Mark Curnin of White River Capital has unusual qualifications for a fund manager: A bachelor’s degree in Anthropology and Masters in International Affairs.

In a Q&A session with Value Investor Insight, Mark Curnin said the Anthropology degree proved useful in his current choice of career. “In anthropology you learn to operate without perfect information and try to uncover and then piece together critical clues in ways that provide insight,” he says. “If you think about it, investing is very much like that as well.”

Financial Services Mark Curnin

Mark Curnin on his focus on financial services

Mark Curnin says financial services, with its inherent complexities relating to accounting, regulatory and reporting “idiosyncrasies,” mainly in entities such as banks and insurers, was a universe that rewarded specialisation.

Within financial services, Mark Curnin is focused currently on banks and property/casualty insurance companies. Though capitalization size is irrelevant, Curnin’s fund concentrates on US businesses only, as these are known to him extremely well.

“After the financial crisis there’s been so much opportunity in this country that there’s been no reason to look abroad for ideas,” says Curnin.

Investment philosophy

Investment targets should ideally be excellent businesses that earn superior returns both on assets as well as equity and have exceptional balance sheet strength and flexibility along with durable and widening moats.

“While we believe high-quality management is critical, we put particular emphasis on the structural advantages of the business,” explains Mark Curnin. “These tend to be more durable.”

The fund has used crises such as Hurricane Katrina and the financial crisis to pick up bargains in the P&C insurance space and banking, respectively. “Investors tend to try to defuse bombs after they’ve already gone off,” remarks Mark Curnin.

The fund normally has only a few holdings at a time. According to Mark Curnin, this is a consequence of the very rigourous criteria applied for selection of investment candidates. He says it is difficult to find companies that satisfy these criteria and are reasonably priced as well.

Intrinsic value

Mark Curnin evaluates intrinsic value using different valuation methods depending on the business. The fund calculates a range of fair estimations of intrinsic value and then looks to invest at a level that is 25% below the bottom of the range.

“Margin of safety for us comes first from the quality and resilience of the business and second from buying into it at a substantial discount to our estimate of intrinsic value,” explains Curnin.

Selling out an investment

Great purchases contribute more to the fund’s outperformance rather than great sales, he says. Also, the selling decision is determined by the current margin of safety.

If the quality of the business deteriorates, the fund would consider divestment even though the discount to intrinsic value is unchanged. On the other hand, if the stock appreciates towards the fund’s target of intrinsic value it could be sold even though the business is running well.

“We want both elements of our margin of safety intact,” says Mark Curnin.