As a firm, our biggest position has been Assured Guaranty (AGO) for quite some time.  We have written about it extensively and covered the attractiveness of the opportunity in great detail.  Today was a great day, as we really got confirmation of the incredible progress that this company is making.

AGO reported 3rd quarter operating earnings per share of $3.83, significantly outperforming the consensus estimate of $.69.  Even more importantly, operating shareholders’ equity increased to $49.29, from $43.11 at the end of 2015.  Adjusted book value increased to $66.34 from $61.18.  Historically bond insurance companies traded between the operating shareholders’ equity and the adjusted book value.  What is even more promising is how rapidly these numbers are growing.

AGO’s stock price is now at its highest level in years if not ever, but it still is not keeping up with the actual growth in intrinsic value.   

This augurs very well for us as there are very few great opportunities in what we believe to be a very expensive market for both stocks and bonds.  I’ll be releasing a comprehensive research report on the company in the near future, but suffice it to say that things are looking up for this key position in our portfolios’.

This is another great example of how our strategy works.  We identify deeply undervalued securities and both buy the stock and sell puts.  During periods of market turmoil we add to our positions, allowing us to dollar-cost-average.  At times we will utilize conservative income-generating strategies such as covered calls to generate additional income from the positions.  Most times the calls either expire or are bought back profitably, and at other times they are exercised allowing us to very profitably, right-size our concentrated position weight in a given security.  This is why we urge investors not to focus on short-term fluctuations or market fears, but instead look at the fundamentals of the underlying businesses that we are invested in.

AGO is not the only stock we own with such a compelling investment story.

Just about all of our key financials have similar opportunity to create value through accretive stock buybacks and earnings growth over these next few years. 

While the S&P has had 8 negative trading days in a row, possibly due to concerns about the election, the key is to focus on the long-term and not to get caught up in current hysteria.  The United States has been through many wars, recessions, scandals etc. and has always come out stronger.  I’m confident that this will again be the case and I feel that we are well-positioned to make money regardless as to who wins the election.  Thank you very much and if I can assist you with anything at all, please feel free to give me a call at 805-886-8140!

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