the yield to maturity reflecting what yield will be if the bond is held to it’s maturity date. It is important to remember that there is an inverse relationship between price and yield – as prices rise then yields will fall.

Z

ZERO COUPON BONDS: a zero coupon bond

is also sometimes referred to as an accrual bond. These bonds do not pay interest but are traded at a deep discount to par and when they are redeemed the investor gets full face value ( generally $1,000). Prices tend to fluctuate much more than coupon bonds. Zero coupon bonds are typically long maturity so it allows for investors to plan for long range goals.

Although the bonds do not pay interest until maturity investors may still have to pay taxes on the imputed or “phantom” interest.

3

3

Women Board Directors (WBD) Align With Strong Performance at Fortune 500 Companies Financial measures excel where women serve 2 LINE: CORPORATE PERFORMANCE THE BOTTOM

The Bottom Line: corporate performance and women’s representation on boards Return on Equity 3 by Women’s Representation on the Board

AND WOMEN’S REPRESENTATION ON BOARDS

Return on Invested Capital 5 by Women’s Representation on the Board

Return on Sales 4 by Women’s Representation on the Board

Women Board Directors (WBD) Align With Strong Performance at Women Board Directors (WBD) Align With Strong Performance at Fortune 500 Companies1 1 2 Companies with more Companies with more excel whereCompanies with serve more Fortune 500 Companies Financial women Financial measures excel where women serve 2 WBDmeasures WBD outperform those outperform those WBD outperform those with the least by 53% Return on Equity 3 by Women’s Representation on the Board

with the least by 42% Return on Sales 4 by Women’s Representation on the Board

Companies with more

with the least by 66% Return on Invested Capital 5 by Women’s Representation on the Board

Companies with more +42% WBD outperform those with the least by 42%

WBD outperform those +53%

+42%

+53%

9.7%

13.9%

4.7%

13.7%

Bottom 9.1% Quartile WBD Bottom Quartile WBD

Bottom 9.7% Quartile WBD

Top 13.9% Quartile WBD

Bottom Quartile WBD

Top Quartile WBD

Is Three a Charm?

Stronger-than-average results prevail at companies at least three women serve Is Threewhere a Charm?

Stronger-than-average resultsWith prevail at Financial Performance at Companies Three companies whereDirectors at least(WBD) three women serve or More Women Board Financial Performance at Companies With Three or More Women Board 16.8% Directors (WBD) 16.7% 16.7%

Average 11.5%

Average 11.5%

16.8%

Average 11.5%

Average 11.5%

10.0% 10.0%

Average 6.2% Average 6.2%

7.7%

+66%

ROIC

ROE

ROS

9.1%

+66%

ROIC

ROE

ROS

with the least by 53%

Companies with more WBD outperform those with the least by 66%

Top Quartile WBD

Top Quartile WBD

4.7% Bottom 7.7%

13.7%

Quartile WBD

Top Quartile WBD

Top Quartile WBD

Bottom Quartile WBD

Link Between Women Board Directors (WBD) and Corporate Performance 6 Holds Across Industries Link Between Women Board Directors (WBD) and Corporate Performance Holds Across Industries 6 ROE Consumer Discretionary

ROE

•

ROS

ROS

ROIC

•

•

ROIC

Consumer Staples Consumer Discretionary

•

• •

••

•

Financial Consumer Staples

•

—•

••

—

Financial Healthcare

—

• •

•—

•

Healthcare Industrials

•

• •

••

•

Industrials

•

•

•

Information Technology

•

Materials

•

Information Technology

Materials

• •

• —

•

•

— •

• •

• Top quartile outperforms bottom quartile

• Top quartile outperforms bottom quartile

ROE ROE

ROSROS

ROIC ROIC

— Top quartile does not outperform bottom quartile

— Top quartile does not outperform bottom quartile

NOTES:NOTES: 1 Based upon the four-year average for ROE, ROIC 2001,2002, 2002, 2003, 2003, and and women board director (WBD)(WBD) data for 2001for and 2003.

Financial for thedata companies 1 Based upon the four-year average for ROE, ROS,ROS, andand ROIC forfor2001, and2004, 2004, and women board director data 2001 and 2003. data Financial for theexam companies examwere obtained from the Standard & Poor’s Compustat database.Because Because of into andand outout of the 500 each 520 companies in this analysis; theanalysis; top quartile Fortune ined wereined obtained from the Standard & Poor’s Compustat database. ofmovement movement into of the 500 year, eachthere year,are there are 520 companies in this the top quartile Fortune comprises the 132 companies with the highest average percentage of women board directors while the bottom quartile comprises the 129 companies with the lowest average percentage of comprises the 132 companies with the highest average percentage of women board directors while the bottom quartile comprises the 129 companies with the lowest average percentage of and the2001 Catalyst Census of Women Board Directors . Financial performance women board directors. WBD data was obtained from the2003 Catalyst Census of Women Board Directors and the2001 Catalyst Census of Women Board Directors . Financial performance women board directors. WBD data was obtained from the2003 Catalyst Census of Women Board Directors measures vary by industry. To account for this variability, standardized financial performance measures were used to make comparisons within the overall sample. measures vary by industry. To account for this variability, standardized financial performance measures were used to make comparisons within the overall sample.

2 Correlation does not prove or imply causation.

2 Correlation does not prove or imply causation.

3 Return on equity (ROE): ratio of after-tax net profit to stockholders’ equity.

3 Return 4on equity ratiopre-tax of after-tax netdivided profit to equity.

Return on(ROE): sales (ROS): net profit bystockholders’ revenue.

4 Return 5on saleson (ROS): pre-tax net(ROIC): profitratio divided by revenue.

Return invested capital of after-tax net operating profit to invested capital. & Poor’s used. To the sample size, we combined 5 Return 6onStandard invested capitalindustry (ROIC):sectors ratio ofwere after-tax netincrease operating profit to invested capital.the following industry sectors as follows: Consumer Discretionary (Goods, Services); Consumer Staples (Goods, Services); Healthcare (Others, Pharmaceuticals); Industrials (Goods, Services); and Information Technology (Hardware, Software). Three industry sectors (Utilities, Energy, and

6 Standard & Poor’s industry sectors were used. To increase the sample size, we combined the following industry sectors as follows: Consumer Discretionary (Goods, Services); Consumer Telecommunications) were excluded because each has fewer than six companies in the top and/or bottom quartiles, precluding meaningful analysis.

Staples (Goods, Services); Healthcare (Others, Pharmaceuticals); Industrials (Goods, Services); and Information Technology (Hardware, Software). Three industry sectors (Utilities, Energy, and Telecommunications) were excluded hasDirector, fewer than six companies in theM.top and/or bottom precluding This study was authored bybecause Lois Joy,each Ph.D., Research, and Nancy Carter, Ph.D., Vicequartiles, President, Research,meaningful at Catalystanalysis.

Inc. and by

Harvey M. Wagner, Ph.D., Professor, Kenan-Flager Business School, University of North Carolina, Chapel Hill, and Sriram Narayanan, Ph.D.,

This study was authored by Lois Joy, Ph.D., Director, Research, and Nancy M. Carter, Ph.D., Vice President, Research, at Catalyst Inc. and by Assistant Professor, Eli Broad School of Business, Michigan State University, East Lansing.

Harvey M. Wagner, Ph.D., Professor, Kenan-Flager Business School, University of North Carolina, Chapel Hill, and Sriram Narayanan, Ph.D., Assistant Professor, Eli Broad School of Business, Michigan State University, East Lansing.

© Catalyst 2007

4/25/11

Portfolio Building Principles !

Anticipation

!

Adaptability

!

Agility

!

Adherence

RISK ! !

Inner Outer

1

4/25/11

Know What You Own !

Know why you hold each investment

!

Cohesive or divisive strategy

!

Over concentrations

!

Over diversified 4

Own What You Know !

Invest in what you buy

Invest on Purpose !

Set realistic, relevant goals

!

Diversify with intent - not blindly

!

Think Holistically

2

4/25/11

Dividends !

Dividends are payments that companies make to shareholders, it is a distribution of a portion of earnings

Dividends !

Reflect corporate health

!

Cushion volatility

!

Tend to produce higher returns

Keep in Mind !

Dividends are a privilege ( not a right )

!

Don’t chase abnormally high yield

!

Look cash v.s. earnings

!

Diversification still matters

3

4/25/11

What to Look For !

Dividend growth

!

Consistent history

!

Check payout history

!

If cut - then run

4

4/25/11

Food

Human beings, when it comes down to it, have few basic necessities: Food, water, shelter, and connectivity with others. Overlay life, liberty, and the pursuit of happiness, and necessities morph into luxuries. Producing enough food to feed an ever increasing population, with ever increasing standards of living, is a necessity.

Producing food, from basics to haute cuisine, is an art. As demand for protein like meat and dairy products increases there is an even larger increase in demand for grains and arable land. In that light, Agriculture is one of the themes that we believe will be more important in years to come.

Efficiency Necessity is a mother, it has been said. Take a global financial crisis, add some technology and BAM! Efficiencies are created.

Corporations become more efficient, doing more with fewer employees. Consumers become more efficient, ditching landlines, computers, TVs, and video game consoles for smartphones. When smartphones met e-commerce, the excitement spawned m-commerce, the global marketplace in your pocket. Price checking has never been easier. Nor has growing a small business: start from the ground up, and extend to the cloud. Cloud computing has created operational efficiencies for companies of all sizes, but as server farms grow larger, their proprietors are seeking to become more energy efficient. Energy efficiency discussions extend to appliances, buildings, power grids, server farms,vehicles and pretty much all corners of the physical world.

Investing in efficiency will continue to be one of Summit Creek's focal points in years to come.

Global Middle Class

Before the Global Financial Crisis spawned buzzwords like the 'new normal,' there was an entire subset of buzzwords regarding the shifting economic paradigm. Acronyms, new words, and phrases such as 'BRIC,' 'Chindia,' 'emerging markets,' 'developing economies,' and 'globalization' were tossed around in the media with increasing frequency. The phenomena that these terms refer to is the economic growth of a group of countries that were once considered 'third world.' Countries such as Brazil, China, India, Indonesia, Malaysia, and Russia, are experiencing growth rates that are far in excess of their larger counterparts in the 'developed' world.

A generational shift is occurring as the developed world hands off the baton of the world's consumer to the developing, global middle class.

Investing in newly minted consumers is a theme that will drive investments for the foreseeable future.

1

4/25/11

Resources

Humans have always been dependent on the Earth's resources.

Some of those resource dependencies have developed as trade and commerce grew; coal and oil were not extremely useful before the industrial revolution. Others have never been excessively useful, but have captivated our attention for millenia (one shiny yellow metal, in particular, comes to mind). Still others, like water, have been taken for granted; regarded as free, misuse and overuse have been commonplace. Though mispricings are frequent the laws of supply and demand hold strong for resources. There will be enormous opportunities in the way we account for and use our resources, especially as essential resource needs become scarce and new resources see increased demand. Resources have increasingly become viewed as national security issues: dependence on foreign oil has been cited as a funding source for terrorism; bottlenecks in the supply of rare earth elements threaten developed economies around the world.

3

Demand

Efficiency

Mobility

This Venn Diagram encompasses the themes that we see as important drivers of growth and productivity in the world economy for years to come. It is laid out so that each theme intersects with every other theme, in any combination.

While there are compelling “pure play” stories in every theme, it is the intersections between these big ideas that are intriguing. By filtering a company through these themes, a clearer picture is formed of how that company relates to the evolving global marketplace.

Food

Energy

Resources

Connectivity

www.summitcreekcapital.com • 208.928.7500 • info@summitcreekcapital.com

Energy - From our food supply to our transportation network,

from the way we communicate to the clothes we wear, energy is the common theme. And, as a theme, it will continue to drive investment and innovation.

Connectivity - From the moment a renowned politician invented the

interwebs, the planet has become more and more connected. As such, we expect the connectivity theme to accelerate future growth. The possibility for business, customers and clients to interact in a connected world creates opportunities at every level of society and economic development.

Demand - A generational shift is occurring as the developed world

hands off the baton of the world’s consumer to the developing, global middle class. Investing in newly minted consumers is a theme that will drive investments for the foreseeable future.

Resources - Humans have always been dependent on the Earth’s

resources. There will be enormous opportunities in the way we account for and use our resources, especially as essential resource needs become scarce and new resources see increased demand.

Food - As demand for protein products like meat and dairy increases,

there is an even larger increase in demand for grains and arable land.

In that light, feeding an ever larger global population is one of the themes that we believe will be more important in years to come.

Efficiency - Necessity is a mother, it has been said. Take a global financial

crisis, add some technology and BAM! Efficiencies are created. Corporations and consumers both do more with less. Energy efficiency is discussed in every corner of the physical world. Investing in efficiency will continue to be one of Summit Creek’s focal points in years to come.

Mobility - We now have internet access available on mobile devices

with more computing power than PCs during Y2K; combined with connectivity, it is truly a game-changer. Mobility and connectivity allows for rapid decision making, accelerated product development, and a consumer base that can shop from anywhere.

www.summitcreekcapital.com • 208.928.7500 • info@summitcreekcapital.com

Connectivity Workers in the Cloud*** 919.4 Million in 2008

New Industry In 2010, 3 million tablets were connected to the mobile network, and each tablet generated 5 times more traffic than the average smartphone.

www.cisco.com

World Wide to Quadruple from 2009-2014

Internet Traffic www.cisco.com

69% of us are already in the cloud picasa, facebook, salesforce.com http://computinginthecloud.files.wordpress.com/2008/09/ pip_cloudmemo.pdf

InternetDating The online dating industry is now worth $4 billion worldwide. http://www.datingsitesreviews.com/article.php?story=Zoosk-new-iPhoneApp-Chat-Feature

The Daily Deal Spending on U.S. daily deals could soar as much as $3.9 billion in the next four years, which seems a little conservative based on the figures known about the largest players in the space.

$6 Billion by 2015 ** Source: emoney.allthingsd.com

1.19 Bill i by 2 on 013 From the moment a renowned politician invented the interwebs, the planet has become more and more connected. Communication methods vary: broadband, clouds, fiber optics, smartphones, smartgrids, and wireless, but the end result is the same: information surrounds us. Connectivity will continue to redefine and reshape our lives, from the way we meet people to the way we manufacture goods to the way we shop for goods. New industries, currencies, and communities are being developed at an ever quickening pace; as are security issues, border disputes and trade wars. As such, we expect the connectivity theme to drive growth and innovation for the foreseeable future.

SOCIAL MEDIA

47

BILLION INSTANT MESSAGES SENT PER DAY IN 2009 * Data provided by Pingdom.

brought to you by www.summitcreekcapital.com

Demand 100 Years ago less than 5% of the world’s population lived in Cities

NOW 50.5%

live in Cities

****

brought to you by www.summitcreekcapital.com

Africa & Asia’s

of urban population growth will take place in the developing world***

New Economies = DEMAND

BET WEEN 2007 & 2009

consumption in emerging m a r k e t s

SURPASSED

U. S . c o n s u m p t i o n

FOR THE FIRST TIME*

Women account for 85% of all consumer

purchases - everything from autos to health care.**

urban population is expected to double between 2000 & 2030***

Before the Global Financial Crisis spawned buzzwords like the ‘new normal,’ there was an entire subset of buzzwords regarding the shifting economic paradigm. Acronyms, new words, and phrases such as ‘BRIC,’ ‘Chindia,’ ‘emerging markets,’ ‘developing economies,’ and ‘globalization’ were tossed around in the media with increasing frequency. The phenomena that these terms refer to is the economic growth of a group of countries that were once considered ‘third world.’ Countries such as Brazil, China, India, Indonesia, Malaysia, and Russia, are experiencing growth rates that are far in excess of their larger counterparts in the ‘developed’ world. A generational shift is occurring as the developed world hands off the baton of the world’s consumer to the developing, global middle class. Investing in newly minted consumers is a theme that will drive growth for the foreseeable future.

China overtook the U.S. as the largest buyer of cars in 2009* A key factor behind runaway consumer growth is the rise of the middle class in emerging countries* Sources: *http://www.dailyfinance.com/story/ company-news/u-s-consumer-nolonger-king-china-india-ascend-tothrone/19411572/ **http://she-conomy.com/report/ facts-on-women/ ***www.worldwaterday2011.org ****http://www.ethz.ch/about/ publications/globe/archive/eth_ globe_10_02_futurecities_en.pdf

From our food supply to our transportation network, from the way we communicate to the clothes we wear, energy is the common theme. And, as a theme, it will continue to drive investment and innovation.

Enou gh so l

t the need e e or a y

nutes to m mi ty

References to a paradigm shift have become common in mainstream media; have you heard of the United States referred to as the ‘Saudi Arabia of Wind’ or the ‘Saudi Arabia of Natural Gas?’

ion f Un

From mitosis to manufacturing, our world is shaped by energy. Oil has had a good run as the king of energy, and though its reign will continue for decades more, the realization that it is a finite resource with some severe social and environmental side effects has spurred research into alternatives. Charlie Munger once said “I never miss an opportunity to NOT install solar systems, because I think they’re going to get cheaper.

I’m not worried about what comes after oil, because solutions are on the horizon.”

uface in twe s sr n th

brought to you by www.summitcreekcapital.com

pean ro

Energy

y falls on the e g r ar ne e ar f the Eu o s r ea*******

Wind was the 2nd largest US energy resource added for the 5th straight year.

10 GW of wind power added in 2009, bringing total to ~35 GW ****

34.30% 30.46%

23.41%

oil

coal

5.36% Nuclear

Hydro

6.47%

Natural Gas

******

Global Energy Use by Source 2010 (estimate)* ******

Food Human beings, when it comes down to it, have few basic necessities: Food, water, shelter, and connectivity with others. Overlay life, liberty, and the pursuit of happiness, and necessities morph into luxuries. Producing enough food to feed an ever increasing population, with ever increasing standards of living, is a necessity. As demand for protein like meat and dairy products increases there is an even larger increase in demand for grains and arable land.

In that light, Agriculture is one of the themes that we believe will be more important in years to come.

8 Billion = 8,000,000,000 With more people, it means we’ll need to produce more food in the next 50 years than we’ve produced in the past 10,000 years combined.****

byglobal 2030 water

brought to you by www.summitcreekcapital.com

eight billion

seven billion

B

R

I

requirements are likely to rise at least 40% more than the current accessible & reliable supply.***

C

A g R I C u l T u R e Brazil leads the The other three BRIC nations

pack, with growth Russia, India & China forecast of more than 40% notching up their growth by through 2019.** 26%, 21% and 26% through 2019**

It’s expected that by 2050, the global population will hit nine billion.*

five billion

Agriculture accounts for about 70% of all global water usage

four billion

three billion

two billion

New Stone Age commences

New Stone Age

Just 13.31% of global land area is considered arable* 2-5 million years

It took only 12 years to go from five billion to six billion people (in 1999).*

Bronze Age

Iron Age

Middle Ages

The Bla ck Dea th - Th e

7000 B.C. 6000 B.C. 5000 B.C. 4000 B.C. 3000 B.C. 2000 B.C. 1000 B.C.

Plague

AD

1000 A.D.

It took 123 years for the world to go from one billion people to two billion (in 1930).*

Modern Age

Billions of People

six billion

sources: * Russian Wildfires Highlight the Global Population Growth-Food Supply Conundrum, by Matthew Weinschenk ** http://www.investmentu.com/2010/June/theworlds-biggest-food-fight.html *** Is Agriculture Depleting Our Water Supply On Purpose? by Tony D’Altorio, Investment U Research **** www.impactus.org

2030 A.D.

Global Population Growth

Mobility We’ve reached a tipping point in the last few years. We’ve had the internet for awhile now. We’ve also had cell phones for long enough that most of us can remember a briefcase-sized box with a shoulderstrap that you could talk on. And computers have been around since World War II. But, for the first time, internet access is available on a mobile device that has more computing power than PCs during Y2K, weighs less than a quarter-pounder with fries, and you can talk (or video conference) on it to boot. This alway savailable computing power is a modern marvel, but combined with Connectivity, is truly a game-changer.

Being mobile and connected allows for rapid decision making, accelerated product development, and a consumer base that can shop from anywhere.

?

72% I’m sure there’s an app for that

2009 vs 2010

smartphone sales up 72% compared 2009

TOTAL MOBILE DEVICE SALES IN 2010

*Gartner

1.6 Billion

*Gartner

Price checking has never been easier With barcode scanning apps, you can use your phone to instantly compare prices with other merchants while on-the-go. Apps enable you to compare products across physical and ecommerce merchants, optimizing the shopping experience.

S

ULT

RES

9

.9 $16

just ) and ess e away l % l ( 15 ne mi o

Expected Growth of Smartphones in Units

2011

95 million units

2010

*Gartner

67 million units

of purchases are already made using a mobile device. according to ATT, Aug 26,2010

brought to you by www.summitcreekcapital.com

Resources

brought to you by www.summitcreekcapital.com

copper in millions of tons

2000 2008

year

year

2000

U.S.A.

<2

copper in millions of tons

>11 Rest of the World

>10 U.S.A.

>2

Rest of the World

U.S.A.

2

1990

Rest of the World

<8 1980

2008

Average water use per person per day (liters)*** Top 5

575

1. US

19 gallons of motor gasoline

sources: * http://geology.com/usgs/uses-of-copper/ ** http://chinawatch.washingtonpost. com/2010/10/rare-earth-elements-undervalued.php *** http://www.circleofblue.org/ ****http://www.nytimes.com/2010/10/30/ business/global/30rare.html?_r=1

1990

>6 >2

520 pounds of coal

Rest of the World

U.S.A.

One bARRel Of Oil eqUAlS AppROximATely

580 cubic feet of natural gas

1980

China is the world’s leading user of refined copper. The booming economy in China contributed to a tripling of its annual refined copper consumption during the 8 years from 1999 to 2007.

The average car contains nearly one mile of copper wire*

725 pounds of ovendried wood

~.25

~2

~5

COPPER consumption

~.05

Humans have always been dependent on the Earth’s resources. Some of those resource dependencies have developed as trade and commerce grew; coal and oil were not extremely useful before the industrial revolution. Others have never been excessively useful, but have captivated our attention for millenia (one shiny yellow metal, in particular, comes to mind). Still others, like water, have been taken for granted; regarded as free, misuse and overuse have been commonplace. Though mispricings are frequent, the laws of supply and demand hold strong for resources. There will be enormous opportunities in the way we account for and use our resources, especially as essential resource needs become scarce and new resources see increased demand. Resources have increasingly become viewed as national security issues: dependence on foreign oil has been cited as a funding source for terrorism; bottlenecks in the supply of rare earth elements threaten developed economies around the world.

493

2. Australia 3. Italy 4. Japan 5. Mexico

95% China produces & exports 95 % of rare earth elements.****

386 374 366

less than 2% of the earth’s water supply is fresh water.

Of that, only 1% is available for drinking water.***

4/25/11

Mobility

Over the last few years we've reached a tipping point. We've had the internet for awhile now. We've also had cell phones for long enough that most of us can remember a briefcase-sized box with a shoulder strap that you could talk on. Computers have been around since World War II. Now, we have internet access available on mobile devices with more computing power than PCs during Y2K, which weigh less than a quarter-pounder with fries, and you can talk (or video conference) on it to boot. This always-available computing power is a modern marvel; combined with connectivity, it is truly a game-changer. Mobility and connectivity allows for rapid decision making, accelerated product development, and a consumer base that can shop from anywhere.

Energy From mitosis to manufacturing, our world is shaped by energy. Oil has had a good run as the king of energy, and though its reign will continue for decades more, the realization that it is a finite resource with some severe social and environmental side effects has spurred research into alternatives. Charlie Munger once said "I never miss an opportunity to NOT install solar systems, because I think they're going to get cheaper. I'm not worried about what comes after oil, because solutions are on the horizon."

References to a paradigm shift have become common in mainstream media; have you heard of the United States referred to as the 'Saudi Arabia of Wind' or the 'Saudi Arabia of Natural Gas?' From our food supply to our transportation network, from the way we communicate to the clothes we wear, energy is the common theme.

And, as a theme, it will continue to drive investment and innovation.

Connectivity

From the moment a renowned politician invented the interwebs, the planet has become more and more connected. Communication methods vary: broadband, clouds, fiber optics, smartphones, smartgrids, and wireless, but the end result is the same: information surrounds us. Connectivity will continue to redefine and reshape our lives, from the way we meet people to the way we manufacture goods to the way we shop for goods. New industries, currencies, and communities are being developed at an ever quickening pace; as are security issues, border disputes and trade wars. As such, we expect the connectivity theme to drive growth and innovation for the foreseeable future.

2