Exited $UVE: 73.14% Total Return in 6 Months

It might appear that I am raising cash because I believe that the market is frothy. There might be some of it but in reality the investment process I follow makes me buy when the stocks are low and sell when they are high. Disciplined investing with the right strategy automatically makes you cash heavy at market highs and fully invested at the bottoms. By focusing on individual businesses and their valuations, I generally do not have to worry about the overall market or the economy.

I have had great success in investing in the Florida home insurance companies. UVE is the stock I bought (and recommended) just after I took profits in HCI. It is a way of getting exposed to multiple catalysts:

  1. Rising home values and ownership in Florida
  2. State approved double digit growth in insurance premiums
  3. Many of these companies have suffered quite a bit during the downturn

In addition, UVE has been diversifying into states outside Florida to mitigate hurricane risk.

Here are the details:

Purchased Sold
Oct 18, 2012 May 6, 2013 – A little over 6 months of holding
Price paid: $4.00/share Price received: $6.67/share
Gains: 66.14% capital gains, 73.14% Total Return (including dividends). Net of commissions

Please note that TR was earlier incorrectly reported as 76.14%. It is now fixed. All other data is correct


Here is the original investment thesis

Subsequently, the sell targets were revised upwards, as the company entered into an agreement to repurchase shares from its ex-CEO at below market prices.

After this sale, my cash position is now around 28% and I am looking to put it to work.

Thanks once again for UVE.

This is getting better and better. Buffett may have to take a back seat if things carry on like this.

- Email dated May 6, 2013

Addressing a Few Newsletter Subscribers’ Concerns

There have been a couple of feedback sent my way from the free newsletter subscribers and I want to address them below.

1. The best picks are reserved for the Premium members, which I have to pay for

Ah yes, that is true. That is life!

However, most of my premium picks come from the screens I publish for free that my newsletter subscribers get. Subscribing to my screens/newsletter gives you a leg up in your research. For example, UVE initially showed up in one of my screens here, published on Oct 8, 2012. This also happens to be the most popular screen on the site, going by the number of people who have visited this page. Mere 10 days later, it was a premium pick and part of my portfolio.

You had the information. The question is how many of you acted on it.

The problem is, as always, what ever is given out of free is generally considered to be of low value. So even if I give out all my premium picks for free, you will never use it and it will be useless to you.

2. You should try to be more like Street.com and sites like that where everything is free

There are 2 major objections I have to this statement

  • I am not about to turn this site’s focus to generating as many page views I can to sell as many ads I can. I care about stocks and investing, not ad revenues. Besides, if my livelihood depends on a large company renewing their ads on my site, I am not going to be objective in my recommendations. It is just common sense.
  • You will never get rich following Street.com or Motley Fool. You are better off following real investors, not journalists or freelance writers. Case in point (scroll down for comments, including mine), also

To be even more pedantic than is necessary, the newsletters offered at Street.com are NOT free.

Whether you subscribe to the Premium program or not is your choice and depends on what you want out of your portfolio. It works for many but it is obviously not meant to be a mass market service churning out 100s of recommendations a day.

This is likely to be the last sale for many weeks/months, unless there is a new acquisition or other corporate action with one of the companies in the portfolio. Normal service resumes now.


  1. Paul says

    I will look for Bruce Greenwald’s work on value investing, and Seth Klarman (who was one of the contributors to the Sixth Edition of Security Analysis, which I’m reading. It’s over 700 pages and is based on the 1940 edition). I bought some shares of BRK-B last year, and Warren Buffett mentions his top 3 choices for investment books in the 2012 annual report for Berkshire Hathway: The Intelligent Investor by Benjamin Graham, Security Analysis by David Dodd and Benjamin Graham and Common Stocks and Uncommon Profits and Other Writings by Philip Fisher. The stock is up nearly 40% since I bought it, and I haven’t even held it for a year. I think when the stock is trading at an absurdly low price, I will try to buy as much as I can. You can never have too much of a stock that performs well, and never have too little of a stock that performs poorly. I know there are different models out there, but I figure if the debt to equity ratio is fairly reasonable, and the liquidation value of the company meets or exceeds all liabilities, it’s probably safe to invest in it. I also look at management (how competentence and not prone to corruption is a must), as well as dividends and buybacks policy. Since Berkshire Hathaway is arguably one of the best run if not the best run enterprise in the planet, the fact it doesn’t pay a dividend doesn’t bother me. It’s not hoarding cash for its’ greedy executives (i.e. think mining companies). When it holds cash, it hasn’t a way to deploy that cash. I’m not sure about the Heinz deal. Personally HNZ is a company I wouldn’t have invested in. I’m not going to complain, since 1996, when BRK-B came out, the share price has skyrocked to trading for over 5 times what it was then. Owning Berkshire Hathaway stock is probably the closest thing to a safe investment in the stock market. The reason is they’re so diversified, even if one of their businesses is performing poorly, it likely won’t take the company down, since it holds various companies. Ford has also done well since I purchased it. It’s up about 30% since I bought it, and that was less than a year ago.

  2. Paul says

    I’m just curious which particular valuation model you use when you value a stock. Getting Started in Security Analysis by Peter J. Klein with Brian R. Iammartino speaks of the Dividend Discount Model (a.k.a. Gordon’s Constant Growth Model), H Model and Multistage (2-Stage) Model in the book. I was looking at UVE, and should put this on my watch list. This might be a stock you may want to rebuy in the future. HCI looks like another strong pick too, if you look at how much cash they have on relative to share price. If you subtract cash per share from the ending price, the net cost is below the book value of the stock, so the margin of safety is huge. I’m considering investing US REITS in the future, because the yields tend be greater than Canadian REITs, but I want to get some advice with regards to taxation and which type of account to hold it in first (TFSA, probably most similar to a Roth IRA, or RRSP, which would be probably similar to a 401 (k). I’m looking at MLP, LPs, and income trusts. The Canadian government changed the rule on income trusts a few years ago when it comes to taxation, which is why I want to take my time on this.

    • says


      Valuation models such as DDM are merely tools or frameworks to help you arrive at a decision and double check your work. At their very basic, they are flawed because there is a large assumption built into them – growth rates and constancy of business conditions. As a gut check they can be useful.

      There are very few companies or industries that can be accurately modeled that way.

      I suggest you read Bruce Greenwald’s work on value investing and if possible get a copy of Seth Klarman’s Margin of Safety (there are free pdfs on the internet if you google for it).

      The best way to go about valuing a company, in my experience, is to first understand its business. Break it up into simpler pieces, conceptually and value those. For example, you may start by valuing the assets under 2 scenarios – a forced liquidation and an orderly liquidation. This will give you a base on which you can then layer on the value of the earnings power, if any.

      We bought HCI around 11 and sold at 22, replacing it with UVE. HCI is currently more expensive than UVE. In fact, HCI is trading at twice the Price to Book ratio compared to Berkshire Hathaway. While the management is shrewd and they are trying to replicate some of the Berkshire magic by investing in unrelated assets (marinas, etc), a big bulk of their value has come from getting policies for pennies on the dollar from the State of Florida. There WAS value in this government largesse (the state government was piecing out the policies from Citizens Insurance which used to be state supported) but that has already reflected in the stock price and is not going to continue. You will find that pretty soon growth will stagnate and the stock price will come back to rational levels.

      In US the REIT distributions are more tax expensive compared to a stock dividend and it is usually better to hold them in an IRA or a 401K account. Many REITs also offer a related stock that you can buy in a taxable account (by creating a corporation that owns a large chunk of the REIT – you buy stock in the corporation and REIT distributions are paid out as a dividend on the stock). These are however not very common. MLPs or any other kind of Partnerships are not advised in a retirement account because of UBTI issues (https://www.pensco.com/Learn/UBTIandUDFI).

      This is because MLPs are not passive investments, they are legal partnerships and therefore fall outside the mandate of a retirement account. Not sure if the Canadian tax code treats them the same way but it is good to check.

      Good luck,

  3. Rachel says

    I am new to your enewsletter and want to see how your free recommendations do for us. If they do well, I’d be happy to become a premium member. I believe your May 7th email is just stating a job well done with no recommendations. Please let me know if I missed a tip. I believe UVE is past tense now…I’m trying to get used to the way you deliver info so I can read it easily and absorb what you’re saying.

    I’m interested in making an investment now so I can test it out, but the tips coming may be old possibly? Do you have something current to suggest for new members? Thank you!

    • says


      First of all, welcome.

      UVE is past tense, though when you subscribed you should have received an email with one of the current premium picks as an attachment. That is one you can start with. Also watch for an email from me.

      As for the free recommendations, they are normally my first pass screening for good investment candidates. There will be some great stocks in there but not all will make to the recommendation stage. After the screens, I dig deeper in each of the stocks going through many years of financials and filings before picking a good stock.

      Also, though it may not look like based on the way some of the past recommendations have worked out, I normally advise a patient approach. I am more comfortable saying we will get to XX% return in 2 years. Sometimes it takes a few months and some times it takes longer. I bet on a business to create value – stock price follows, but in the short term it is unpredictable.


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