mixed feelings, page-7

camden, I won't argue with you on catalysts. There are certainly several styles of investing that make money. I love your approach to buy free cash flows. That's where we should focus discussion.

In a perfect world, we do not want a business to have more equity that required to generate high returns. If the company generates a 28% ROE on $100M of equity, but an additional $90M of equity only gets a 2% incremental return, then surely we want the company to return the $90M incremental equity to shareholders.

I do not want to say a priori that lower equity is always good. Consider the company with $100M equity and 28% ROE that could generate 26% ROE on an incremental $90M and 24% on another $110M. I think most investors would be glad to see that company's equity rise by another $200M.

I want to see that the company has a lot of understanding of its own return on equity situation, and that it really makes deliberate decisions about how much equity it wants to have on its balance sheet. Companies who make such deliberate decisions about their equity returns, and who are good capital allocators, are more rare than not.

In the case of WHG, a very superficial view of the financials was not giving me a high comfort level that the shrinkage of equity was a deliberate decision. In most years, they have free cash flow in excess of dividends. So dividends are not stealing from equity. And I don't see a lot of stock buybacks. I'm using Reuter's financials cash flow statement for the last five years. Do I have a data problem again with the financials?

In fact, the shrinkage in equity the appears to be due to slightly lower assets, and slightly higher liabilities (particularly from debt). This - combined with the fact that almost all of their equity is from intangibles - leaves me with an uneasy feeling that tangible equity may simply be a side effect of where the business is drifting. If you have a small amount of tangible equity and have been losing equity, that number can go to zero or negative pretty easily.

As someone who has a deeper knowledge of the company and who has read the original company releases, you may have a much greater confidence level that the company is deliberately making decisions that leave tangible equity at a lower number. I guess I was hoping that you were going to convince us that tangible equity has stabilized or will stabilize soon.