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I love digging into the quarterly filings of fund and hedge fund managers that I follow. I especially enjoy looking at those that are managing only a couple of hundred million dollars, instead of the big boys who are in charge of tens of billions. The smaller managers are free to roam to wherever they can find value, so their opportunity to find something seriously mispriced is much greater. Managers with huge investment pools, like Seth Klarman or John Paulson, simply have too much money that they need to invest to bother with the dark corners of the markets where something tasty might be hiding.

In my rolodex of managers to monitor for ideas is Zeke Ashton of Centaur Capital. I've watched Ashton and his former partner, Matthew Richey, since their days writing at the Motley Fool. From what I've seen, I think Ashton is a solid, risk-averse investor who always seems to have a portfolio full of high-quality companies at reasonable or bargain prices. I've had the pleasure of interacting with Matthew on couple of occasions with respect to investment ideas, but have never talked to Zeke.

As of the June 30 quarter's end, Centaur Capital's SEC filings showed the following holdings (note that S&C means the fund held both shares and calls):

Company
Type
Option
Value
Weight

Aspen Insurance (NYSE:AHL)

SHS
S&C
9,649
8.58%

Cisco (NASDAQ:CSCO)

COM
S&C
9,054
8.05%

Dell (NASDAQ:DELL)

COM
S&C
8,169
7.27%

SPDR S&P 500 (NYSEARCA:SPY)

Tr Unit

Put
6,599
5.87%

Activision Blizzard (NASDAQ:ATVI)

COM
-
5,723
5.09%

Gamestop (NYSE:GME)

CL A

Call
4,667
4.15%

Western Digital (NASDAQ:WDC)

COM
-
4,548
4.05%

Proshares (NYSEARCA:FXI)

FTSE China 25

Put
4,506
4.01%

Coinstar (CSTR)

COM
-
4,418
3.93%

Xerox Corp (NYSE:XRX)

Com
Call
4,164
3.70%

Calamos Asset (NASDAQ:CLMS)

CL A

-
3,993
3.55%

SPDR Series Trust (NYSEARCA:XRT)

S&P Retail ETF

Put
3,737
3.32%

Terra Nova Rty (NYSEARCA:TTT)

COM
-
3,561
3.17%

Interactive Brokers (NASDAQ:IBKR)

COM
Call
3,521
3.13%

Ishares (NYSEARCA:TLT)

Barclys 20+ Yr

Put
3,294
2.93%

Target (NYSE:TGT)

COM
Call
3,049
2.71%

Alleghany (NYSE:Y)

COM
-
3,040
2.70%

Diamond Offshore (NYSE:DO)

COM
-
2,816
2.50%

Biglari Holdings (NYSE:BH)

COM
-
2,737
2.43%

Himax Tech (NASDAQ:HIMX)

ADR
-
2,640
2.35%

EMC (NYSE:EMC)

COM
Call
2,480
2.21%

Capital Southwest (NASDAQ:CSWC)

COM
-
2,463
2.19%

MVC Capital (NYSE:MVC)

COM
-
2,192
1.95%

Currencyshs Yen

Yen
Put
2,131
1.90%

Interdigital (NASDAQ:IDCC)

COM
-
1,634
1.45%

Blue Coat Systems (NASDAQ:BCSI)

COM
-
1,530
1.36%

Transatlantic Petro (NYSEMKT:TAT)

SHS
-
1,480
1.32%

Telular (NASDAQ:WRLS)

COM
-
1,433
1.27%

Tesla Mtrs (NASDAQ:TSLA)

COM
Put
1,107
0.98%

Trinity Ind (NYSE:TRN)

COM
-
781
0.69%

Gravity Co (NASDAQ:GRVY)

ADR
-
768
0.68%

Westell Tech (NASDAQ:WSTL)

CL A

-
536
0.48%

American Defense (EAG)

COM
-
3
0.00%
Total
-
-
112,423
100.00%

The High-Conviction Longs

Ashton had almost a quarter of the fund exposed to these three holdings:

Company
Type
Option
Value
Weight

Aspen Insurance (AHL)

SHS
S&C
9,649
8.58%

Cisco (CSCO)

COM
S&C
9,054
8.05%

Dell (DELL)

COM
S&C
8,169
7.27%
Total
-
-
26,872
23.90%

When you consider that a good portion of these positions are in time-sensitive call options, Ashton's conviction is even higher than the total long exposure would suggest.

I've written about Dell recently, as it is clearly extremely cheap relative to the free cash flow that it creates. I'm not sure I like the idea of buying call options on it as Ashton has, though, as the catalyst that moves the Dell stock price up is hard to envision.

Cisco is another tech giant that, like Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC), has had a share prices that's gone nowhere for more than a decade - another good company at a reasonable valuation for the Centaur portfolio.

Aspen Insurance is a global insurer/reinsurer that Ashton recommended last year at the Value Investing Congress. Aspen trades under book value, has been buying back shares and pays a 2% plus dividend. It's another solid company for the Centaur portfolio, although again I'm not sure about the use of call options when there is a lack of a near-term value-realizing catalyst.

Some Macro Short Bets

Although the SEC filing does not provide disclosure on short positions (and it really should) it does allow us to see any put options that Centaur holds. These are:

Company
Type
Option
Value
Weight

SPDR S&P 500 (SPY)

Tr Unit

Put
6,599
5.87%

Proshares (FXI)

FTSE China 25

Put
4,506
4.01%

SPDR Series Trust (XRT)

S&P Retail ETF

Put
3,737
3.32%

Ishares (TLT)

Barclys 20+ Yr

Put
3,294
2.93%

Currencyshs Yen (NYSEARCA:FXY)

Yen
Put
2,131
1.90%

Tesla Mtrs (TSLA)

COM
Put
1,107
0.98%
Total
-
-
21,374
19.01%

The S&P 500 put position will just be a hedge for the portfolio. Then there appears to be 4 short (put) investments directed at specific macro ideas:

  • FTSE China 25 put is interesting, as I would imagine it is a direct bet against the Chinese stock market, and it would be interesting to get Ashton's thinking behind that.
  • The S&P Retail ETF put again appears to be a bit of a direct bet against the retail sector, as Centaur does not have a lot of retail exposure to hedge.
  • The Barclays 20+ year iShares put is a bet against US Treasuries.
  • The CurrencyShares yen put is obviously a bet against the yen.

Four interesting macro based investing decisions from Ashton. Short China, short retail, short Treasuries and short the yen.

The only specific company short that we can see is on Tesla Motors, an electric car manufacturer.

A Sensible Approach To Risk Management

Ashton also manages the Tilson Dividend Fund, which is available to retail investors and through which we can obtain Ashton's most recent commentary.

In his most recent letter to investors, Ashton explains what is a simple yet effective approach to managing risk when investing:

The biggest single risk we try to avoid is investing in companies that we believe are inherently high-risk businesses. By owning high-quality businesses that generate cash and are conservatively capitalized with low debt levels, we can improve the reliability of the Fund's performance.

Another risk factor we try to avoid is overpaying for our portfolio companies. Regardless of the quality of the asset, overpaying brings down expected future returns and increases risk. It is fascinating that the risk of overpaying for investments is not often mentioned by market commentators in the media, most of which seem fairly ambivalent about valuation and seem most interested by recent stock price performance and short term news flow. In our world view, the price we pay usually determines the return we get. In order to manage risk, we must be patient in our approach to deploying capital. The flipside of this is that we also make an effort to sell our portfolio holdings when we feel we are receiving fair value, and we resist the impulse to try to get every last dollar of return. At some point, the risk of holding a fully valued security outweighs the potential reward of trying to perfectly time our exit.

I think Ashton's approach is the perfect way to manage money for other people. If you are investing only for yourself, you can concentrate your portfolio and aim for higher returns as you can ride out volatility. When you have to answer to fickle investors, focusing on high-quality businesses and using a reasonable (not excessive) amount of diversification is the way to go. I'd expect Ashton to provide high-single-digit to low-double-digit returns for his investors for years to come.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.