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Investing in Volatility in a Tense Geopolitical Environment - Charles K. Ortel - Newport Value Partners, L.L.C.

67 WALL STREET, New York - January 11, 2012 - The Wall Street Transcript has just published its SRI Investing and Other Investing Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains in-depth interviews with Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Impact Investing Strategy - Limiting Market Risk - Quantitative Investing - Volatile Market

Companies include: Amazon (AMZN); Berkshire Hathaway (BRK-A); Ford (F); General Electric (GE); General Motors (GM); Google (GOOG).

In the following brief excerpt from the SRI Investing and Other Investing Strategies Report, money managers discuss the outlook for the sector and for investors.

Charles K. Ortel serves as Managing Partner of Newport Value Partners, L.L.C. Newport, established in 2007, provides value-added research to executives and to investment firms. From 1994 to 2002, Mr. Ortel was President of The Chart Group, L.P., a private investment and advisory firm, which he founded with another partner. While at Chart, Mr. Ortel helped create and manage an Irish corporate buyout fund, a small-cap U.S. buyout fund, a French petroleum development company, a U.S. natural gas distribution company and an offshore fund of hedge funds. He served as Chairman, President and Director of numerous Chart-sponsored companies and as an outside Director of Tedcastle Holdings Ltd. and Ariel Corporation. From 1991 to 1994, Mr. Ortel was Senior Managing Director and Member of the management committee at The Bridgeford Group, Inc. From 1980 to 1991, Mr. Ortel worked for Dillon, Read & Co. Inc. Trained in corporate finance, Mr. Ortel eventually served in a senior capacity within Dillon Read's corporate buyout department before leading Dillon Read's worldwide merger and acquisition group as a Managing Director. Mr. Ortel graduated from Harvard Business School with an MBA, and from Yale University with a B.A., cum laude.

TWST: Please tell us about Newport Value Partners.

Mr. Ortel: We are a research firm that got its start back in 2006. Several friends and I saw the credit crisis coming back then, and our original theory was that we would go around to some private equity firms and offer to study their portfolios and figure out which companies were likely to get hit hardest and which could be saved by preemptive action before the crisis bit in full force. We thought it would be useful to study large publicly traded companies to figure out how they were doing at that time, and to identify some of the standouts to figure out how much could we improve the operations of some of these private equity companies.

By complete chance, we stumbled on General Electric (GE). We selected 25 large companies that are publicly traded and diversified, and looked at their metrics, at their important cash flow ratios, their working capital, their capital structure, their revenue growth by segment, etc., under a theory that the larger multinational companies should do better than smaller companies. So we picked GE as one of those 25, and initially, gave up because it was so complicated.

Then, while I was taking a hiatus away from the industry, I tackled the problem again, and finally, came up with an approach. It was really the first time that anybody had gone down that track to subtract the finance operations from the whole company and see what you get, and then see a company that was not in as good of shape as advertised in our view. That's sort of got our juices flowing. It took a while for the press and others to engage on this issue. It was an interesting process, and early on, when I showed this analysis to some pretty famous investors, they said, "In order for you to make your case, you are going to have to educate a lot of people, the financial press" and I turned to this person and said, "How am I supposed to do that?" He looked at me and said, "You'll figure it out." And he was right.

After consulting with a few friends, somebody put me on to a prominent foreign newspaper, and I briefed them and they wrote an article, and before long, by luck frankly, I ended up being asked to go on television the day AIG was seized by the federal government on Sept. 16, 2008. That was the first time I was on television, and I began to make the case about GE. The GE work and my long experience in M&A and private equity have given me a firm view that a conglomerate does not make much sense in modern context. A pure play is very simple, even in this crazy volatile market.

If you want to take a very specific bet, you can do it, and you do so without paying an acquisition premium. So my innate skepticism and the work on GE caused me then to look at Warren Buffett and Berkshire Hathaway (BRK-A), because it was another company similar to GE. Within weeks after we started looking at Berkshire Hathaway and finding that like GE, it didn't make much investment sense, Berkshire Hathaway bought into GE, which seemed surprising, and further confirmed my views about Buffett.

Because I wasn't affiliated with any big firm, I had the fortune of being able to say what I wanted to anyone I wanted on my own time. As I began to think about GE and Berkshire Hathaway, I asked how can it be that these two widely followed companies are not appropriately studied by the wider world. There must be some larger problems, and that caused me to think very deeply about the macroeconomic stuff, which is the subject of my latest research that came out on December 1. In college and business school, I had some exposure to economics, and I came to the conclusion that the yardsticks and milestones that are used to benchmark macroeconomic progress are deeply flawed.

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