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River View 3/6/13

The portfolio was up approximately +1% during February bringing year to date net performance to +6.3%. The largest contributor to our February results was Heinz. As many of you know, Heinz was sold to a group led by Warren Buffett during February at a price that I consider wholly inadequate. Heinz was a core holding and we relished, pun intended, having these regular dividends to reinvest.

We are considering where to replace our investment in Heinz, but there is nothing comparable paying a similar dividend. We remain hopeful that someone will "step-in" and negotiate a better price for shareholders. We will keep our shares in anticipation that the HNZ board will approve one final dividend payment.

On the economic front, Chairman Ben Bernanke gave us more clarity as to how the Federal Reserve could end the asset purchase program. The market seems to have been comforted by Mr. Bernanke's comments. Basically, Mr. Bernanke offered the option that the Federal Reserve will not sell its assets, but proposed that the Fed could let the assets roll off at a paper profit over the coming years.

Perhaps Mr. Bernanke has said this before, but this is the first time I've heard him. To quote Warren Buffett after purchasing IBM stock, who was quoting Henry David Thoreau, "it's not what you look at that matters, it's what you see".

I am worried that unwinding $4 trillion in Federal Reserve balance sheet could put terrific pressure on the credit markets, creating an interest rate death spiral.

While such a horrific scenario is still possible, with the Federal Reserve choosing to keep the assets, thereby allowing them to roll off of the balance sheet, the chances of an interest rate death spiral become less likely.

The Federal Reserve does still have the monumental tasks of unwinding the stimulus program and normalizing interest rates, and whether or not this can be done without major disruption to the US and global economy remains to be seen. It's way too early to declare victory, but my hat is off to Mr. Bernanke in regards to his management of the crisis thus far.

Warren Buffett's 2012 shareholder letter was released, and while I continue to be dissatisfied with Mr. Buffett over Heinz, I am grateful for the many years of investment wisdom he has shared with investors. A couple of great quotes from his letter are as follows:

"America has faced the unknown since 1776...investors and managers are in a game that is stacked heavily in their favor. The Dow Jones Industrials advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions. And don't forget that shareholders received substantial dividends throughout the century as well."

"More than 50 years ago Charlie told me that it is far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price."

On a separate front, on March 1, 2013 I began managing a personal account focused on concentrated positions. This account is expected to have higher volatility, and for accepting the additional risk associated with a concentrated portfolio, the account aims for higher returns. To some degree, we will use this account to focus on shareholder activism via seekingalpha.com, where we can reach the shareholding public and collectively engage in order to present shareholder focused ideas to management. You can find recent articles I've written about Apache (APA) at seekingalpha.com. I have written to Apache's CEO (G. Steven Farris), and I have requested communication with shareholders that clarifies the company's strategy for building long term shareholder value. At this point, we own a small position in both accounts, and the work that I'm doing is geared toward determining whether or not Apache represents value at the current price. At this point, we haven't gotten enough information to make a determination. We will keep working on it for you.

You can become a Member of the BigRiverReport.com from now through April 2013 for FREE, just send me an email at wtr3@bigrivercapitalcorp.com with the word Free in the subject line.

Disclosure: I am long APA, HNZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.