Phone: 804.288.6080 | Fax: 804.288.6082 www.redmondassetmanagement.com

penredheadManagement

Nov 18, 2013 (3 years and 11 months ago)

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8001
Franklin Farms Drive, Suite 208

Richmond, VA 23229

Phone:
804.288.6080
|

Fax:
804.288.6082

www.redmondassetmanagement.com

2

Firm Overview


Redmond
Asset Management
(RAM) seeks
to deliver top
-
notch client service and above average
investment returns by purchasing
publically traded stocks
that
we believe offer superior risk
adjusted long term opportunities
for growth of capital.



Founded
by Scott Redmond in December
2005.


As of June 30, 2013 RAM had firm assets of approximately $170 million.


Located
in Richmond,
Virginia.


Organizational Chart

Investments

Operations

Scot
t Redmond, CFA

Founder

Small Cap Core Portfolio Manager & Lead Analyst

Lead Portfolio Manager


Jamie Alexander

Chief Compliance

Officer,
Marketing, Operations

Tom Robertson,

CFA

Small Cap Core

Analyst

Portfolio

Manager


Jeremy Kirkland, CFA

Small Cap Core Analyst

Portfolio Manager

Jim Jollay


Equity

Strategist

Analyst


Margaret Phillips

Client Service,

Trader,

Operations

3

Full bios found on pages 25
-
26

4

$0
$100
$200
$300
$400
$500
$600
$700
$800
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
AUM

Millions

Two Phase Growth Plan

Individual SMA Clients
Small Cap Core Institutional SMAs
Jeremy Kirkland

Jim Jollay

Tom Robertson

PHASE
I

Develop
Bedrock Business

Create

Small Cap Track Record

Status: COMPLETE

PHASE

II

Grow Small Cap Core

Maintain Bedrock Business

Status:

JUST STARTING

Marketing

Commitment

Soft Close
$300M

Hard Close $500M


Markel Corporation



On July 1, 2013 Markel Corporation (ticker MKL) became our largest client
1



Tom
Gayner
, Co
-
President and CIO, has long been a friend to RAM; now is squarely in our corner. We feel our
resources have expanded meaningfully



It is not exactly a bad thing that our largest client is, in our opinion, a far superior investor AND has a vested
interest in our success



Markel Corp. does not have an equity stake in RAM, but will benefit from our growth



Classic Win/Win, in our opinion







1
It is not known whether the listed client approves or disapproves of Redmond Asset Management, LLC or the advisory services p
rov
ided.

5

6

Return History
1,2,3

RAM Smal
l Cap
Gross Return (%)

RAM

Small Cap
Net Return (%)

Russell
2000
®
Total Return (%)

2012

22.4

21.2

16.4

2011

-
0.6

-
1.6

-

4.2

2010

33.7

32.4

26.9

2009

45.4

44.0

27.2

2008

-

46.4

-
47.0

-

33.7

2007

4.1

3.1

-

1.6

1
Past performance is not indicative of future
performance. Client investment returns will be
reduced by the advisory fees and other expenses it may incur. Advisory fees are
negotiable.

2
GIPS Compliant Presentation found on page 28.

3
Returns are shown in U.S. Dollars.

7

Annualized Returns
1,2,3

Ending 31 Dec 2012

1
-
Year

3
-
Year
Annualized

5
-
Year
Annualized

RAM Small Cap
Gross Return

22.4%

17.6%

4.9%

RAM Small Cap
Net Return

21.2%

16.4%

3.8%

Russell 2000®

Total

Return

16.4%

12.3%

3.6%

1
Past performance is not indicative of future performance. Client investment returns will be
reduced by the advisory fees and other expenses it may incur. Advisory fees are negotiable.

2
GIPS Compliant Presentation found on page 28.

3
Returns are shown in U.S. dollars.

Firm Ownership and Compensation

Scott Redmond founded the firm, owns 100% of the firm, and serves as the benevolent dictator


Meritocratic Compensation (don’t bother asking for the formulas)

I.
The source of revenue is the source of compensation

A.
Analysts are evaluated on long term performance of recommendations vs. the benchmark and the proprietary screen

B.
Portfolio Managers are evaluated vs. Analyst Recommendations

C.
Analysts and Portfolio Managers may earn a portion of New Business/Client Retention revenues


Succession
P
lan


I.
Key Person Insurance exists for Scott Redmond and Jeremy Kirkland

II.
Should Scott Redmond die

A.
Chief Legal Counsel becomes interim CEO

B.
Resources are in place for an orderly transfer of ownership and responsibilities


8

Core Investment Beliefs

Components of Persistent Long Term Alpha

I.
High Active Share

II.
Low to Moderate Tracking Error

III.
Low Turnover

IV.
No Factor Bets

V.
Investing is More Art Than Science



(More UC Berkley than Caltech)




9

Science Behind Our Beliefs

I.
“Research shows that funds with high active share and moderate tracking error deliver excess
returns on average.”
1




II.
Active Share
2

A.
“Active Share significantly predicts fund performance relative to the benchmark
.”
2

B.
“We also find strong evidence of performance persistence for funds with highest Active Share
.”
2

C.
“Active Share has greatest predictive power for returns among small
-
cap funds
.”
2



III.
Proprietary Analysis by RAM


1
Michael
J.
Mauboussin
, “
Mauboussin

on Strategy”, February 24,
2012
http
://www.petajisto.net/media/20120224lm.pdf
.

2
K
. J.
Martijn

Cremers

and
Antti

Petajisto
, “How Active Is Your Fund Manager? A New Measure That Predicts
Performance,” March 31,
2009
http
://www.petajisto.net/research.html


10

Manage
t
o High Active Share and Low/Moderate Tracking Error Portfolios


I.
NO
FACTOR
BETS

II.
Ownership of Industry Dominant or Distinguished Companies

A.
Diversify
by business, not by GICS Sector
Code

B.
Reduced Systematic Risk

III.
Long
term exposure to “
Antifragile
*” Companies




*The term “
antifragile
” was introduced by
Nassim

Taleb

11

Stock Selection


I.
Overwhelmingly RAM seeks ownership of

A.
Industry Dominant Companies

B.
Distinguished Companies

II.
Stocks usually originate from a Proprietary Screen, but may come from other sources

III.
Up to 5% of the portfolio is allocated to immature or speculative companies

IV.
The Process is 90% fundamental and 10% quantitative

12

13

Equity Investment Philosophy


I.
Find
long term investments in Great Growth Companies through Bottom
-
Up Stock Picking

II.
Great
Growth Companies exhibit the
following:

A.
Outstanding Management and Corporate Culture

B.
Industry or Niche Dominance

C.
High or Rapidly Growing RAM
Margins
*

D.
Disciplined use/reinvestment of cash

III.
We
believe our stocks could outperform the stock market over the long run
because:

A.
Cash generation creates wealth for the company

B.
Prudent reinvestment of that cash increases company wealth even more!

C.
Eventually, an increase in company wealth may translate into proportionately higher stock
prices


*
a
proprietary calculation

14

RAM Margin


Proprietary Calculation




Adjusted Cash Flow


Adjusted Cost of Capital






Adjusted Invested Capital


What It Means To Us



Consistently positive RAM Margins may indicate:


A well run company


Operating in a Niche, or


Dominating an
industry



Rapidly rising RAM Margins may indicate:


Change in competitive landscape


Past investments starting to pay off


15

Typical
Investment
Process

2000
Company
Universe

Four Screens



RAM Margin



Fundamental Growth



Relative Strength of
Stock Price



Earnings Estimate
Revisions

200
Candidate

Companies

Fundamental Analysis



Growth
Prospects


Competitive
Advantage


Corporate
Culture


Return Expectations



Earnings Based


Cash Flow Based


Portfolio Considerations



Sector Weight


Liquidity

50
-
70
Stock
Portfolio


16

Equity Sell
Disciplines

I.
Fundamental

A.
Loss of confidence in management


Results in complete sale

B.
Fundamental deterioration


W
e usually scale out as evidence of deteriorating fundamentals builds

II.
Price
Related

A.
Overvaluation


We usually scale out as the stock becomes overvalued

B.
Monitor
holdings
for absolute and relative
performance


W
e do not use price targets



Portfolio Construction

Broad Ensemble of Industry Dominant or Distinguished Companies (50
-
70 stocks)

I.
Drivers

(3%
-
7% weight per stock)

A.
Deep knowledge of
and strong
conviction in the company

B.
Compelling risk return of the stock

II.
Core Positions

(1.25%
-
3% weight per stock)

A.
Solid Companies

B.
Stocks have attractive risk return potential

III.
Incubators

(<1.25% weight per stock)

A.
General inclination toward the stock

B.
Immature or speculative companies


17

Portfolio Diversification

Simple yet comprehensive approach

I.
Business

A.
Unique, distinguished ,or dominant companies will rarely compete for the same dollar of revenue

B.
For example, in Dec 2011 our top four financial holdings represented 20% of the portfolio and included a debt collector, a BD
C,
a
bank, and a specialty insurer

C.
GICS sector codes are
irrelevant

II.
Growth Rate

A.
Wide range of short and long term projected growth rates

B.
Boring businesses hit inflection points, exciting businesses keep momentum., and “Steady Eddies” plod along

III.
Stock Chart

A.
Wide range of general stock chart patterns

B.
Stocks do not normally move together

IV.
Valuation

A.
Wide range of valuations

B.
Some are not as expensive as they appear, some are very cheap, and others are fairly priced and you get the growth rate of
earnings


18

Ownership Mentality

Year First
Purchased

% by
weight*

% by count

2007

24

20

2008

13

9

2009

10

15

2010

15

21

2011

19

22

2012

10

13

*as of 12/31/2012. Cash was 9% by weight.

19


True long term investors



Know what we own and why we own it



Opportunity to know companies well over time

Our Primary Short Run Risks To
R
elative
P
erformance



I.
Low and Increasing Market Dispersion*

II.
Speculative Bubble

III.
Junk Rally









* We would like to acknowledge the influence
of
the Antti Petajisto, “Active Share and Mutual Fund Performance
”,
December 2010
http://
papers.ssrn.com/sol3/papers.cfm?abstract_id=1685942


20

General View of Risk

I.
To RAM Risk Is A Function Of
1
:

A.
The amount of money you stand to lose

B.
The likelihood of the loss occurring


II.
Greatest Source of Risk Is Ourselves


III.
To RAM Risk Is Not
1
:

A.
Price Volatility

B.
Beta, Correlation, Tracking Error etc…





1
We
would like to acknowledge the influence of the greater works of Seth
Klarman

21

Managing Risk

I.
Simplified Investment Process
1
:

A.
Accentuates roll of skill versus luck in long run outcomes
1

B.
Anchored to Core
Beliefs


II.
Limit AUM

A.
Wider spectrum of investable ideas

B.
Soft Close at $300M

C.
Hard Close at <$500M


III.
Check Lists
1

A.
Prior to Purchase

B.
Monitoring Existing Holdings


IV.
Maintain a log of various thoughts
1



oddly the most valuable log is “if we are wrong it will probably unfold like…”
1


V.
Active Introspection of Behavioral Biases and Cognitive Errors
1



1
We would like to acknowledge the influence of the greater works of Michael
Mauboussin

22

Adaptation of Heisenberg Uncertainty Principal

I.
In our words: Measurement Perturbs


Werner Heisenberg concluded you cannot simultaneously precisely know both the location and speed of
a particle, because to measure one perturbs the other


II.
Too frequently measuring the performance of a long term strategy perturbs the investment
process… if you are human!


III.
We believe in the science behind our art


IV.
We grind through process, aware of performance

23

24

Fee Structure
1

Asset
Amount

Annual Fee

Less

than
$50,000,000

1.00%

Greater than $50,000,000

0.85%

1
Fees are negotiable

Investment Team

R. Scott Redmond, CFA

Jeremy Kirkland, CFA

Tom Robertson, CFA


RAM


Founder


Small Cap Core Portfolio Manager &
Lead Analyst


Lead Portfolio Manager


Small Cap Core Analyst


Portfolio Manager


Joined RAM in 2006


Small

Cap Core Analyst


Portfolio

Manager


Joined RAM in 2012


Experience


The Capital Management Corporation,

2002



2005


Director of Research


Portfolio Manager



Godsey

& Gibb Associates, 1998


2002


Portfolio Manager,

Research
Analyst,

Sales Associate


Financial Analyst

at HCA
Healthcare Inc.



Dynegy, Inc




Gardner

& Robertson, President
and Co
-
Owner



Anderson &
Strudwick
, served in
various roles over 30 years:
President, CEO, Director of
Research, CCO, and CFO.


Education


Washington & Lee University


BA Chemistry, 1994


Philadelphia College of Osteopathic
Medicine, MS, 1996


Washington

& Lee University

BA Economics, 2002


University of Virginia

B.S. Commerce
, 1968

25

Operations Team

Jamie Alexander

Margaret Phillips

RAM


CCO,

Marketing, Trading, Operations


Joined RAM in 2010


Client

Service, Trading, Operations


Joined RAM in 2012

Experience


Analyst at
StreetAccount
, LLC, Jackson Hole, WY


3 yrs.



A subscription based financial news website.



Jackson State Bank & Trust,

Jackson Hole, WY


1 yr.



Accounting and

Commercial Loan Support


Gardner & Robertson


Anderson &
Strudwick


Legg Mason


Davenport

& Company

Education


University

of Virginia


BA History, 2005


University of Virginia


BA Anthropology, 1980

26

Third
-
Party Relationships and Services

Custodians

Legal Support

GIPS Verification

Critical Software


BB&T


Charles Schwab


Fidelity


Merrill Lynch


Sterne Agee


SunTrust


TD Ameritrade


Wells Fargo



Christian & Barton, LLP



Alpha Performance

Verification Services



Thomson

Reuters


Captools


Microsoft 365

Sub
-
Advisory and Wrap Program Relationships

Compliance


GARP Strategy
offered via Merrill
Lynch Managed
Account Service
(MAS)


RAM’s GARP Strategy is

offered via
Sterne Agee Investment Advisor, Inc.
and via a model portfolio to a local
money manager.


RAM provides

equity
portfolio management
services to a local money
manager.


ACA Compliance

27

28

Redmond Asset Management, LLC Small Cap Composite



1 January 2007 through 31 December 2012



Year

End

Composite
Gross
Return (%)

Composite
Net
-
of
-
Fee
Return (%)

Benchmark
Return

(%)

Composite
3
-
Yr St
Dev

(%)

Benchmark
3
-
Yr St
Dev

(%)

Internal

Dispersion

(%)

Number
of

Portfolios

Composite
Assets

($ M)

Firm
Assets

($ M)

2007

4.1

3.1

-
1.6

n/a

n/a

n/a

≤ 5

0.40

34.2

2008

-
46.4

-
47.0

-
33.7

n/a

n/a

n/a

≤ 5

0.21

39.4

2009

45.4

44.0

27.2

33.9

25.2

n/a

≤ 5

0.31

79.6

2010

33.7

32.4

26.9

36.7

28.1

n/a

≤ 5

0.41

100.9

2011

-
0.6

-
1.6

-
4.2

30.7

25.4

n/a

≤ 5

0.41

119.7

2012

22.4

21.2

16.4

20.5

20.5

n/a

≤ 5

0.50

154.5

Redmond Asset Management, LLC (referred to as RAM) claims compliance with the Global Investment Performance Standards (GIPS®)

an
d has prepared and presented this report in
compliance with the GIPS standards. RAM has been independently verified for the periods 1 January 2007 through 31 December
2012.
Verification assesses whether (1) the firm has
complied with all the composite construction requirements of the GIPS standards on a firm
-
wide basis and (2) the firm’s policies

and procedures are designed to calculate and present
performance in compliance with the GIPS standards.
The
Small Cap composite has been examined for the periods 1 January 2007 through 31 December
2012.
The verification and
performance examination reports are available upon request.



Notes:








1
Redmond Asset Management, LLC is an independent, SEC registered investment management firm located in Richmond, VA and is not

af
filiated with any parent organization. RAM was
founded in 2005 and registered with the SEC on 12/22/2005. The company offers investment management services for equity, bala
nce
d and fixed income portfolios to corporate, institutional,
and individual investors. The firm is wholly owned by the founding principal, R. Scott Redmond, CFA. Policies for valuing por
tfo
lios, calculating performance, and preparing compliant
presentations are available upon request.

2
The Small Cap Composite includes all discretionary portfolios that are managed according to RAM's Small Cap investment strate
gy.

The strategy uses a bottom
-
up stock selection approach
to identify fifty to seventy small capitalization companies with high quality management teams, industry and/or niche dominan
ce,

with historical and continuing high returns on invested capital
and reinvested cash. The firm defines small cap companies as those with market capitalizations less than $2 billion, or those

co
mpanies with market capitalizations no larger than the most
recently reported market capitalization of the largest constituent of the Russell 2000 Index. There is no account minimum res
tri
ction for the composite.

3
The performance benchmark for the composite is the total return of the Russell 2000® Index, as reported by Russell Investment
s.
The composite returns may be significantly more or less
volatile than the benchmark returns.

4
Valuations are computed and performance is reported in U.S. dollars.

5
Composite Gross Returns are presented before management and custodial fees but after all trading expenses. Composite Net
-
of
-
Fees

Returns are presented after all custodial fees, trading
expenses and management fees. Net
-
of
-
fee returns are calculated using actual management fees, which are accrued on a quarterly b
asis. Composite and benchmark returns are presented
gross of withholding taxes except for foreign tax withholding on ADR securities. The standard fee schedule for the composite
is
1.00% on the first $50 million. Fees are negotiable.

6
This composite was created in June 2009. A list of composite descriptions is available upon request.

7
R. Scott Redmond, CFA has served as the lead portfolio manager of the small cap strategy since inception. In July 2012, RAM h
ire
d Tom Robertson, CFA who now serves as an analyst for
the Small Cap strategy and manages our new Growth at a Reasonable Price “GARP” strategy. RAM’s total firm assets increased si
gni
ficantly because many of Tom’s existing clients
transferred with him.

8
The three
-
year annualized standard deviation measures the variability of the composite gross returns and the benchmark returns o
ver the preceding 36
-
month period. The three
-
year
annualized standard deviation is not presented for 2007 and 2008 because the composite did not yet have 36 monthly returns as

of

that date.

9
RAM has adopted a significant cash flow policy for the Small Cap Core Composite. When an external cash flow exceeds 10% of an

ac
count's value, that cash flow is segregated into a
temporary account until the funds are invested according to the composite strategy or disbursed.

Appendix: Current Business Overview

29

$
170
Million AUM

Classification

Small Cap

Mid Cap

Large Cap

Fixed
Income

Normal

Ranges

$30
-

45M

$35


50M

$50


80M

$
5
-
15M

Account Types

Small Cap

Product

All Cap and Balanced
Separately
Managed Accounts

(
primarily HNW individuals with a personal connection to a RAM employee*)

< $1M

$
170M

SMA Product

Individually
Tailored
SMAs

GARP Model

*Stable and Enduring Business

*RAM and its employees are under no financial pressure; we can be patient!

Resource Allocation

SALES AND MARKETING

through 2012

HNW
-

primarily by word of
mouth

-

95
%

Small Cap

Databases

after 2012

Small Cap Core
Product
-

100
%

Past,

Present and

and Future

RESEARCH

Small Cap

50
-

60
%

Mid Cap

20
-

30
%

Large Cap

20
-

30
%

Fixed
Income

1
-

3
%

30

Disclaimers


Past performance is no guarantee of future results.



Information provided in this brochure is for educational and illustrative purposes only and should not be construed
as individualized investment advice. We recognize that each client’s investment needs and goals are different, and
that the investments or strategies discussed herein may not be suitable for all investors. Any opinions or estimates
contained in this brochure constitute the judgment of Redmond Asset Management, LLC (RAM) as of this date
(June 30, 2013)
and are subject to change without notice.