T2 - Investor Letter - 2011 10 02

8/3/2019 T2 - Investor Letter - 2011 10 02

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The GM Building, 767 Fifth Avenue, 18 th Floor, New York, NY 10153

Whitney R. Ti lson and Glenn H. Tongue phone: 212 386 7160Managing Partners fax: 240 368 0299

www.T2PartnersLL C.com

October 2, 2011

Dear Partner,

Our fund declined 9.5% in September vs. -7.0% for the S&P 500, -5.9% for the Dow and -6.3%for the Nasdaq. Year to date, its down 29.6% vs. -8.7% for the S&P 500, -3.9% for the Dowand -8.4% for the Nasdaq.

August largely repeated itself in September for us: our short book was down nearly twice themarket, but these gains were far outweighed by losses across the board in our long portfolio,despite generally good company-specific news regarding our major holdings (discussed below).

Amidst another tumultuous month in the markets, investors again dumped stocks that are evenslightly illiquid, perceived to be risky, or valued primarily on future, rather than current, profitstraits that characterize many positions in our fund.

Our three biggest losers by far were Grupo Prisa (-32.9%), Iridium (the warrants, whichcomprise the bulk of our position, were down 29.0%), and Howard Hughes Corp. (-22.2%).Other losers included Goldman Sachs (-18.6%), Citigroup (-17.5%), Microsoft (-6.4%), andBerkshire Hathaway (-2.7%)winner is up only 0.6% (J.C. Penney).

Our short book performed well, led by declines in First Solar (-36.8%), ReachLocal (-25.3%),

OpenTable (-24.6%), Boyd Gaming (-21.6%), Ethan Allen (-20.8%), ITT Educational Services(-20.2%), St. Joe (-18.7%), Philips-Van Heusen (-12.6%), Green Mountain Coffee Roasters(-11.3%), Salesforce.com (-11.2%), and Lululemon Athletica (-11.0%).

While the broader-scale collapse like they were in late 2008 through earlyMarch 2009, our portfolio is behaving very similarly, as shown by this chart, which compares08 throughFebruary 2009:


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There are striking parallels between these two five-month periods. In both cases:

We identified and invested in materially undervalued stocks, but with the benefit ofhindsight (which is always 20/20), we bought too early, amuch stocks would tumble amidst the market turmoil in other words, we bought cheapstocks, but they became much cheaper;

We maintained our conviction in the great majority of our holdings and kept adding tomany of them at lower and lower prices, reducing our average cost significantly;

Our largest position (mid-teens percentage) was Berkshire Hathaway; We made significant investments in the most out-of-favor U.S. financial and consumer-

related sectors;

We purchased a number of what we call mispriced options such as General Growth(today we own a few similar situations that we may discuss in future letters);

We ended the five-month periods with similar positioning: at the end of February 2009,

Our actions paid offthe timing). This bsequent seven months in 2009:

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We believe in eating our own cooking we have a higher percentage of our net worths in our

funds than anyone, by farso it goes without saying that no-one has lost more money or feelsover the past year than we do.

the decisions we have tomake when faced with poor performance. To the extent that you choose to invest in funds, youhave thousands of choices, just as we have thousands of stocks to choose from. As we discussedevery fund you invest in will underperform at times, just as every stock we invest in will do so aswell. This year, for example, three great businesses whose stocks we own have allunderperformed the market: Berkshire Hathaway (-11.3%), Wells Fargo (-22.2%), and GoldmanSachs (-43.8%) (note that

substantially).

The critical question all of us face is: what should we do when a fund or a stock we ownperforms poorly: sell, hold, or buy more? This decision, more than any other, is the key to long-term investment success far more important than timing the entry point exactly right.

Unfortunately, there is no easy answerevery fund and every stock is different but here are afew thoughts: First, to quote Ben Graham, you must let the market be your servant, not your

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cases, the herd is right, but the real money is made betting against the herd wheItmay be the right thing to sell and move on lost it but the decision whether to do so must

Our approach is to tune out the short-term noise and carefully evaluate the company and itsmanagement, focusing on the long-term track record rather than the short-term poorperformance. The key question to ask is: has anything changed that leads us to believe that therecent performance is likely to be permanent, or is this just one of those inevitable periods of badluck and/or fixable mistakes, such that the company is likely to revert to its long-termoutperformance?

In the case of Berkshire Hathaway, Wells Fargo and Goldman Sachs, we believe the latter is theinvestment approach, which is rooted in the timeless principles of value investing, nor our abilityto execute on it has changed.

We attended a private dinner this past week with Warren Buffett, who, thanks to Berkshireeconomy better than perhaps anyone. on economic growth prospects for U.S. over the next 2-3 years, he replied:

Sure, and over the next six months for that matter. We have 70-plus businesses and about five ofthem are related to residential home construction and they are flat on their rears, as they havebeen for more than three years. But the other 60-plus are doing very well, as is the rest ofAmerican business.

We have three jewelry businesses with over 300 stores and I thought same store sales might bedown in August and September, but they were up significantly. We have a number of furniturebusinessesand their same stores sales are upsignificantly. We are seeing good business across the board except for residential homeconstruction.

Buffett is only one of many data points we use in forming our economic views, but most of what To be sure, the U.S. economy is soft, unemploymentremains stubbornly high, and consumer confidence, spending, and the housing market are quiteweak, but corporate profits and profit margins are at all-time highs and corporate balance sheets Overall, however, the U.S. economy is hanging in

therefor now. Those last two words are key, of course. The market is always forward lookingand investors are very worried about various storm clouds on the horizon, especially thesovereign debt crisis in Europe and signs that, in China, growth is slowing and/or a real estatebubble may be bursting.

We are closely monitoring developments and have been increasing our short exposureselectively, but we remain substantially net long because, unlike 2008, when we were convincedthat the bursting of the housing bubble was going to lead to a major shock to the system, today


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we think that the most likely scenario is that the U.S. economy will muddle along for the nextfew years hitting air pockets like the ono doubt, but avoiding anymajor crises. Under this scenario, the market will likely be choppy and range-bound, not steeplydeclining, in which case we expect our portfolio to do well.

How We

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ion Making TodayWe believe that the key to rebounding from this period of dismal performance is to pretend like. Seriously. Allow us to explain:

Beyond the financial impact, we have our reputations on the line, take pride in what we do, andknow most of our investors personallya truly lousy feeling. Given this, it would be very easy to fall into a number of mental traps: self-pity, obsessing about what we could have done differently, going to cash or a market neutralposition or, most dangerously, the opposite: swinging for the fences in an attempt to quicklymake back the losses. We are doing none of this. Instead, weur entireportfolio with the following question in mind: if we were starting our fund from scratch today

and held only cash, what would we do?

The answer is that our portfolio would look just like it does. the market bottom in early 2009 we think every significant position in our fund could easily double in the next 2-3 years, with thepossible exception of three of our safest big-cap stocks, Berkshire Hathaway, Microsoft and ABInBev, which have 50-80% upside.

Winners and Losers This YearHere are our 10 biggest losing positions this year, with the percentage losses to our fund:

1. Iridium -3.6%2. Berkshire Hathaway -3.5%3. Grupo Prisa -3.0%4. J.C. Penney -2.6%5. Howard Hughes -2.1%6. Seagate -1.9%7. CIT Group -1.7%8. Resource America -1.7%9. Microsoft -1.6%10.Citigroup -1.3%

These stocks account for the great majority 23 percentage points of our losses this year.Offsetting this are almost no winners on the long side here are our five largest:


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1. Kraft 0.3%2. ADP 0.3%3. TravelCenters of America 0.2%4. Echostar 0.2%5. American Express 0.2%

What can we learn from this? First, the paucity of winners is strikingand very unusual. Lastyear, for example, we had plenty of losing positions on the long side Target alone cost us 3.3percentage points of return but they were more than offset by four big winners:

1. General Growth Props. 8.1%2. Berkshire Hathaway 5.4%3. Liberty Acquis. Warrants 5.2%4. BP 4.3%

A second thing to note is that single, obvious mistake. For example, unlike anumber of well-to financial stocks earlier this year.

Finally, and most importantly, we think nearly all of our losses this year are temporary. Wecontinue to hold and in many cases have added to substantial positions in eight of our tenlargest losing positions this yearand even the two we no longer hold are been replaced withsimilar stocks (Seagate with Western Digital and CIT Group with more attractive financialstocks). Thus, w

It is possible indeed, almost certain that we will be wrong in our assessment of one or moreof these positions. mistakes, in an irrational attempt to make back our losses. These are the stocks we would own

Comments on Some StocksIn conclusion, wed like to share some brief comments about a few of our positions:

Berkshire HathawayLast week Berkshire Hathaway issued a press release announcing an open-ended sharerepurchase program. who is saying a number of important things, not only to Berkshire shareholders, but to investorsin general. Overall, it makes us even more bullish on the stock and, though it was already ourlargest position, we added to it as we think this effectively puts a floor on the stock price slightlyabove the current level, while the upside remains large. See Appendix A for further comments inan article we published.


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Howard Hughescontinues to declineanswer other than investors having worries about the economy and shunning companies that areprimarily valued on profits a number of years into the future (the discount rate investors are

using has risen sharply recently). This explanation is good news because our estimate ofintrinsic value is unchanged, yet the margin of safety is now even greater.

IridiumIridium is a virtually identical situation, with the stock declining sharply on no news. Thecompany reported strong Q2earningsin August and we have no reason to believe its businesshas weakened since then. In Q2, revenues grew 14%, net income jumped 265%, operationalEBITDA rose 34%, total billable subscribers increased 25%, and the company reaffirmedguidance for the year. Every element of our investment thesis is intact and the story is playingout so far as we expected, but this is a multi-year story, so the stock is subject to short-termvolatility.

Grupo PrisaThe story is more complex with Grupo Prisa. Spain and Portugal are going through a crisiscompany with 77% of its revenues in these two countries is that the companymarkets, though the company is holding up remarkably well in light of this: in the first half ofsrestructuring and cost-cutting is on track.

Prisa, however, needs to refinance its debt to give it breathing room to get through the currentcrisis. Our discussion with management and othersplus our own experienceleads us to havea high degree of confidence that Prisa will be able to do so successfully, but the uncertainty isweighing heavily on the stock.

Prisa reminds us of our experience with Huntsman in late 2008 and early 2009. Both companieshave strong management and assets, yet are in economically sensitive businesses and have toomuch debt. In both cases, we calculated intrinsic value of more than $15/share in any kind ofnormal economic environment, but the stocks got hammered as the economic environmentdeteriorated and investors panicked.
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the four months from November 2008 through February2009:

The stock chart for Prisa (the B shares, which comprise the bulk of our holdings) over the past

four months looks very similar:

it was a 7-bagger in one year andnearly a 10-bagger in less than two years, as this chart shows:


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GoldmanSachsWe started nibbling at Goldman Sachs in August and added materially to it last month, such thatcalls. Business is very weak for Goldman right now, so we assume that Q3 (which will bereported on Oct. 18th) will be terrible and the next few quarters might be as well. We also

anticipate that the Dodd-Frank Act and other regulation means that the business will likely neverbe as profitable as it was in its glory days. we thinkGoldman is more aggressive in writing down assets and marking them to true market prices thananyone.

When the dust settles, we think Goldman will remain the premier investment banking franchisevalue, which as of the endof Q2 stood at $131.44 (tangible book was $121.60). Thus, at $94.55, a 28% discount to book(and a 22% discount to tangible book), we think the stock is a steal.

Citigroup

We have also been buying Citigroup, making it a 5.3% stock position today. This is perhaps themost controversial stock we own, as the consensus view on the company negative, but we have a different view.

We think of Citigroup as two businesses: good bank (Citicorp) and bad bank (Citi Holdings).The former is a fabulous worldwide franchise that generates robust and growing profits thatcould easily approach $10/share within a few years (net income was $1.19/share in Q2 nearly$5/share annualized). Citicorp has been strongly profitable for more than two years, with themajority of profits coming from high-growth emerging markets, as this chart shows:


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In particular, consumer banking has been exceptionally strong: North American consumerbanking had $2.1 billion of net credit margin in Q2, up 32% year over year, and internationalconsumer banking had $4.1 billion of net credit margin, up 17%. This growth was offset in Q2by a 29% decline in net income in the Securities and Banking division, though it still earned ahealthy $1.2 billion.

Ah, but what about bad bank? Citigroup is rapidly shrinking Citi Holdings via sales, charge-offsand runoff, as this chart shows:

(1) Peak quarter

Losses at Citi Holdings have also been shrinking thanks to lower expenses, credit losses, andloan loss reserves:


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But what about the balance sheet? Might Citigroup need to raise additional capital or requireanother government bailout? We thinkquite strong and trending positively:

Overall, we like what we see: good bank is thriving, bad bank is shrinking and reducing losses,and the balance sheet is in good shape. The current headlines are grimand may remain so forsome timebut we think the stock more than discounts this: at $25.61, it trades at a 58% and


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Since then, the company reported strong Q2 earnings, with revenues up 19% to $68.2 millionand operating profit up 110% to $3.6 million. In addition, cash net of all debt and long-termliabilities is $137.7 million ($0.87/share). Nevertheless, the stock has fallen to $1.23. Wecontinue to believe that the stock is worth more than $2/share. We are part of an activist group,so we are limited in what we can say at this time, but rest assured that we are working hard to

unlock this value.

ConclusionThank you for your continued confidence in us and the fund. As always, we welcome yourcomments or questions, so please dont hesitate to call us at (212) 386-7160.

Sincerely yours,

Whitney Tilson and Glenn Tongue

The unaudited return for the T2 Accredited Fund versus major benchmarks (including reinvesteddividends) is:

September Q3 Year-to-Date Since Inception

T2 Accredited Fundnet -9.5% -25.7% -29.6% 100.7%

S&P 500 -7.0% -13.9% -8.7% 15.5%

Dow -5.9% -11.5% -3.9% 59.2%

NASDAQ -6.3% -12.7% -8.4% Past performance is not indicative of future results. Please refer to the disclosure section at the end of this letter. The T2Accredited Fund was launched on 1/1/99.


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T2 Acc redi ted Fund Performance (Net) Since Inception

T2 Acc redi ted Fund Monthly Performance (Net) Since Inception

Note: Returns in 2001, 2003, and 2009 reflect the benefit of the high-water mark, assuming an investor at inception.

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(% )

T2 Acc redi ted Fund S&P 500

T2 S& P T2 S& P T2 S& P T2 S& P T2 S& P T2 S& P T2 S& P T2 S& P T2 S& P T2 S& P T2 S& P T2 S& P T2 S& P

A F 500 A F 500 A F 500 A F 500 A F 500 A F 500 A F 500 A F 500 A F 500 A F 500 A F 500 A F 500 A F 500

J anuary 7.8 4.1 -6.3 -5.0 4.4 3.6 -1.8 -1.5 -5.5 -2.6 4.7 1.8 1.1 -2.4 1.9 2.7 2.4 1.7 1.9 -5.9 -3.6 -8.4 -1.6 -3.6 -2.8 2.4

Feb ru ar y -2.9 -3.1 6.2 -1.9 -0.6 -9.2 -1.1 -2.0 2.9 -1.6 7.0 1.5 2.1 2.0 -3.1 0.2 -3.3 -2.1 -6.9 -3.3 -8.9 -10.8 7.3 3.1 4.1 3.4

M arch 4.1 4.0 10.3 9.8 -2.6 -6.4 3.0 3.7 1.4 0.9 3.9 -1.5 3.9 -1.7 3.9 1.3 -0.8 1.1 -2.3 -0.5 2.9 9.0 4.6 6.0 -4.1 0.0

April 2.1 3.7 -5.1 -3.0 5.1 7.8 -0.2 -6.0 10.5 8.2 2.4 -1.5 0.6 -1.9 2.2 1.4 4.4 4.6 -0.9 4.9 20.1 9.6 -2.1 1.6 1.9 3.0

M ay -5.7 -2.5 -2.8 -2.0 1.8 0.6 0.0 -0.8 6.6 5.3 -1.4 1.4 -2.6 3.2 1.8 -2.9 2.5 3.3 7.9 1.2 8.1 5.5 -2.6 -8.0 -1.9 -1.1

June 2.2 5.8 4.1 2.4 4.6 -2.4 -7.3 -7.1 2.9 1.3 0.1 1.9 -3.1 0.1 -0.2 0.2 -3.0 -1.5 -1.2 -8.4 -5.0 0.2 4.5 -5.2 -2.4 -1.7

July -0.7 -3.2 -3.6 -1.6 -1.1 -1.0 -5.0 -7.9 2.3 1.7 4.6 -3.4 0.5 3.7 -0.9 0.7 -5.4 -3.0 -2.5 -0.9 6.8 7.6 3.5 7.0 -4.6 -2.0

Augus t 4.1 -0.4 5.4 6.1 2.5 -6.3 -4.3 0.5 0.4 1.9 -0.9 0.4 -3.2 -1.0 2.9 2.3 1.7 1.5 -3.3 1.3 6.3 3.6 -1.5 -4.5 -13.9 -5.4

Septembe r -3.3 -2.7 -7.2 -5.3 -6.1 -8.1 -5.4 -10.9 1.7 -1.0 -1.6 1.1 -1.5 0.8 5.0 2.6 -1.1 3.6 15.9 -9.1 5.9 3.7 1.7 8.9 -9.5 -7.0

Octobe r 8.1 6.4 -4.5 -0.3 -0.8 1.9 2.8 8.8 6.2 5.6 -0.4 1.5 3.5 -1.6 6.3 3.5 8.2 1.7 -12.5 -16.8 -1.9 -1.8 -1.7 3.8

Nov embe r 2.8 2.0 -1.5 -7.9 2.3 7.6 4.1 5.8 2.2 0.8 0.8 4.0 3.1 3.7 1.9 1.7 -3.6 -4.2 -8.9 -7.1 -1.2 6.0 -1.9 0.0

De ce mbe r 9.8 5.9 2.3 0.5 6.5 0.9 -7.4 -5.8 -0.4 5.3 -0.2 3.4 -1.3 0.0 1.4 1.4 -4.3 -0.7 -4.0 1.1 5.5 1.9 0.5 6.7

YT D

T O T A L31.0 21.0 -4.5 -9.1 16.5 -11.9 -22.2 -22.1 35.1 28.6 20.6 10.9 2.6 4.9 25.2 15.8 -3.2 5.5 -1 8.1 -37.0 37.1 26.5 10.5 15.1 -29.6 -8.7

1999 2000 2001 2002 2003 2004 20112005 2006 2007 2008 2009 2010


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Appendix A

And What It Means

September 26, 2011http://seekingalpha.com/article/296012-berkshire-hathaway-s-new-share-repurchase-program-and-what-it-means

This morning Berkshire Hathaway issued a press release announcing an open-ended sharerepurchase program. who is saying a number of important things, not only to Berkshire shareholders, but to investorsin general. Overall, it makes us even more bullish on the stock and, though it was already ourlargest position, we added to it this morning as we think this effectively puts a floor on the stockprice slightly above the current level, while the upside remains large.

Interestingly, this is only the second time that Buffett has offered to buy back stock. The firstwas in his1999 Letter to Berkshire Hathaway Shareholders(pages 16-17), which was releasedon Saturday, March 11, 2000 (not coincidentally, the very moment that the Nasdaq peaked). Atthe time, the stock was at $41,300, but it popped 8% on the following Monday and continuedrising all week, closing the following Friday at $51,300, up 24.2%, so Bufbuying back any stock. This chart shows how the stock performed in the subsequent year, rising72% vs. an 11% decline in the S&P 500:

Berkshi re Hathaway Authorizes Repu rchase Program

Omaha, NE (NYSE: BRK.A; BRK.B)Our Board of Directors has authorized Berkshire Hathaway torepurchase Class A and Class B shares of Berkshire at prices no higher than a 10% premium over the then-current book value of the shares. In the opinion of our Board and management, the underlying businesses of
http://seekingalpha.com/article/296012-berkshire-hathaway-s-new-share-repurchase-program-and-what-it-meanshttp://seekingalpha.com/article/296012-berkshire-hathaway-s-new-share-repurchase-program-and-what-it-meanshttp://seekingalpha.com/article/296012-berkshire-hathaway-s-new-share-repurchase-program-and-what-it-meanshttp://www.berkshirehathaway.com/1999ar/1999ar.pdfhttp://www.berkshirehathaway.com/1999ar/1999ar.pdfhttp://www.berkshirehathaway.com/1999ar/1999ar.pdfhttp://www.berkshirehathaway.com/1999ar/1999ar.pdfhttp://seekingalpha.com/article/296012-berkshire-hathaway-s-new-share-repurchase-program-and-what-it-meanshttp://seekingalpha.com/article/296012-berkshire-hathaway-s-new-share-repurchase-program-and-what-it-means


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Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise.If we are correct in our opinion, repurchases will enhance the per-share intrinsic value of Berkshire shares,benefiting shareholders who retain their interest.

Berkshire plans to use cash on hand to fund repurchases, and repurchases will not be made if they wouldh andredundant liquidity will always be of paramount importance at Berkshire. Berkshire may repurchase sharesrepurchase program is expected to continue indefinitely and the amount of purchases will depend entirelyupon the levels of cash available, the attractiveness of investment and business opportunities either at handic value. Therepurchase program does not obligate Berkshire to repurchase any dollar amount or number of Class A orClass B shares.

Buffett undoubtedly wrote this press release and, as all long-time Buffett-watchers know, hecareful chooses every word so

Most importantly, Buffett is saying that the stock is deeplyundervalued. it back at a 10% premium to book value if he thought its intrinsic value was, say, 20% or even30% above book. How undervalued? The wordjust cheap, but is screamingcheap. We peg intrinsic value at close to $170,000 ($113/B share)as we outline in our slide deckhereand we think that the announcement today indicates that

So up to what price is Buffett willing to buy? buying back the stock, not Buffett himself, but he is setting the policy and is the largestshareholder, with The press release says a- The latest filing is the end of Q2 (June 30), when5.81/B share). ue, so oneneeds to consider what book value has done since then. There are a lot of moving pieces, but themain factors are that the stock portfolio and index puts have moved against Berkshire a bit, butthe company has earned nearly three months of proftoday has declined slightly to perhaps $97,000 ($64.67/B share). Thus, a 10% premium meansthat Buffett is willing to buy back stock up to $106,700 ($71.13/B share), less than 2% below08,449 ($72.09/B share).

is willing to pay quite an opportunity we think.

We also believe that the share repurchase program likely puts a floor on the stock for a numberof reasons. Berkshire is free to repurchase as much stock as Buffett wishes, for as long as he wishes, as longas the price is below 110% of book value. Second, as we discuss below, Buffett likely wants tobuy back a lot stock. Finally, Berkshire has enormous liquidity to do so. According to-Q (postedhere), the company has $43.2 billion of cash (excluding railroads,utilities, energy, finance and financial products), plus another $34.8 billion in bonds (nearly all ofwhich are short-term, cash equivalents), which totals $77 billion. In the press release, Buffett
http://www.tilsonfunds.com/BRK.pdfhttp://www.tilsonfunds.com/BRK.pdfhttp://www.tilsonfunds.com/BRK.pdfhttp://www.berkshirehathaway.com/qtrly/2ndqtr11.pdfhttp://www.berkshirehathaway.com/qtrly/2ndqtr11.pdfhttp://www.berkshirehathaway.com/qtrly/2ndqtr11.pdfhttp://www.berkshirehathaway.com/qtrly/2ndqtr11.pdfhttp://www.tilsonfunds.com/BRK.pdf


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note-mmediately ininvestments or share repurchases. On top of this, the company generated more than $6.5 billionin free cash flow in the first half of the 2011 $1 billion/monthis pouring

into Omaha.

Why is Buffett buying back his stock and, in particular, why now? To answer these questions,1999 Letter to Berkshire Hathaway Shareholders, in which he wrote:

There is only one combination of facts that makes it advisable for a company to repurchase its shares: First,the company has available funds cash plus sensible borrowing capacity beyond the near-term needsof the business and, second, finds its stock selling in the market below its intrinsic value, conservatively-calculated.

notmaking repurchases. Myof funds. We have therefore missed some opportunities

points was too light for us to have done much buying, which means that the gain in our per-share valuewould have been minimal. (A repurchase of, say, 2% of a compa-share intrinsic value produces only a % gain in that value at most and even less if the funds couldalternatively have been deployed in value-building moves.)

the writer is unconcerned about intrinsic valueconsiderations but instead wants us to trumpet an intention to repurchase so that the stock will rise (or quitgoing down). If the writer wants to sell tomorrow, his thinking makes sense for him!but if he intendsthe only way a repurchase program can have any real benefit for a continuing shareholder.

We will not repurchase shares unless we believe Berkshire stock is selling well below intrinsic value,conservatively calculated. Nor will we attempt to talk the stock up or down. (Neither publicly or privately

have I ever told anyone to buy or sell Berkshire shares.) Instead we will give all shareholders andpotential shareholders the same valuation-related information we would wish to have if our positionswere reversed.

nevermake purchases with the intention of stemming a declineRather we will make them if and when we believe that they represent an attractive use

So Buffett is clearly not trying to prop up the stockrather, he believes that at a price below He is alsoimplicitly saying that he wants to buy back a lot of stockotherwise it would onl

But in being willing to allocate capital to share repurchases, is Buffett also running up the white He admits in his So why is he willing to buy it now?

The answer is, in part, that Berkshire has become so large that only very large investments say,$5 billion and up can move the needle, which means the investment universe is smaller,
http://www.berkshirehathaway.com/1999ar/1999ar.pdfhttp://www.berkshirehathaway.com/1999ar/1999ar.pdfhttp://www.berkshirehathaway.com/1999ar/1999ar.pdfhttp://www.berkshirehathaway.com/1999ar/1999ar.pdf


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making it harder for Buffett to find exceptional bargains. But the bigger reason is that Berkshireis drowning in so back billions even tens of billions of his stockandalso have plenty of dry powder to do whathe prefers: make large investments. In other words, he can have his cake and eat it too.

$15.9 billion was cash and the balance was Berkshire stock. Today, Berkshire could buy threeBurlington Northerns (at $15.9 billion in cash each) and still have more than $10 billion left overto buy back stock while retaining $20 billion in cash on the balance sheet.

We interpret tobuying back his stock if he thought there was even, say, a 20% chance that the world and majorstocks markets were going to go off a cliff, as they did in late 2008 and early 2009. At that

time, he was able to invest more than $50 billion at distressed prices, which Buffett much prefersto buying back his own stock, so Buffett is clearly and that a major market correction is quite unlikely.


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T2 Accredited Fund, LP (the Fund) commenced operations on January 1, 1999. The Fundsinvestment objective is to achieve long-term after-tax capital appreciation commensurate withmoderate risk, primarily by investing with a long-term perspective in a concentrated portfolio ofU.S. stocks. In carrying out the Partnerships investment objective, the Investment Manager, T2Partners Management, LLC, seeks to buy stocks at a steep discount to intrinsic value such that

there is low risk of capital loss and significant upside potential. The primary focus of theInvestment Manager is on the long-term fortunes of the companies in the Partnerships portfolioor which are otherwise followed by the Investment Manager, relative to the prices of their stocks.

There is no assurance that any securities discussed herein will remain in the Funds portfolio atthe time you receive this report or that securities sold have not been repurchased. The securitiesdiscussed may not represent the Funds entire portfolio and in the aggregate may represent only asmall percentage of an accounts portfolio holdings. It should not be assumed that any of thesecurities transactions, holdings or sectors discussed were or will prove to be profitable, or thatthe investment recommendations or decisions we make in the future will be profitable or willequal the investment performance of the securities discussed herein. All recommendations within

the preceding 12 months or applicable period are available upon request.

Performance results shown are for the T2 Accredited Fund, LP and are presented net ofmanagement fees, brokerage commissions, administrative expenses, other operating expenses ofthe Fund, and accrued performance allocation or incentive fees, if any. Net performanceincludes the reinvestment of all dividends, interest, and capital gains. Performance for the mostrecent month is an estimate.

The fee schedule for the Investment Manager includes a 1.5% annual management fee and a 20%incentive fee allocation. For periods prior to June 1, 2004, the Investment Managers feeschedule included a 1% annual management fee and a 20% incentive fee allocation, subject to a10% hurdle rate. In practice, the incentive fee is earned on an annual, not monthly, basis orupon a withdrawal from the Fund. Because some investors may have different fee arrangementsand depending on the timing of a specific investment, net performance for an individual investormay vary from the net performance as stated herein.

The return of the S&P 500 and other indices are included in the presentation. The volatility ofthese indices may be materially different from the volatility in the Fund. In addition, the Fundsholdings differ significantly from the securities that comprise the indices. The indices have notbeen selected to represent appropriate benchmarks to compare an investors performance, butrather are disclosed to allow for comparison of the investors performance to that of certain well-known and widely recognized indices. You cannot invest directly in these indices.

Past results are no guarantee of future results and no representation is made that an investor willor is likely to achieve results similar to those shown. All investments involve risk including theloss of principal. This document is confidential and may not be distributed without the consentof the Investment Manager and does not constitute an offer to sell or the solicitation of an offerto purchase any security or investment product. Any such offer or solicitation may only be madeby means of delivery of an approved confidential offering memorandum.

T2 - Investor Letter - 2011 10 02

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