This has been a very busy week for earnings releases on some of our largest investments.  I just wanted to provide a quick update on a few of them, as they were meaningful.

Assured Guaranty (AGO), was up roughly 7% after reporting a very strong quarter and a particularly attractive acquisition.  Net income was $142MM, or $1.39 per share.  This occurred despite a large increase to reserves for Puerto Rico.  I think we are getting closer to the end on Puerto Rico, but one can never know for sure.  I don’t see massive reserve increases whatsoever though, and I wouldn’t be surprised if within the next 3 years, we see reserve releases like they continue to do with their older structured finance book of business.

Operating book value per share and adjusted book value per share rose to $63.48, and $88.67, respectively.  Both were record highs and show the continued progress the company is making.  Even though AGO has gone up a lot, at $45 per share, it is still a great value.

Further strengthening the investment opportunity was a development; they acquired $19 billion asset manager Blue Mountain, for approximately $160MM.  This is an extremely cheap price to pay and it seems very likely that this will add materially to profit and growth potential starting in 2020.  If AGO can grow this into a growing asset manager, the stock will need to be revalued far higher.

AIG also had a great quarter with adjusted after-tax income of $1.3 billion, or $1.43 per share.  Adjusted book value per share grew to $56.89.  Most importantly, AIG’s General Insurance Group produced a very strong underwriting profit, for the 2nd quarter in a row.  This puts the company on track to meet its annual goals for underwriting.  AIG has struggled for decades with poor underwriting, but finally they assembled a dream team of management to get the job done, and they are performing.  AIG’s stock trades around $55, but has the potential to go well above $75-80 within a few years, if they can continue with this momentum.  Importantly, the risks are way lower and the probabilities of success are going up.  AIG’s stock was up about 4% after earnings.

Value investing is all about understanding intrinsic value, being able to be reasonably accurate in calculating it, and buying securities at a discount.  We have been able to do that over and over again over the years with these stocks and others.  Selling puts has allowed us to realize large profits, without having to hold things forever, and endure every selloff.  When things have sold off, we have been able to add either through being exercised on the puts, or just buying the stock outright.  We added to our positions greatly last winter during that bear market.  If all we did was own AIG stock outright and never had sold it, we would have done much worse off even after taxes.  Paying attention to price and not being greedy is what protects those profits, as circumstances do change and few stocks should be held for a lifetime.

The global economy is looking quite weak currently, and interest rates are reflecting that fear.  If you have a mortgage, it is most likely worth at least considering refinancing to see if you can benefit from lower interest rates.  I’m not suggesting taking out equity from your home, but paying the lowest interest rate possible is certainly sensible.

These global concerns are what create the great opportunities to find undervalued investments.  They aren’t something to simply be scared of or go to cash on, as those market timing techniques tend to cost investors more than actual bear markets do.  We have some opportunities to really make a ton of money due to the dislocations we see on a global basis, which we will keep writing more about over time.