Constructing Pro-Forma Statements – Assignment Due Date, Monday, 9/2, 10 PM PST

CASIE 2 Bill Miller ard Valuo Tnrst

BillMillq’s srrcccsa is sofar off*echarts thatlwhaveto oshwherter itis wperktman. Quitesfunply,findmanagers arenotsttpposedbbe
iltis good. Is lt mornl gotitts, or is it celestial lack? I
By thcmiddle of 2005, Valuc Trust, m $1l.2-billion mutual fimd2 maaaged by Willian H. (Bill) Miller III, had outpoaforurod its besrchmat
index, the Stardad & Poot’s 500 Indca<(S&P 500), for an ctonishing la yeils in a row. This rooord makod the longest streak of sucocss for any mmagerinthemutual-firnd industry; thcnecd longest period of sustainodperformarcewas only half re long Formany fimd mmagprs, slmply bedingthe S&P 500 inany stngleyetr would hilebesr an mrnplishment, yet Millcr had dricved comistmtly bettcrresults duringboth the bull makets of the late 19S)s and the bco makets of the early 2000s.

Over the prcrrious 15 yeas, investors in Value Tnrt, one of a fanily of funds rnmqsd by the Baltimore M aylard-basod Lry M ason, Inc.,
muld look ba* on the funds renrrkablo retums: a aner4r mnual total refirnr of 14.60/o, which surpased tho S&P 500 by 3.670/o per year. An
invcstmcnt of $10,00O in Valuc Trust at its inceptiorq inApril 1982, would havegrown to morethan $330,000 by Madr 2005, Unlikethe
funds bcnctunrk, whidr was a c4italization-weigfrtcd indorcomposod of 5@widdy hdd common stocls, Valuc Tn:st only had 36 holdings,
l0ofwhichaommtedfornealy 50% ofthefund’s assds. Exhlbltlprc€ots asummfiy of L€MaonValueTrust, lnc.,ait stoodin
dngu t 2005.

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ovcr short-torm periods, no one had errcr mddred his onsistent indor-beatingrcoord. Millct’s r€sults scmcd to contradia conventional
theories, which suggostd that, in makets dmactcrized by higfr oompetitiorL easy entry, and infonnational dficiorcy, it would be odreencly
difficult to beat the martct on a sustained basis. Obscmcrs rrondorcd what might optain Millet’s pcrformanco.

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CASE 3 Ban & Ja:y’s Hotnetnade

JERRy: What’s ilter.estilg about rne and ury role ilt the colupauy is I’m jnst this gry ou the street. A posorr who’s fairly cotlveutiolral’
rnaiustrearu, acceptittg oflife as it is.

BEN: Salt of the earth. A tnan of the people.

jERRy: B,t tlan l,ve got tlus frielrd, Bell, wlo challanges everyt[ing It’s apnrnst his uatrue to do anything the sarne way anyone’s ever doue it
betbre. To which uty response is ahvays, “I don’t thilk that’ll wotk.”

BEN: To *’hich ury response is ahvays, “‘Horv do rve tr

JERRy: So I get to go tluoupilr this leading-edge, nsk-takilg expaience rvith Ben-even thou$r I1u really just like el’etyoue else.

BEN: The pa’fect duo. Ice cream and churil,s, Brsiness and social chauge. Ben and Jeny.

-Bm
& Jer4r’s Prr6rr’OrO

As Heruy Ir{ or161,s plane passed over’ the snor,v-covered hills of Vemront’s dau;.’.land, tluoupir. his.nund passed the events of the last ferv

*reurber. of the board of dule”tors of Beri & Jeuy’s Houtemade for the past l3 years, \’I orpnn had seeu the conrpany prow both irr turanctal atd

f”ud”lrf”p po*rtion ur a’variety of social causes fi’our the clauy far:ru of Yerirrorit to the lairrforests of South Aurerica.

This case lvas prqrated by Professor N{ichael J. Schill rvith research assistance horr. Daniel Btute. Vern Hites, Saflpyeon Hwturpl Wons-ar –.
Ki*, \iincante Ludirr”r, #d Tyron” Taylor. It was rvritten as a basis for class discussion rather than to illnstrate effective or ineffective hartdling
of an adrnilistrative sitlaiion.topyrrg(t o 2001 by the Univo’sity of VuSrria Dalden School Forurdation, Char{ottesville. \’A. AII rip{rts

,.iiiiit i1,tt”*, r,rrd in a spreo1sheet. or tronsmlfied in anl’form-or b1,on1:-m_eans-electottic. mechanicol, photocopfittg, recordtg. or
othenyise-.ryithott the pet mission of the Darden School Fotmdatiotr. Rev. 10103.

.i”oriir;” p”iry Oa*, fat that den and Jeuy’s shaleholders-woirld be best soved by selling out to the hip{rest bidder.

Bur & Jeny’s Horneurade

Bel & Jury’s Honeurade, a leadurg distributor of-srrper-prenrirurr_ice creams. fi’ozen yoptuts, artd sot’bets, rvas foturded irr 1978 irr au old pms
statiol i1 Bruli1$ou. Veuuont. Cohen and Greenfield recounted their company’s beguutittgs:

Oue day ut 1977, rve [Cohel alcl Greeufield] fourd oruselves sitting on the frout steps-of Jany’s palettts’house in N{er:ick, Long Island,
tallcing

aboutu,hatkindofbusinesrtogointo.Sinceeatiugrvasorupaeatesipassiou.itseariedlopcaltoataltwitharestatuaut…{ervantedtopi-cka
product that was Uecouung popirlal ur big cities an-d urove it io a nuai college torvu, because tve rvanted to live in that kurd of anviloruneut. We
i,rJiJt”‘i*r;; bt ;iir,iU”ct’ion with o’tu cr.rstomers and enjoy oruselvesl And, of coruse, we rvauted a proclnct that rve liked to eat.. . We
forurd a1 ad for.a $5 ice-crealr-lraking corresponclence coruse oifered tluoup{r Perur State. Dne to. oru efreme P-o\:elly, rve decided to split.oue

cotuse betrveel us, sent i1 oru-five bricks, reid the material they surt back,
-and

passecl the opet-book tests with flying colors. That settled it.
We rvere going into the ice crearn business.

Once we,d decided on an ice o.eam parlor, the ne.{ step was to decide where to put 1t }Ve ll.rew gotlgge shtdents eat a lot of ice
cleanr; rve linerv

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rot lrore of it i1 rvarrl rveathei. Deterliled to utake an ilfomred decision (but lackingintecluroloptcal an{ Qgl,lal.resources), we
deielope4 o1.u orul lou’-bii,lget “nrauual closs-conelation aualysis.” Ben sat at tire kitchen table, leafing tluouglr a U.S. ahuanac to resea’ch
i”r*itifi”t f*a the lughest uiierage temperatnres. .Iory sat on lhe floor; reading a guideto Aurerican collepres, siarching for the nual torvus that
had the nost cottege fids. Thel ive lrei’gea our lists. iMten rve ilvestigated thetoivns that came up. rve discovered that apparently solueone had
a1-eady 6o1e tlfs riort ahead of r.rs. Allihe wanu toivrx that had a decent nurnber of collry-kidt ah’eady had horneruade r-ce-o-earn pailors. So
rve tliew ont the telrpa’attue criterion ancl encled up in Burtin$on, \:enuont. Brulil$on had a yourgpopulation..a srpuuficant college
popglatiol, and vutually no competition. Later, rve realized th-e reason rvhy there rvas no courpetition. It’s so cold in Brulin$on for so il[rch of
it

“‘y”*,
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there. Or so it seeuretl.l

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