Quanta Capita Holdings is a reinsurance company that lost a lot of money from Hurrican Katrina and the flooding of New Orleans. It is now in run-off mode, which means it is not writing new policies and is in the process of fulfilling current debts.

Preferred shares of Quanta (QNTAP) will be paid off before common stockholders, so it stands to reason that they are in better health than the common stock. One investor, who is mentioned in the story I’ve linked to, is buying the preferred stock while shorting the common stock.

Seth Klarman’s Baupost Group hedge fund owned 6.6 million shares of Quanta common stock (QNTA) as of June 30. He obviously believes that Quanta will have more than enough money to pay off both preferred and common shareholders. Because the common stock is already priced for the risk that it will not get paid off after the run-off, this position would make Baupost Group a lot of money if Klarman’s right, but if he’s wrong the hedge fund will likely lose nearly all the value it holds Quanta at this time.

It’ll be interesting to see if this strategy works out for Klarman and Baupost.

Technorati Tags: seth klarman, investing, quanta

Over the next few weeks, I’m going to be taking a look at the holdings of some of my favorite investors. The stock that caught my eye this week was Walter Industries, ticker symbol WLT, which has been punishing Seth Klarman’s portfolio.

Walter Industries does a variety of things, including manufacturing water infrastructure and transmission products, production of coal and natural gas, and home building and financing. Obviously, two of those sectors have been hammered in the past few months, which is why WLT currently sits near its 52-week low. It’s current value is about 60% of its 52-week high, which shows how volatile this thing can be over the long run.

If WLT was a good value pick when it was much higher than its current price of 44.32, it must be a good value pick now, even with the changes in the industries it deals with. Company revenues should not change significantly enough to cause such a dramatic downturn in the stock, which is why I think its current position is at the bottom of a deep valley. I would not be surprised to see a relatively steady but staggered rise back towards the top (near its 52-week high around 70) in the next 6 months.

Full disclosure: I do not own any interest in WLT. You should carefully research any potential investments or consult a qualified expert before buying stocks.

Technorati Tags: seth klarman, walter industries, stock, picks

I found this great article about Seth Klarman, and the methods he uses to find winners for his Baupost Group hedge fund, which has averaged 20% returns for 24 years.

One key to take away from Klarman’s tips is the value of information. Part of his job is understanding things like financial statements and balance sheets, but another important part is finding the information that isn’t available in the daily newspaper or even on the online stock site. He isn’t trading on inside information, because the information he gathers is available to the public, it’s just not readily available.

Klarman’s number one goal is to avoid losing money. That would seem to contradict huge returns like those his hedge fund has achieved. That’s where Klarman’s mind comes into play. He’s found that it is possible to find stocks that are so undervalued that even in a volatile market they are highly likely to go up, with little chance of much downward movement.

Think of Klarman’s investing strategy this way: each stock has a price which it is supposed to be at. This is the true value, based on the actual value of a company and factoring in expected growth/value. If the price of a stock is well below what Klarman has determined this true price to be, the market will bring the price of the stock up towards that level over time. That makes a good investment. Now go find them!

Technorati Tags: seth klarman, investing, warren buffett