While the market has been performing adequately over the last couple of months we are seeing really impressive performance out of our more contrarian investments such as Assured Guaranty (AGO). Even after a 54% gain it still trades at only about 70% of book value, and its adjusted book value is actually around $50 per share. Other financials and housing related stocks are outperforming as well and I expect the trend to continue, not because I think that everything is all better in the economy, but instead because the valuations are absurdly low! What is exciting about this opportunity is that this has the potential to be a huge winner for many years as book value should grow by 10-15% a year, and a simple stock buyback could increase that gain exponentially.
This is an amazing investment climate for the deep value investor to be a part of as there are an abundance of quality franchises that can be bought with double digit earning yields, and with financial stocks particularly, huge discounts to tangible book value. In my own portfolio I’ve continued to increase my equity allocation as the businesses that we have been investing in have become more valuable overall over the last year, but because of the stock market volatility they haven’t really increased in price, and it is unlikely this disconnect will last very long. Below is a link to a chart that shows the rapid rise and if you have any questions at all as always we are at your service. Thank you very much!
INVESTING IN THE FINANCIAL MARKETS INVOLVES RISKS. OPTIONS ARE NOT SUITABLE FOR ALL INVESTORS.