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Kaminsky's Call: The Brilliant But Simple Logic Behind Owning Travelers

Brilliant ideas are often the simplest ones. And last Friday I was reminded of that by legendary value investor, and former Neuberger Berman colleague, Marvin Schwartz.

In case you missed Friday's show (and even better web extra), Marvin laid out a compelling case for owning Travelers stock.

The insurance giant trades at a discount to its peers both in terms of its forward multiple, and more importantly, its book value.

Now, book value for a financial has always been a hard metric to peg.

Put simply, the book is worth something, until it isn't (as we all learned during the financial crisis).

In the case of Travelers, many investors are betting that its massive book of bonds, much of which is composed of municipal credits, will soon see impairments—hence the stock trading at a discount to its book value.

But as Schwartz pointed out, many of those muni bonds, over 20-percent in fact, have been pre-refunded, meaning that for all intents and purposes, they are as safe as U.S. Treasuries.

The rest of Travelers portfolio, as Schwartz pointed out, was in highly-rated credits. "I'm not really that concerned," Schwartz said. (Note, Schwartz counts Travelers as one of his holdings).

Translation: the fears about Travelers' exposure to the municipal bond market are overblown, and the stock is downright cheap.

It's that type of "Outside the Box" thinking that separates an average money manager from a great one.

And it's no coincidence that in his 50 years at Neuberger Berman, Schwartz's Straus Group has established a great long-term record.

Travelers will report its fourth quarter earnings on Tuesday morning, click here for CNBC's Earning Central.

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Watch Gary Kaminsky weekdays at Noon ET on CNBC's "The Strategy Session."

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Gary Kaminsky does not hold any equity positions.

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