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In investing, I have a heavy focus on reinsurance companies, and I enjoy learning how to value their investment portfolio and underwriting ability, taking inspiration from the reinsurance companies that Warren Buffett used to help build Berkshire Hathaway's investing empire. The other focused... More
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Montana Semi-Precious Metals
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  • Jasper Capital's Investing Thesis 0 comments
    Dec 29, 2012 3:57 PM | about stocks: VR, AHL, AXS, NE, ESV

    A few years ago I was asked to summarize my investing philosophy. Fortunately, I saved that and look at it periodically. Every idea here is in public domain of one sort or another; I don't claim to have thought of all of this, but merely to collects bits and pieces from as many smart people as I can manage to read about.

    As I re-read this, I can see how it lead to investments such as Aspen Insurance (NYSE:AHL), Axis Capital (NYSE:AXS), Noble Corp (NYSE:NE), Ensco (NYSE:ESV), Validus Holdings (NYSE:VR), and bunch of other things slightly off the beaten path. No Apple (NASDAQ:AAPL) in this portfolio (well, I guess it is in my index fund holdings, at percentages that I regret). Also, I notice that the specific valuation strategies are not addresses. This is really just about how to transition to thinking like a business owner rather than a trader. You need other methodologies to actually identify the investments that are a good fit for you.

    I thought it might be good to post the list here, at least as a discussion-starter or an idea-generator:

    1. pick two or three non-correlated sectors that interest you. Research their industry as if you were going to have a career in it. Read the trade journals and perhaps a technical handbook. If you aren't interested enough to spend the time to understand it well, consider investing in index funds instead. Think like an owner. An owner would never be passive.

    2. understand their business and its cyclicality: what can go right, and what can go wrong.

    3. understand when one of these becomes a good value. Keep a shopping list.

    4. Research and identify the two best stocks within 2 or 3 sectors. Any more than this, and you spend too much time researching stocks that have lower potential returns, and you start looking more like an index fund. Overweight the best stocks in uncorrelated sectors.

    5. accumulate massively (eventually) in this small group of stocks, when they are at good valuations (after selloffs, for example)

    6. Initially, buy a token amount (one third of your target position) once you have your value shopping list. If it does go down, know when to buy more.

    7. Once you get massive positions, don't sell unless something fundamental changes. If you are doing things right, you'll get to the point where the tax consequences of selling seriously have to be considered. The deferral of taxes becomes a major reason to keep holding a stock, once large capital gains have developed.

    8. Once you are a long term holder, invest strategically at the inevitable downturns in the businesses cycles.

    9. Think like an owner of the company. This is antithetical to the typical trading mentality. If you owned a successful business in your town, you wouldn't sell it just because it went up 10 or 20%.

    Disclosure: I am long VR, AHL, AXS, NE, ESV.

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