(Ep.7) The Acquirer’s Podcast: Tim Travis – True Value, Value In Options And Insurance

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In this episode of The Acquirer’s Podcast Tobias chats with Tim Travis of T&T Capital Management. During the interview Tim, who is one of the top ranked investors in the TipRanks, provides some great insights into:

– His Investments In Assured Guaranty Ltd, Puerto Rico, and Ireland

– Managing and Trimming Your Portfolio

– How ‘Cash Secured Puts’ Can Provide Investors With Downside Price Protection

– Why ‘Covered Calls’ Are A Great Strategy For Enhancing Yield

– Why Buying Options Is A Very Difficult Investment To Manage

– Current Market Conditions and The Future For Value Investing

– Every Value Investors Lament – Selling A Stock That Continues To Run Up

– Why Google Is A Better Investment Than Apple

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Full Transcript

Tobias Carlisle: All right, man. You ready to go?

Tim Travis: I’m ready.

Tobias Carlisle: Let’s do it. Hi, I’m Tobias Carlisle. This is the Acquirer’s podcast. My guest today is Tim Travis of T&T Capital Management. Tim’s a value investor based in Coto De Caza. He’s one of the top ranked investors in the tip ranks. We’re going to hear from him right after this.

Speaker 3: Tobias Carlisle is the founder and principal of Acquirer’s Funds. For regulatory reasons, he will not discuss any of the Acquirer’s funds on this podcast. All opinions expressed by podcast participants are solely their own and do not reflect the opinions of Acquirer’s Funds or affiliate. For more information, visit acquirersfunds.com.

Tobias Carlisle: Hi Tim. How are you doing?

Tim Travis: Good. How are you doing?

Tobias Carlisle: I’m very well. So, I always say this, there are lots of different types of value investors. How do you describe yourself as a value investor?

Tim Travis: I’d say that we’re definitely deep value oriented, so probably not too dissimilar to you in a lot of ways. We’re looking for companies that are trading at deep discounts to intrinsic value. And we look at things like price to earnings, price to book, but we obviously do a lot of analysis on that book value and the quality of it, EBDIT. And I’d say one of the things that is somewhat unique about us is that we’re willing to take concentrated positions on our top names in the portfolio. So, we’re going to allocate the most money to our top idea, and so on and so on. So, maybe like 15, 20 names on average, but most of the money’s in the top seven or eight.

Tobias Carlisle: So, there’s a few things in there, but the way that I became aware of you is seeing the work that you had done in Assured Guarantee, which is a stock that I had on as well. And the other thing that I’ve seen you do a lot of work with is options. So, that’s two things I really want to dive into deeply today. But let’s start with AGO. You’ve got a position in that and you’ve been in that for a while, so just can you give me a little background on the position, and what’s been happening and how you feel about it?

Tim Travis: Absolutely. Well, I mean, it came to me through researching other companies in the industry. So, when 2008 was really going down, I really was fascinated that everything that was going on. Obviously, I wasn’t fascinated with what was happening in our portfolio, but I was managing much less money back then, of course, and had other jobs that I was doing. Another job in commercial finance. And so I was still investing my own money and some family’s money. And I started looking at MBIA, which is a competitor. And because it had gotten so cheap, they had gone down from AAA. And in doing my analysis on that company, I saw that Assured Guarantee was kind of in a prime position to consolidate the industry. They still had high enough credit ratings that they could still write new business, which was very lucrative, because of the market had compressed so much. And then they were acquiring the other large competitor in Europe, FSA from one of those European banks that kind of had to spin off assets.

Tim Travis: So, I started investing in Assured Guarantee in early 2009, late 2008. March, 2009, of course, when everything hit the bottom, the stock had gone down quite a bit, and we continued adding all the way down. And we’ve really owned it since. We’ve obviously done a lot of adding and taking profits at certain times, and things like that. But it’s been a great investment.

Tobias Carlisle: Describe the business of AGA, because it’s a little bit … it’s an unusual business that I don’t think it’s a … Not a lot of folks know what they do.

Tim Travis: I would agree. It’s a municipal bond insurance company. So, they’re about AA rated, AA+ by [inaudible 00:04:24]. And so let’s say that a city of Rancho Santa Margarita is going to build a toll road, and they have a BBB + credit rating. If AGO insures it with their AA rating, Rancho Santa Margarita benefits because they pay a lower interest rate. And so, that’s an attractive business because they take the premium up front, and those bonds might be a 30-year bond issuance. So, they get to invest the premiums for a long time, and the defaults are very low on a percentage basis. And the severity of those defaults are very low. Now, what made Assured Guarantee unique relative to its primary competitors AGO … Excuse me, Ambac and MBIA and there’s like six others, was that they didn’t get involved in insuring a CDO squared, subprime garbage that those other ones did. And they didn’t really get involved in the guaranteed investment contract business. So, what would happen is, when all those subprime securities were being downgraded during the financial crisis, companies like MBIA, Ambac, they were taking severe mark to market losses. And on the guaranteed investment contract business, they would have to post collateral. Very similar to what happened with AIG and their credit default swap business.

Tim Travis: So, AGO, great management, Dominic Frederico is the CEO, he kept them out of that. Still running the company well today. And so that’s a little bit about it.

Tobias Carlisle: One of the things about AGO, one of the kind of unique features of it is that, because it’s got t

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