- Joseph Boskovich Jr. — cofounder and partner at Old West Investment Management — uses a three-pronged approach to stock selection that’s helped him grow his firm’s assets at a rapid pace.
- He focuses on companies that have owners and managers with skin in the game, reasonable valuations, and can be characterized as breakout businesses in disguise.
- He also shares the dynamics of an investment opportunity he sees with massive potential.
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When Joseph Boskovich Jr. — cofounder and partner at Old West Investment Management — started managing money in 2008, he was met with an extremely adversarial environment. The US was in the midst of the greatest economic downturn since the Great Depression.
But the overarching macroeconomic environment couldn’t suppress Old West’s growth.
Over the course of the next five years, the operation swelled in size, with the $15 million in firmwide assets Boskovich started with originally ballooning to $200 million during the period.
Boskovich attributes much of that explosive growth to the firm’s stock picking strategy — one he describes as a management-focused, value-based, growth-in-disguise approach.
In an exclusive interview with Business Insider, Boskovich outlined the three core tenets of his firm’s stock-selecting principles in detail:
(1) Skin in the game
“As a first principle, we believe that the surest way to protect our capital — and grow our capital — is by aligning ourselves with management teams who have high stock ownership and smart pay,” he said. “We really just want to invest with management teams that have more to gain or lose through their equity ownership than they do through their compensation.”
To meet this criteria, Boskovich prefers management with a high level of skin in the game. That means 30%, 40%, or even 50% ownership in the company. This ensures that the company’s leadership is making capital allocations that are most consistent with growing shareholder value. An alignment of these views is something that Boskovich views as absolutely critical to investment selection.
If management isn’t exposed to the same risks as shareholders, he immediately eliminates the firm from consideration.
(2) Reasonable prices
Boskovich is quick to note that he’s not ready to pull the trigger on an investment just because a company looks cheap. To him, companies that are priced at a discount are that way for a reason — and they’re not going to appreciate in future just because they’ve been beat up in the past.
“We want to just make sure that we’re buying into these businesses at prices that make sense to use,” he said. “I think at the end of the day, the most important metric might be: How much cash does this company generate? Because that ultimately should find its way to the shareholders.”
In addition to cash generation, Boskovich also looks to identify catalysts that will unlock value going forward. This includes: shifts in management and strategy, new products, and potential acquisitions and divestitures.
Without the potential for a spark, a cheap valuation seems warranted — and the company will be shunned from selection.
(3) Breakout businesses
This is one of Boskovich’s favorite criteria for stock selection: identifying a growing business in disguise. It requires a deeper dive into a company, but the payoffs can be immense if correctly pinpointed.
He shares an example of a current holding — one he considers a breakout business. He argues that it will yield large returns by the time it’s fully matured.
“IDW media is a publishing business, and people are assigning the appropriate valuation to this kind of mature, stable, not-really-growing publishing business,” he said. “But they have this breakout business that’s coming up, and people aren’t necessarily assigning a lot of weight to it in IDW entrainment.”
He continued: “That entertainment division is kind of a breakout business, and company revenue should double in the next 12 months because of that breakout business.”
On the outside, IDW media may look like a maturing holding. However, a deeper dive reveals untapped value.
This is why it’s so crucial to read through a company’s financials and pinpoint where growth is emanating from. A face-value analysis of IDW media wouldn’t reveal its underlying potential.
The opportunity
Against that backdrop, Boskovich is eager to share a budding opportunity he sees in today’s marketplace.
“We have a huge exposure to uranium,” he said.
His thesis is simple, and it comes down to the two most-basic laws of economics: supply and demand.
“In the last few years, over 25 million pounds of uranium supply have come off the market — and that equates to about 20% of global mined supply,” he said. “To put that into perspective, that would be the equivalent of Saudi Arabia and Russia saying ‘Hey, we’re completely seizing production of oil.'”
But that’s only one side of the equation, and Boskovich sees demand throughout the globe heating up as countries look for greener sources of energy.
“Right now, there are 450 operating nuclear reactors worldwide — and there’s about 60 nuclear reactors under construction, 120 that are planned, and roughly another 350 that are being proposed.”
It’s this imbalance that has Boskovich so bullish on the future price of the chemical element.
In order to take advantage of this massive disparity between supply and demand, Boskovich owns a basket of uranium miners, which is one of the largest positions in his portfolio.
An investor looking to invest in uranium could purchase the Global X Uranium ETF (URA).
“If you study the dynamics in that space, I think it’s maybe a once in a lifetime investment opportunity,” he concluded.
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