Page 50 Jared Friedberg takes to develop your own personal philosophy. It should be something you really can underwrite to and have a high level of confidence with. It should be a philosophy that is evolved enough to block out noise that doesn't make sense to you, but let in things that are helpful to you. The great investors are the ones who have the psychological ability to be independent in their thought. We believe many MBA students underappreciate this. Related to my private equity background, I believe it is beneficial to have the opportunity to analyze hundreds of businesses and watch how those situations play out. It is central to building your own authentic ideas on how to make money and compound capital over time. I would not be put off by going to a smaller asset management firm where it's an intellectually honest environment and you're going to have the opportunity to wear multiple hats and take on more responsibility. One of my business school professors told me “culture really, really matters, a culture of mutual respect and intellectually honesty.” These are the sorts of things you don't necessarily think about. You may be more focused on the analytics, but you want to work with decent people who you respect and who respect you. I think there is greater opportunity to flourish in an environment like that. G&D: Thank you very much.
Page 51 Studness Capital Management (Continued from page 1) Roy Studness ’06 Charles Studness PhD ’63 economics and finance at Baruch College. He then worked at the Federal Reserve in New York before working at several Wall Street brokerage firms as an equity research analyst covering airlines and utilities. In 1979, he founded Studness Research, conducting research on the electric utility industry. In 1984, Charles began managing portfolios invested exclusively in the electric utility industry and since then compiled an annual total return of 16.7% per year through 2015 (compared to the S&P 500 at 11.1% and the utility index at 10.7% during the same period). Charles received BA and MA degrees from the University of Minnesota and a PhD in economics from Columbia University. Roy began his investment career at First Manhattan Co. after graduating from Columbia Business School in 2006. Roy analyzed a variety of industries, including banks and utilities, during his time at the firm. Roy received his BA from Wesleyan University, JD from Vanderbilt University, and MBA from Columbia University. In 2016, Roy joined Charles, adding his expertise in the banking industry to Charles’s long track record of successfully managing money in the electric utility industry, and banks were added to the portfolios. The two industries work together in a portfolio because they respond in opposite directions to changes in long-term interest rates. Moreover, stocks of companies in each industry tend to do well in different economic environments, so between the two industries there are usually attractive areas for investment. The bank and utility stocks they target are evaluated on a commingled basis that is grounded in a five-year forecast for all of the companies. Their fund, Studness Capital Management, generated a return of 65.7% in 2016. Graham & Doddsville (G&D): Thank you for taking the time to speak with us today. Could you tell us a little bit about yourselves and what brought you to investing? Roy Studness (RS): I graduated from Columbia Business School in 2006 and was a member of the Value Investing Program. Before business school, I spent a couple of years as a bankruptcy lawyer. Practicing law, I found myself more interested in the investment side of the cases I was working on. Also, growing up with my dad in the investment business certainly added to my interest in investing. So, I decided to pursue my interest in investing and Columbia seemed like a great place to do that. After graduating in 2006, I went to work at First Manhattan Company, a long-only investment management firm in New York. They primarily cater to high-net-worth individuals with a long-term investment horizon. I was a generalist but tended to work in a couple of different industries, including community banks and utilities. Over the years, I'd talked often about investments with my dad, who has a deep background in the utility world. Charles Studness (CS): After receiving my PhD in economics from Columbia I worked for the Federal Reserve and then began work as an equity research analyst for several brokerage firms covering utilities. Eventually I decided to set up Studness Research which provided research on the electric utility industry to institutional investors and managed money for clients exclusively in utility stocks. G&D: What came from the conversations between the two of you? RS: We realized how well banks and utilities actually fit together in an integrated portfolio. A lot of it is driven by how the two industries respond differently to changes in interest rates. There is a very high negative correlation between the changes in bank and utility stock prices in response to the 30-year treasury yield. Often, when one industry is attractive, the other tends not to be. If you go into a period of low interest rates, where net interest margins for banks are compressed, bank profitability is reduced and valuations suffer. At the same time, with low interest rates, people seek out yield and they treat utilities as a bond proxy. They're not necessarily (Continued on page 52)