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Career Advice - Is Value Investing Employable?


valueventures

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Hi All,

 

 

I am relatively new to the forums but have enjoyed reading the valuable insight shared on here. Like many of you, I am very interested in value investing and would love to work in the field someday. I am hoping you can help me understand the career prospects for value investing.

 

 

My Background

 

I am 23 years old and graduated from Georgetown’s McDonough School of Business last May with a degree in Finance. While I enjoyed my Georgetown experience and am very grateful to have studied there, I am somewhat disillusioned with the education I received. Around the time of junior year recruiting, while strongly considering the Wall Street route (primarily equity research), I found myself having difficulty structuring stock pitches and preparing for interviews. I stumbled upon value investing and soon read the classics (Graham, Pabrai, Klarman, etc.). It was at this moment that I realized the disconnect between value investing and modern finance teachings. I ultimately decided to go into management consulting with the idea that I would study value investing in my spare time. I have been doing this for the past six months or so, and have enjoyed my investment research far more than my consulting work.

 

 

Career Prospects

 

While I’m currently in management consulting, I would like to transition to some sort of investment management career that utilizes my interest in value investing. I have searched for such careers online, but have not found much that appeals to me. Most investment management jobs require more advanced credentials (MBA, CFA progression, etc.) than I have or simply rely on different investment philosophies (Wall Street short-term earnings focus) than value investing. The consensus seems to be that most of these opportunities exist in hedge funds, which recruit out of top MBAs and Wall Street banks, or require opening a fund to manage money. I realize that I am still quite young and have limited investment experience under my belt, but would appreciate if anyone could shed some light on potential careers that might interest me. On that note, I am curious if most of you are employed in this field or simply studying investing as a hobby, as I am right now. Thanks in advance for your help!

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Recognize that if you go to 'Wall Street' - you are going to be doing sales.

If this is what you want to do; you need to be crystal clear on why you aren't in pharma or software instead (both pay better), and why you don't have a MBA in Marketing. Because your competitors - will have one.

 

The vast majority of 'Wall Street' business is value destructive, trading paper is also a zero sum game. Zero value creation, and the 'fee discussion' of the latest BRK letter. As a young person interested in value investing, & thereby value creation, do you really want to spend an entire career in this Sh1te? - & simply because it's perceived to be glamorous?

 

If you do an MBA in finance, & go up the corporate route - you will doing 'real' value investing every day.

Every time you run the numbers on whether machinery should be replaced, factory expanded, workforce in/out sourced, etc. If you're good, its also far easier to either open your own firm - or buy out a retiring partners interest in an existing firm. Brains and chutzpah are in short supply, not money. 

 

Its 2017, and it has almost never been easier to open your own firm. Long term - do you even really need them?

Blockchain technology is severely disrupting almost every industry it is applied to, creating opportunities, and making it even easier - if you are young, clear in what you want, and flexible.

 

For most people value investing is a hobby, not a career.

You don't need to be in the industry, and you're frequently better the further away you are from 'Wall Street'.

 

End of the day - if the salesman is as good as he says he is, how come he's still just a salesman (selling you) and not a PM?  And how come it is YOU that has the money, and NOT him? Kills the BS right there.

 

Of course everyone is different, & we wish you the best of luck.

Just be mindful of industry cool-aid

 

SD

 

 

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Hi SharperDingaan,

 

Thanks so much for your response! I should have been more clear in my initial post, but I am not interested in the Wall Street route. I had considered sell-side equity research during my college years but am put off by the underlying investment philosophy.

 

I have thought about doing an MBA in Finance or studying for the CFA. In terms of the MBA option, since I already have a BSBA in Finance, I question how useful an MBA would be from a learning perspective. I do see some merit in getting an MBA from a recruiting/networking perspective, but am not sure if this outweighs the significant costs of going back to school. I would be more inclined to study for the CFA and build credibility that way. At the same time, however, I recognize that earning certification would not necessarily make me a better investor and thus may not be the best use of time.

 

I have considered opening my own firm (long-term of course, since I still have much to learn), but I need to do more research on the logistics of this. I know it's fairly common for financial planners to start their own firms, so I'd imagine it's not too difficult to start your own independent advisory firm. Of course starting the firm is the easy part; it's difficult to secure a sizable client base and build capital accordingly.

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Hi SharperDingaan,

 

Thanks so much for your response! I should have been more clear in my initial post, but I am not interested in the Wall Street route. I had considered sell-side equity research during my college years but am put off by the underlying investment philosophy.

 

I have thought about doing an MBA in Finance or studying for the CFA. In terms of the MBA option, since I already have a BSBA in Finance, I question how useful an MBA would be from a learning perspective. I do see some merit in getting an MBA from a recruiting/networking perspective, but am not sure if this outweighs the significant costs of going back to school. I would be more inclined to study for the CFA and build credibility that way. At the same time, however, I recognize that earning certification would not necessarily make me a better investor and thus may not be the best use of time.

 

I have considered opening my own firm (long-term of course, since I still have much to learn), but I need to do more research on the logistics of this. I know it's fairly common for financial planners to start their own firms, so I'd imagine it's not too difficult to start your own independent advisory firm. Of course starting the firm is the easy part; it's difficult to secure a sizable client base and build capital accordingly.

 

I would suggest that rather than do a CFA; simply work for 2-3 years in main street corporate finance, pay off some bills, and THEN make your decisions. Both co-op and online MBA programs are widely available, and nothing prevents you from doing a CFA at the same time - many people do exactly that.

 

For most employers what will matter is that you have an MBA, a designation, and experience with a recognized 'name'. 4-5 years of experience evidencing what you can do, is going to count more than what school (assuming its reputable) you went to. You'll also be a lot more confident in knowing whats important to you.

 

Good luck!

 

SD

 

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There is another way to participate beyond starting your own firm or working for another.  There are careers in business appraisal & loan underwriting that apply value concepts in a different context.  These can be nice careers in themselves but can also lead to running across interesting ideas that you can invest in the public markets also.  Also another thing you can do is network with other investors at events like the Berkshire & Fairfax annual meetings.  This will allow you to discuss ideas with others and find other information on value related careers or even if any if these fields appeals to you versus your current job. 

 

Working for someone else can be difficult if you are not in sync with their approach to investing. And in investing for others (your own firm) you are constrained by how the customers want to invest.  Both of these can lead to investing in the others want to, which can lead to group think & is not the best way to develop a variant perception required to outperform for the most part an efficient market. 

 

One alternative is to generate enough wealth in another related field, then start a fund or firm on your own where you are not dependent upon receiving investment fees to live.  Having a frugal lifestyle can help here as your income required & thus your required nest egg is small. 

 

You are looking at the MBA the right way.  I used it to transition from engineering to business appraisal but had a specific goal in mind beforehand & was able to get my employer at the time to incur some of the cost along with the GI bill.  If you do the MBA route, you may also want to identify financing alternatives as well as the prices are pretty high there days.

 

Packer

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Value ventures -

 

I was in your exact spot basically two years ago. This is a very interesting question. I'm not sure I have the answer yet, but I can tell you what I've learned.

 

I'm a value investor born and raised, but decided to go to Wall Street and do equity research out of school. Every stereotype about wall street is absolutely true: all conversation was about macro/interest rates, next quarters earnings, or the stock chart. Never did I hear the words "economic moat" or "long-term".

 

What Dingaan said was exactly right: its a sales role. Analyst would often downgrade a stock, knowing they would upgrade it a few weeks later, simply for the purpose of generating headlines, which means more trading from clients, which means commission $$$$$!

 

So basically, it was an unethical joke with no social purpose (as Dingaan said). I went into management consulting for a year and found it to be equally BS.

 

I'll get to the point - I honestly think active management of public equities is essentially dead. Very few can/will beat the market. So much capital is chasing so few publicly traded companies, passive is the way to go for most institutional investors. Buffett would agree (see annual letter). For you, this means there's very limited opportunities for a career in value investing in the public markets.

 

Here's what I think: the future of careers in value investing is in alternative assets, i.e. Real Estate, Infrastructure, Private Equity, and High Yield or Distressed Debt. There is still plenty of opportunity for active managers to add value in these areas.

 

I've noticed Apollo, Oaktree, and Brookfield, most notably, apply the Buffett/Graham philosophy to different areas of alternative assets. I recommend watching some Milken Institute youtube videos on the dynamics of the private equity industry. Even Buffett is getting into LBO's, whether he will admit it or not (See Kraft/Heinz).

 

So I would say, see what you find most interesting in alternative assets (maybe Real Estate), or find a firm you think is interesting (maybe Oaktree), and get a job there. Public Equities are not the only avenue through which you can apply the value investing philosophy.

 

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Honestly? I think it's going to be very difficult for a young person with no experience to break into value investing as a career. I don't mean to be negative, but in today's climate, firms are more likely to be letting people go rather than hiring. That is the reality of the situation here in London, and I suspect the same is true in the US. I am not saying finding employment is impossible - good people will always find a way, but I think the days of ordinary MBA's just floating into the business without experience or a real passion for investing is dead (if they ever even existed!).

 

I think one way you can increase your chances is to maybe consider doing your own investment blog. Off the top of my head, I can think of at least a dozen people who have found gainful employment through someone discovering their blog, or else by being able to point to it as a track record. It gives you a track record, it means you can stand out, and it can also be a great way of networking and learning about the business. Of course, to be useful in finding employment, I suspect you'd want to be able to show some sort of decent returns - easier said than done in this climate.

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Thank you all for the helpful responses, I really appreciate it!

 

@Ballinvarosig Investors: Starting an investment blog is a great idea. This will help me crystallize my thoughts and allow for more interaction with other investors.

 

@Sionnach: Alternative investments is an avenue I've never really considered, with the exception of distressed debt and some special situations. I'll take a look at the Milken Institute and the funds you mentioned.

 

@Packer16: Networking with other investors makes sense, and I'll continue to do this. Since I would not open a fund/firm for at least a few years, hopefully I'd be able to generate enough wealth by then to not rely entirely on investment fees.

 

@SharperDingaan: Main Street corporate finance is something I've considered. I have done some research on accelerated MBA programs, but have not really looked into co-ops or online MBAs. A quick search shows that some very good schools offer online MBAs (Kelley, Tepper, Kenan-Flagler, etc.), so this is definitely worth exploring more.

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Ehh -- also in the similar boat a few years ago, but looking back regret not doing Investment Banking or Equity Research. These programs are basically training for recruiting so you can jump to a HF (IBD or ER) or PE (IBD and maybe Consulting?).

 

Most of my friends that did these types of programs are now in top PE/HFs and yes -- you can definitely find value oriented funds (see Graham and Doddsville letters). I've been doing something a bit different (VC) and value investing on my free time, but definitely have fallen behind my friends that sucked it up and did the work for 2 years and now have transitioned to top funds.

 

As listed before, you can:

[*]Get your CFA

[*]Transition to PE/HF after a few years in consulting. Just get in touch with some recruiters.

[*]Work 3-5 years and transition into a top MBA

 

Honestly? I think it's going to be very difficult for a young person with no experience to break into value investing as a career. I don't mean to be negative, but in today's climate, firms are more likely to be letting people go rather than hiring. That is the reality of the situation here in London, and I suspect the same is true in the US. I am not saying finding employment is impossible - good people will always find a way, but I think the days of ordinary MBA's just floating into the business without experience or a real passion for investing is dead (if they ever even existed!).

 

Speaking from my experience from a top school in the US, its still pretty easy to jump from a top undergrad or MBA program into ER/IBD -> HF/PE or asset management with no background. Pedigree opens a lot of doors, which I think applies to both sides of the pond.

 

Tech is very robust right now so a lot of smarter kids are headed to the Googles and the Amazons of the world, where the pay is similar, and the lifestyle and hours infinitely better than finance.

 

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In my humble opinion, value investing is peobably best done as a hobby - you get to keep it a fun part of your life, AND you enjoy the numerous benefits that come from limitless flexibility, including added alpha. Value investing is in its purest form when you answer to no one but yourself.

 

It might not be for everybody, but for me its good that my  career is in something that I like BUT not love. I feel if I did something I truly loved for a living, I would burn myself out within 3 years tops from putting too much energy into what I am doing, and other areas of life would suffer too much, ultimately leaving me less happy than I should be.

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The following is going to be controversial. Don't read if you have dreams of working as value investor. You've been warned.  8)

 

 

 

 

For young people who are thinking of becoming great investors (value or whatever other approach), I would say that this is a crappy life plan. Couple reasons for that.

 

First, very very very few people outperform. Most people on CoBF don't outperform. Most of 0.1% of 1% don't outperform. Sure you can gather fees without outperforming, but if that's your life plan, then just call the spade a spade and call yourself a good salesperson or a good financial advisor (yeah, the kind who is part trusted financial person, part psychologist, part priest). Don't call yourself great investor. Nothing bad in being good financial advisor. They are rare breed IMO and definitely needed. (Fee gathering salespeople... CPA's them...)

 

Second, even if you're one of the people who will outperform, IMO the outperformance will become harder and harder going forward. There's maybe 10-15 more years of viability. After that - if we get superhuman AI - and we will - kiss this good bye. Maybe even way before superhuman general AI. Want proof? Poker players can already say goodbye to their jobs ... Of course, AI won't be allowed into poker tournaments - they are for genuine humans only - but in the market nobody knows you're a dog AI.

 

Third, even if you're one of the people who will outperform, most likely you also have IQ and capacity to do great things in other areas. Choose something productive rather than moving money from point A to point B and earning fees and/or cap gains. Go into computer science, biotech, robotics, space, boring company :P, energy, etc. More on the entrepreneurial side? Go start a company. Build something. You'll make tons of money in it too. And you'll probably make a world better place. Way more contribution than just investing. (Yeah, I know Buffett's 90%+ donation is also making world better place. You gonna sign a pledge to follow his footsteps?)

 

 

And if you really want, you can still value invest on the side.  8)

 

Not that the above will persuade anyone to change their path.

 

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The following is going to be controversial. Don't read if you have dreams of working as value investor. You've been warned.  8)

 

 

 

 

For young people who are thinking of becoming great investors (value or whatever other approach), I would say that this is a crappy life plan. Couple reasons for that.

 

First, very very very few people outperform. Most people on CoBF don't outperform. Most of 0.1% of 1% don't outperform. Sure you can gather fees without outperforming, but if that's your life plan, then just call the spade a spade and call yourself a good salesperson or a good financial advisor (yeah, the kind who is part trusted financial person, part psychologist, part priest). Don't call yourself great investor. Nothing bad in being good financial advisor. They are rare breed IMO and definitely needed. (Fee gathering salespeople... CPA's them...)

 

Second, even if you're one of the people who will outperform, IMO the outperformance will become harder and harder going forward. There's maybe 10-15 more years of viability. After that - if we get superhuman AI - and we will - kiss this good bye. Maybe even way before superhuman general AI. Want proof? Poker players can already say goodbye to their jobs ... Of course, AI won't be allowed into poker tournaments - they are for genuine humans only - but in the market nobody knows you're a dog AI.

 

Third, even if you're one of the people who will outperform, most likely you also have IQ and capacity to do great things in other areas. Choose something productive rather than moving money from point A to point B and earning fees and/or cap gains. Go into computer science, biotech, robotics, space, boring company :P, energy, etc. More on the entrepreneurial side? Go start a company. Build something. You'll make tons of money in it too. And you'll probably make a world better place. Way more contribution than just investing. (Yeah, I know Buffett's 90%+ donation is also making world better place. You gonna sign a pledge to follow his footsteps?)

 

 

And if you really want, you can still value invest on the side.  8)

 

Not that the above will persuade anyone to change their path.

 

+100

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I agree with Jurgis though I am wondering how most people with other (non-finance) professions combine their job with value investing?

At the moment I'm an R&D engineer at a research center, pretty relaxed job and I have time to do some value investing during work hours.

 

Now I am leaving for a management position in a production company, surely time during working hours will have to be spent otherwise.

(On the plus side, MUCH better salary package so more money to invest  :) )

 

On top of that I am expecting my first child in June... still have to figure out where I will find the time.

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+1 personal investing way more satisfying than working on the street. I highly recommend the book Free Capital if you haven't read it yet.

 

@Jurgis to your point, I heard my PM exclaim that his only goal was to beat the index by a few percentage points a year -- "Gain a little more in the good years, lose a little less in the bad." More or less index hugging with the goal of building AUM. He's also seen a couple of crashes (01,08), and I think guys that have been in the game that long just want to survive the cycles. I personally hated this.

 

I, however, disagree with your points AI & out-performance. AI can't quite do the contextual thinking that human brains are good for so fundamental investing will be around for a while :)

 

And on out-performance -- most of my friends at Wall Street esque funds don't really invest their own PA and tend to use investment strategies that are useful for aum in the hundreds of millions to billions. You will compound much, much higher with your own strategies that take advantage of your smaller capital size (microcaps/small caps, the fact that you can enter/exit positions quickly etc.)  Alpha and liquidity premium exist and are there for your taking! See https://corporate.morningstar.com/ib/documents/MethodologyDocuments/IBBAssociates/ABCHedgeFundReturns.pdf

 

My favorite quote from Julian Robertson:

 

I would say that hedge fund investing is, in another sense, the antithesis of baseball. You can hit .400 and not make much money if you’re not playing in the big leagues. But if you play in the big leagues and you hit .400, you’re going to make big money. With hedge fund investing, you get paid on your batting

average irrespective of the “league” in which you’re playing. So go where the pitching is the worst.

 

I think educated investors on this board can handily beat the market if they stick to easy investments in under-followed companies and actually put in the time.

 

I agree with Jurgis though I am wondering how most people with other (non-finance) professions combine their job with value investing?

At the moment I'm an R&D engineer at a research center, pretty relaxed job and I have time to do some value investing during work hours.

 

Now I am leaving for a management position in a production company, surely time during working hours will have to be spent otherwise.

(On the plus side, MUCH better salary package so more money to invest  :) )

 

On top of that I am expecting my first child in June... still have to figure out where I will find the time.

 

Structure + Routine!

 

Munger would spend a few hours in the morning on RE and other investments while working at his law firm full time: http://www.mymoneyblog.com/buffett-on-charlie-munger-work-for-yourself-an-hour-each-day.html

 

This piece from Gannon also is good food for thought, though I don't necessarily agree with it all: http://www.gannononinvesting.com/blog/2016/11/10/how-to-invest-when-you-only-have-an-hour-a-day-to-do-it

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I also would mostly agree with the provocative post by Jurgis.

One of the great things about value investing is that it is OK (even desirable) to be un-conventional.

If you have a strong inner score card, independent thinking can be rewarding (fun and $).

Having said that, if you want to be happy, probably better to see value investing as an adjunct.

If you manage funds for others, it is hard to succeed using a singular approach, in part because unconventional failure (even temporary) may be hard to swallow for the partners.

Perhaps this is a topic for another thread (book review), but I have also a copy of the book "Free Capital" that I keep on my desk. Wildly different lifestyles combined with seemingly divergent value investment styles can lead to similar results. Interesting.

Interesting links winjitsu. I would only add that investing, in a way, tends to be simple but it's not easy.

Outperformance is the goal. To achieve this goal, we have to be different than the average AND we have to be mostly right. And we need to be constantly adapting to new circumstances. And there is a lot of (uneven) competition. Difficult. Worth the try.

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Most of the best investors I know are from 'main street', not 'wall street'.

 

They do other things, and largely treat 'investment' as simply cash management. Laborers who ended up as major house developers, managers/developers who developed their own products, little old ladies who married well - and often! They are all entrepreneurial, enjoy pretty balanced lives, have tremendous common sense, and express a wicked sense of humor. They also take the long view on just about everything.

 

Point is that a 'wall street' man/women is a one-dimensional product, sitting in a bubble.

Pop, or move outside, that bubble - & it quickly becomes apparent how much of an illusion it actually is.

 

OK for a while, but do you really want to emulate it?

 

SD

 

 

 

 

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Before fees and on a dollar weighted basis half of investors have to outperform an index.  Now they might outperform through beta or a factor exposure and so a quant might argue there is no alpha -which fine if you aren't paying fees.

 

Value is essentially a priceable factor  as is quality.  You can argue there is no idiosyncratic alpha in what most people who post here are trying to do.  But really I'm not sure that matters if you goal is to outperform and index I've the long-term and you are comfortable with your explanation for why the factors you've picked outperform.

 

Pricing that is a different conversation.

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Before fees and on a dollar weighted basis half of investors have to outperform an index.  Now they might outperform through beta or a factor exposure and so a quant might argue there is no alpha -which fine if you aren't paying fees.

 

Value is essentially a priceable factor  as is quality.  You can argue there is no idiosyncratic alpha in what most people who post here are trying to do.  But really I'm not sure that matters if you goal is to outperform and index I've the long-term and you are comfortable with your explanation for why the factors you've picked outperform.

 

Pricing that is a different conversation.

 

I think we're in agreement. Long only equities, is academically speaking, beta only with different factor exposures. Asness' Robo Buffett comes to mind.

 

However, there are quite a few event-driven/special situations, market neutral, and distressed investors on this board as well which can lead to alpha.

 

By the way, I think CAPM, beta, and alpha are a load of crap.

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Before fees and on a dollar weighted basis half of investors have to outperform an index.

 

Not true.

Let's say index is two stocks:

C1 10 shares at $10

C2 10 shares at $10

and we have two investors:

I1 holding 10 shares in C1 and 9 shares in C2

I2 holding 1 share in C2

C2 goes to $20 (nobody's selling, nobody's buying and the bid/ask just goes there OR we can have a bunch of trades where I1/I2 are trading and run up the price to $20 - just have to be careful to set this correctly).

I2 outperforms the index. I1 underperforms. On dollar weighted basis I2 is < 1/10 of the index and he's the only one outperforming.

 

BTW if you say just "half investors outperform", that's wrong too.

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That sentence is not logical.  You can't believe in factors and then say beta, alpha and CAPM are crap.  Say the are overly simplistic or that they're explanatory  power is overstated, but the theory itself is a just the very first step in the path to establishing a framework.

 

I'd be pretty happy taking a net on the lack of real alpha generation in the world btw. Truly idiosyncratic outperformance is is so rare as to being basically impossible to distinguish from luck.

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Except n>2 in the real world.  The better counter argument is the index composition changes over time so survivorship biases returns of the index above average investor returns.

 

So a mathematical construct that you proposed and that does not work for n==2 somehow magically starts to work for n=500? Really?

 

I could construct an example with 500 stocks and real world, but it's a waste of my time if you don't understand math.

 

Have fun.

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I don't think I understand this debate....

 

Let's say an index of stocks has 100 stocks that begin at 1.0% weight. 99 of them are flat for the year. 1 of them goes up 3X and becomes 2.9% of the index (3/103).

 

99% of the initial dollar weighted index under performed the index, correct?

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