A recent addition to the portfolio includes the 3M Company (formerly Minnesota Mining & Manufacturing). The company is a diversified manufacturer of over 50,000 products with global presence and leading market share position in the following markets: healthcare, industrial, display and graphics, consumer and office, electronic and communication, transportation, and safety and security. What attracted us to 3M Company was the hiring of George Buckley in December 2005 as the new Chairman and CEO. He previously orchestrated a successful turnaround as the CEO of Brunswick Corporation (2000 to 2005), a company that we owned in the past. We believe that Mr. Buckley is a no-nonsense-CEO, who focuses on free cash flow and shareholder returns. For example, 3M Company recently engaged Goldman Sachs to assess strategic alternatives for their pharmaceutical business. We believe Mr. Buckley will unlock the value of 3M Company by spinning off non-strategic divisions, buying back stock, continued cost cutting, and taking advantage of their impeccable balance sheet. Mr. Buckley will bring a fresh look to a solid free cash flow generating company with very high returns on equity.
Another recent addition was AIG. American International Group operates in 130 countries, and is one of the largest insurance and financial services organizations in the world. They have four main lines of business: life insurance, general insurance, financial services and asset management. Under prior management, AIG became enmeshed in
regulatory issues which led to a significant decline in the stock. AIG has recently steered clear of regulatory and loss reserve issues and should now be clear to focus on its business
lines going forward. One of the true growth drivers for AIG should be the foreign insurance business. AIG sells property and casualty insurance in 75 countries. In addition, AIG has as a strong presence in life insurance which should achieve above average growth rates as the middle class begins to grow abroad. It is our expectation that AIG’s foreign insurance business could grow at 10% or more a year for the foreseeable future. We also see AIG as a good proxy to play the above average growth in economies of China, and other countries in the Far East. AIG was actually started in Shanghai and has strong ties to the Far East. AIG should also benefit in a good pricing cycle in property and casualty in the United States. AIG has a solid balance sheet, generates strong free cash flow and generates solid returns on equity. We would expect AIG to become a core holding for many years to come (unless it becomes overvalued).
We recently sold our position in Office Depot. We believe that in order to succeed in investing, an investment philosophy should have a strict sell discipline. Our first purchase of Office Depot was in September 2004 at a little under $15.00 per share. The company is one of the largest office suppliers in the world and was facing a saturated market and a very competitive pricing environment with sub-par management. What Office Depot had going for them was huge amounts of free cash flow and a solid balance sheet. Eventually the CEO was replaced with a wellrecognized and proven cost cutter named Steve Odland. Since March 2005, Mr. Odland has restructured the organization, closed unprofitable locations and the margins have started to expand. The stock reached our value of $35.00 per share and as a result was sold.
Another recent addition was AIG. American International Group operates in 130 countries, and is one of the largest insurance and financial services organizations in the world. They have four main lines of business: life insurance, general insurance, financial services and asset management. Under prior management, AIG became enmeshed in
regulatory issues which led to a significant decline in the stock. AIG has recently steered clear of regulatory and loss reserve issues and should now be clear to focus on its business
lines going forward. One of the true growth drivers for AIG should be the foreign insurance business. AIG sells property and casualty insurance in 75 countries. In addition, AIG has as a strong presence in life insurance which should achieve above average growth rates as the middle class begins to grow abroad. It is our expectation that AIG’s foreign insurance business could grow at 10% or more a year for the foreseeable future. We also see AIG as a good proxy to play the above average growth in economies of China, and other countries in the Far East. AIG was actually started in Shanghai and has strong ties to the Far East. AIG should also benefit in a good pricing cycle in property and casualty in the United States. AIG has a solid balance sheet, generates strong free cash flow and generates solid returns on equity. We would expect AIG to become a core holding for many years to come (unless it becomes overvalued).
We recently sold our position in Office Depot. We believe that in order to succeed in investing, an investment philosophy should have a strict sell discipline. Our first purchase of Office Depot was in September 2004 at a little under $15.00 per share. The company is one of the largest office suppliers in the world and was facing a saturated market and a very competitive pricing environment with sub-par management. What Office Depot had going for them was huge amounts of free cash flow and a solid balance sheet. Eventually the CEO was replaced with a wellrecognized and proven cost cutter named Steve Odland. Since March 2005, Mr. Odland has restructured the organization, closed unprofitable locations and the margins have started to expand. The stock reached our value of $35.00 per share and as a result was sold.
