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55 South Lake Avenue Suite 750Pasadena, CA 91101Phone (626) 568-2792
55 West Monroe Street Suite 3125 Chicago, IL 60603 Phone (312) 269-1062
LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
LLOMBARDIA OMBARDIA CCAPITAL APITAL PPARTNERS LLCARTNERS LLC
CONTRARIAN INVESTINGCONTRARIAN INVESTING
Al Polit, CFA Al Polit, CFA Managing DirectorManaging DirectorPortfolio Manager, International & Global Value EquitiesPortfolio Manager, International & Global Value Equities
LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
DISCLOSURESDISCLOSURES
Lombardia Capital Partners LLC and employees shall have no obligation to update or amend any information or opinion contained herein, and the frequency of subsequent publications, if any, remain in the discretion of the author and the Firm.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. This information discusses general market activity, industry or sector trends, or other broad-based economic, market, or political conditions and should not be construed as investment advice.
This publication does not constitute an offer or solicitation of any transaction in any securities referred to herein. Any recommendation contained herein may not be suitable for all investors. Although the information contained in the subject report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This publication and any recommendation contained herein speak only as of the date hereof and are subject to change without notice.
This report may not be reproduced, distributed, or published without the prior consent of Lombardia Capital Partners LLC.
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LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
“Even the intelligent investor is likely to need considerable willpower to keep from following the crowd.”
- Benjamin Graham
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LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
The Basics...
Intrinsic Value
Margin of Safety
The key to investment success is to look at stocks like small pieces of a
business that are up for sale like a rationale businessperson.
Offering...
Downside Protection
Capital Appreciation Potential
ABSOLUTE VALUE INVESTING - BASIC FOUNDATIONSABSOLUTE VALUE INVESTING - BASIC FOUNDATIONS
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LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
“...many shall be restored that now are fallen; and many shall fall that are now in honor...”
- Horace, Ars Poetica
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LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
““BURGERNOMICS”BURGERNOMICS”
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Country
Big Mac Price
Implied PPP rate
+
Today'sExchange
Rate1 USD =
Over(+) / Under(-) Valuation against
the USD, % ++
in Local Currency
in US dollars
United States
$ 3.73 3.7300 --- 1.0000 ---
Argentina Peso 14 3.4101 3.75 4.1054 -8.6569Australia A$ 4.35 4.6134 1.17 0.9429 24.0853Brazil Real 8.71 5.5092 2.33 1.5810 47.3751Britain £ 2.29 3.6367 0.61 0.6297 -3.1285Canada C$ 4.17 4.2994 1.12 0.9699 15.4758Chile Peso 1750 3.7444 469 467.361 0.3507China Yuan 13.2 2.0402 3.54 6.4698 -45.2842Colombia Peso 8200 4.5965 2196 1783.96 23.0969
Costa RicaColones
20003.9588 536 505.200 6.0966
Czech Rep Koruna 67.6 3.8953 18.1 17.3543 4.2969Denmark DK 28.5 5.3409 7.63 5.3362 42.9856Eygpt Pound 13 2.1753 3.48 5.9761 -41.7680Estonia Kroon 32 2.7256 8.57 11.7405 -27.0048Euro area € 3.38 4.7246 0.91 0.7154 27.2016Hong Kong HK$ 14.8 1.8990 3.96 7.7936 -49.1891Hungary Forint 740 3.8509 198 192.164 3.0370
IndonesiaRupiah 22780
2.6584 6102 8568.98 -28.7897
Israel Shekel 14.9 4.3100 3.99 3.4571 15.4147Japan ¥ 320 4.0081 85.7 79.8390 7.3410Latvia Lats 1.55 3.0482 0.42 0.5085 -17.4041Lithuania Litas 7.3 2.9545 1.96 2.4708 -20.6735Malaysia Ringgit 7.05 2.3266 1.89 3.0302 -37.6279Mexico Peso 32 2.7105 8.57 11.8060 -27.4098New Zealand
NZ$ 5 4.0997 1.34 1.2196 9.8721
Norway Kroner 45 8.0826 12.1 5.5675 117.3327Pakistan Rupee 210 2.4226 56.30 86.6826 -35.0504Peru New Sol 10 3.6043 2.68 2.7745 -3.4060Philippines Peso 102 2.3627 27.3 43.1702 -36.7619Poland Zloty 8.3 2.8829 2.22 2.8790 -22.8899Russia Rouble 71 2.5068 19.0 28.3227 -32.9160
Country
Big Mac Price
Implied PPP
rate +
Today'sExchange
Rate1 USD =
Over(+) / Under(-) Valuation against
the USD, % ++
in Local Currency
in US dollars
Saudi Arabia
Riyal 10 2.6662 2.68 3.7506 -28.5448
Singapore S$ 4.23 3.4463 1.13 1.2274 -7.9355South Africa
Rand 18.5 2.6879 4.94 6.8827 -28.2258
South Korea Won 3400 3.1919 911 1065.19 -14.4754Sri Lanka Rupee 210 1.9145 56.3 109.690 -48.6735Sweden SKr 48.4 7.3401 13.0 6.5939 97.1519Switzerland SFr 6.5 7.7854 1.74 0.8349 108.4082Taiwan NT$ 75 2.5987 20.1 28.8609 -30.3556Thailand Baht 70 2.3014 18.8 30.4158 -38.1900Turkey Lire 5.95 3.6028 1.59 1.6515 -3.7239UAE Dirhams 11 2.9945 2.95 3.6734 -19.6929
UkraineHryvnia
14.51.7872 3.88 8.1131 -52.1761
Uruguay Peso 79 4.1586 21.1 18.9970 11.0702
LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
Euro integration or disintegration
High public debt levels & anemic economic growth
Default insurance costs soaring
Liquidity issue or insolvent
Sovereign buyers strike
Sovereign default or restructuring
Italian & Spanish contagion
Bank capital and funding options
Upcoming bank stress tests
A second “euro”
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EUROPE - MARKET CONCERNSEUROPE - MARKET CONCERNS
Italian VS. German 10-yr Bond Spreads
General Government Debt to GDP Ratio
LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L Page 8
EUROPE - OPPORTUNITIESEUROPE - OPPORTUNITIES
Increased transparency
Market discipline
Increasing privatization of state assets
ATTRACTIVE EQUITY VALUATIONS
LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
High public debt levels (most domestically-funded)
Nuclear shutdown
Political circus
Public financial institutions
Deflation
Inefficient utilization of corporate balance sheets
Lifetime employment
“Amakudari”
Poor corporate governance
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JAPAN - CONCERNSJAPAN - CONCERNS
LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
Public financial institutions reform
Adoption of shareholder-friendly practices
Some unwinding of cross-shareholdings
Increased loan demand
ATTRACTIVE EQUITY VALUATIONS
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JAPAN - OPPORTUNITIESJAPAN - OPPORTUNITIES
LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
The unknown
Use of shell companies
Inflationary pressures
Negative real rates
Labor constraints
Chinese “white elephant” projects
Unbalanced economies
Undisciplined spending
Poor corporate governance
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EMERGING MARKETS - CONCERNSEMERGING MARKETS - CONCERNS
LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
In general, expensive valuations
Growth, but what is the cost and return
Conflicts of interest
Poor disclosure
Limited shareowner rights
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EMERGING MARKETS – OPPORTUNITIES?EMERGING MARKETS – OPPORTUNITIES?
LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L Page 13
THE NEXT EMERGING MARKET?THE NEXT EMERGING MARKET?
LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
Value has underperformed Growthlast 7 years
Value has outperformed Growthover long periods
Note: Results greater than one year have been annualized and data is net of withholding taxes ending 6/30/11.
MSCI EAFE VALUE VS. GROWTHMSCI EAFE VALUE VS. GROWTH
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LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L
“Conventional wisdom is the surest path to underperformance.”
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LOMBARDIA
PARTNERSC A P I T A L
LOMBARDIA
PARTNERSC A P I T A L Page 16