“Dumb and Dumber” — Zeke Ashton on learning from mistakes, and a safer real estate play.

SPECIAL VALUE INVESTING CONGRESS NOTES FOR THE IRREGULARS

Zeke Ashton runs Centaur Capital Partners and does long/short and he’s also a manager of Tilson Dividend (TILDX), which uses covered calls.

I’ll flip his presentation and start with his investment idea, which is title insurance — but he also did a good presentation about investment mistakes so I’ll share those notes on as well.

His idea to share: Title insurance, a lower risk play on the real estate recovery.

He doesn’t like home builders, it’s a terrible business model and you don’t want to chase this surge.

But this is a stock you can buy at today’s price.

Title insurance is a rational industry with only four real players. The business is leveraged to real estate like a royalty, both to volume and prices. The average refinancing is $1,000 and average new mortgage is $2,000, commercial property average $2,800.

Fidelity National Financial, first american, stewart tittle, old republic and some smaller ones. Prices are mostly regulated and there’s no price competition to speak of.

Fidelity National (FNF) and First American (FAF) are his favorites.

The market can barely tell them apart, essentially identical operations trading at 1.2X book with a 2% yield and PE between 9-10. You can almost use free cash flow because of the kind of businesses these are, they can raise dividends and have great balance sheets.

FAF is more of a pure play on title insurance escrow, FNF is broader and has some LBO type investments and makes outside investments (restaurants, REmy auto parts, Ceridian, timber) — the CEO of FNF is a closet investment banker, which can be good or bad. Ceridian was a big LBO that they overpaid for, but may end up working out with time and low interest rates.

FNF has been a better player historically — FAF has improved. FAF has more international presence. He prefers the pure play of FAF. This is the first real estate play I’ve felt pretty comfortable about in the last few months, so I’ll probably look into it some more.

And some notes on his thoughts about mistakes.

“Dumb happens.” He spent much of his time talking about how to learn from mistakes and make yourself a better investor. And of course, learning from other peoples’ mistakes is even better.

He says we’ve got two kinds of mistakes: Emotional and analytical. Analytical mistakes get more attention and more discussion ...

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