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  • 8th annual Spring value investing congress

    • May 6, 2013 • Las Vegas, NV

    Size Matters – Smaller is Better Tim Eriksen, Eriksen Capital Management






    MAY 2013

    Size Matters: Smaller is Better!

  • Eriksen Capital Management - Disclaimer

      NOT AN OFFER TO BUY OR SELL SECURITIES - Please note that this presentation does not constitute an offer of interests of Cedar Creek Partners, LLC. Such an offer will only be made by means of a Private Placement Memorandum to be prepared and furnished to the prospective investor at a later date. The statements in this letter are preliminary and subject to change and are qualified in their entirety by the terms of such Private Placement Memorandum. In the event of any inconsistency between this letter and the Private Placement Memorandum, the Memorandum shall control. All persons wishing to invest in Cedar Creek Partners, LLC must receive, read, and understand the Memorandum and execute the accompanying Subscription Agreements. The information contained in this presentation is confidential, has been prepared solely for the information of the persons to whom it has been delivered and should not be reproduced, distributed (except to the professional advisors of the recipient, for the purpose of rendering professional advice to the recipient) or used for any other purpose.

      RISK FACTORS - An investment in Cedar Creek Partners, LLC may involve substantial risks, including the risk of loss. All of these risks are described in greater detail in the Private Placement Memorandum.

      TAX RISKS - An investment in Cedar Creek Partners, LLC involves tax liability which will depend upon the limited partner’s individual circumstances. Prospective investors should read the Private Placement Memorandum and consult their own tax advisors with respect to the tax consequences arising from investment.

      OTHER - The foregoing list of risk factors does not purport to be a complete examination of risks involved in the offering. Potential investors should read the entire Memorandum before deciding to invest in the partnership.


  • Eriksen Capital Management – Overview

    Founded firm in 2005. Based in Lynden, WA In 2010-11 Sold 25% of management firm to a group led by Zeke Ashton of Centaur Capital.

    Started Cedar Creek Partners fund in January 2006. Education: M.B.A. – Texas A&M University ’97; B.A. – The Master’s College ’91

    Experience: Walker’s Manual Inc. ’04-’06 - Covered unlisted,

    Micro-Cap and Community Bank stocks. Peter Kiewit & Sons ’99-’04 - Administrative Engineer

    on $600 MM Benicia-Martinez Bridge.

    Tim Eriksen

  • Eriksen Capital Management – Fund Performance

    Inception January 15, 2006. Through March 31, 2013. Net of fees and expenses. Nasdaq excludes dividends due to immateriality. S&P 500 returns measured by S&P 500 Depository Receipt Trust (SPDR) ticker:SPY. See Appendix A for additional information.

    0.00% 2.00% 4.00% 6.00% 8.00%

    10.00% 12.00% 14.00% 16.00% 18.00%

    Cedar Creek DJIA Nasdaq Russell 2000 S&P 500

    Average Annual Return Since Inception

    Average Annual Return Since Inception


    4.92% 5.61% 4.89% 6.88%

  • Eriksen Capital Management - Approach

    "Size is always a problem," Mr. Buffett told me last month. "With tiny sums [to invest], it's extraordinary what you can find. Most of the time, big sums are one hell of an anchor."

    source: ‘Behind the Decision, a Lesson from a Mentor’, Wall Street Journal, Nov. 5, 2009

    Size Matters: Smaller is Better!

  • Eriksen Capital Management - Approach

    “If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt

    investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to

    see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I

    guarantee that. But you can’t compound $100 million or $1 billion at anything remotely like that rate.”

    source: ‘Homespun Wisdom from the Oracle of Omaha’, Business Week, June 25,1999

    Conclusion: Smaller size helps performance!

    Size Matters: Smaller is Better!

  • Eriksen Capital Management - Approach

      “It is impossible to produce superior performance unless you do something different” John Templeton as quoted in The Outsiders by William Thorndike Jr., p.1

      “If you spend your energies looking for and analyzing situations not closely followed by other informed investors, your chance of finding bargains greatly increases.” Joel Greenblatt, You Can Be A Stock Market Genius, p. 23

      “ample investment opportunities may exist in the securities that are excluded from consideration by most institutional investors. Picking through the crumbs left by the investment elephants can be rewarding.” Seth Klarman, Margin of Safety, p. 54

    Why is Smaller Better?

  • Size Matters: Smaller is Better!

    Primary focus on companies with little coverage - Small Caps, Micro Caps, Unlisted Stocks, Spinoffs, Stocks

  • Eriksen Capital Management - Approach

    Historical Performance

    For the 50 Year Period ending in 2011 $1 Invested in Large Cap stocks would have grown to $83

    $1 Invested in Small Cap stocks would have grown to $263

    For the 10 Year Period ending in 2011 Average Annual Return for Large Caps was 5.0% Average Annual Return for Small Caps was 9.1%

    Size Matters: Smaller is Better!

    See Appendix B for source

  • Eriksen Capital Management - Approach

    Conclusion: Smaller funds have a structural advantage over larger funds since the smaller fund can reap the

    benefits of investing in smaller stocks!

    Size Matters: Smaller is Better!

  • Eriksen Capital Management - Philosophy

      Bottom-up, concentrated value approach looking for discount to intrinsic value

      Emphasis on free cash flow and earnings capacity

      Ideal company is growing its intrinsic value, has pricing power, minimal capital requirements, high margins, sales growth, capable management

      Ideally the company has a near term catalyst enabling us to capture the current discount

      Typically start trimming before fair value is reached

  • Eriksen Capital Management - Philosophy

    Why I am an Early Seller $100 Portfolio XYZ Corp 10% of fund (trades at 40% of intrinsic value) It doubles in price $110 Portfolio XYZ Corp 18.2% of fund (80% of intrinsic value) While I am delighted it doubled I have no desire to have a huge

    position in a stock with a small discount to intrinsic value.

  • Stock Selection Process

    Quantitative Qualitative

    Philosophy Fundamental Value Investing seeking a near term catalyst.

    Net Nets Liquidation Low P/B Low P/E EPV GARP Growth

    While we have used, and are comfortable using, all of the above approaches, we have found that we obtain higher returns by focusing on Low P/E and EPV (Earnings Power Value).

  • Eriksen Capital Management

    Current Idea

  • Eriksen Capital Management

    What They Do

    • Internet based bank that strives to provide all the services of a traditional brick & mortar bank with better rates, lower fees, and real-time online account access.

    • Offers personal and business banking, investments, and loans • e.g. Free checking. $500 min., pays 0.55% APY, up to $6 ATM rebate

  • Eriksen Capital Management


    • Founded in 1999. Based in Indianapolis, IN

    • In 2007 acquired Landmark Financial – acquisition added retail mortgage lending operation which INBK then added to its online platform

    • In 2010 expanded into Commercial RE lending

    • Listed on NASDAQ in Feb. 2013

  • Eriksen Capital Management

    Symbol INBK Total Assets 651 mm

    Price $ 23.50 Shares o/s 1,925,000 Market Cap 45,237,500

    ttm EPS $ 3.10 P/E 7.6 Book Value $ 32.62 P/B 0.72 Div. Yield 1.0%

    Avg. Daily Volume 4,000

  • Eriksen Capital Management

    Loan Mix

    Residential RE Commercial RE Commercial Consumer

    24% 4%

    36% 36%

  • Eriksen Capital Management

    Loan Mix

    Fixed Adjustable Total