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Insurance sector investments great for ER ?
Old 02-11-2006, 06:57 AM   #1
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Insurance sector investments great for ER ?

Reading book "Davis Dynasty" - frugal, conservative guy who made a tons of money in insurance stocks.

Buffett's kind of the same.

I am not a fan of "sector investing" - but is the insurance industry "inherently compatible" with the risk/return/volatility profile needed for an effective ER portfolio ?

Appreciate any thoughts. Any web resources focused on international insurance industry ? ETFs ?

Thanks !!!! Delawaredave
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Re: Insurance sector investments great for ER ?
Old 02-11-2006, 07:38 AM   #2
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Re: Insurance sector investments great for ER ?

Being a left handed type - consider this weird thought.

Where would Buffett be without insurance? They collect a steady stream of premium income(hopefully don't pay too much in claims) and invest the 'float'. Sooo - one way to look at it - you are buying a mutual fund(whatever the float is invested in). Their dividend history is critical. I still have Aetna - never sold during their er ah 'difficult period' (lazy) and the dividend sucks - but they are on a tear now.

In the early 90's owned a couple - and check from time to time.

In the old days - it was electric utilities.

First cup of coffee post - my brain will clear later. Or not.

heh heh heh

An interesting class/sector.
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Re: Insurance sector investments great for ER ?
Old 02-11-2006, 08:15 AM   #3
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Re: Insurance sector investments great for ER ?

Quote:
Originally Posted by Delawaredave
Reading book "Davis Dynasty" - frugal, conservative guy who made a tons of money in insurance stocks.

Buffett's kind of the same.

I am not a fan of "sector investing" - but is the insurance industry "inherently compatible" with the risk/return/volatility profile needed for an effective ER portfolio ?

Appreciate any thoughts. Any web resources focused on international insurance industry ? ETFs ?

Thanks !!!! Delawaredave
ST KBW INSURANCE ETF (AMEX:KIE)
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Re: Insurance sector investments great for ER ?
Old 02-11-2006, 08:53 AM   #4
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Re: Insurance sector investments great for ER ?

Fidelity has an insurance sector fund (FSPCX).
You can see how it has done compared to the 500 on the graph below.
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Re: Insurance sector investments great for ER ?
Old 02-11-2006, 09:18 AM   #5
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Re: Insurance sector investments great for ER ?

It seems Fidelity has more fund selection than Vanguard.
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Re: Insurance sector investments great for ER ?
Old 02-11-2006, 03:05 PM   #6
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Re: Insurance sector investments great for ER ?

DD -

I think if you want to invest like Davis did you should concentrate on a sector you are very familiar with and one that may allow you to pick stocks better than the average analyst.*
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Re: Insurance sector investments great for ER ?
Old 02-11-2006, 06:59 PM   #7
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Re: Insurance sector investments great for ER ?

Quote:
Originally Posted by Delawaredave
- but is the insurance industry "inherently compatible" with the risk/return/volatility profile needed for an effective ER portfolio ?
I haven't read the book. Why would the sector be especialy good for an ER?
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Re: Insurance sector investments great for ER ?
Old 02-11-2006, 08:20 PM   #8
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Re: Insurance sector investments great for ER ?

Quote:
Originally Posted by lazyday
I haven't read the book. Why would the sector be especialy good for an ER?
I'm trying to reduce the potential volatility of my equity portion of my portfolio.

Just wondering if insurance stocks are a "balanced/stable" way of getting "equity ckass" returns.

Kind of like folks used to buy utilities - nice yield, stable growth, limited downside.

I haven't yet looked at Price to cash flow, book value, earnings, etc ratios.
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Re: Insurance sector investments great for ER ?
Old 02-12-2006, 09:17 AM   #9
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Re: Insurance sector investments great for ER ?

I don't know enough to answer the question, but would look into correlation between disasters that are big enough to impact the economy, and insurance company stock prices or profits. If insurance companies do worse during disasters than the rest of the stock market, that would be a concern. (Maybe they don't do worse, as they can then raise prices.)

Overall, how correlated are they to the stock market? If float is invested in the market, correlation might be high. If somehow, they aren't correlated to the rest of the market, they might be a valuable diversifier.

Even if things look good, there's always the chance of change, so I wouldn't have too much of an overweight in any one sector.

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Re: Insurance sector investments great for ER ?
Old 02-12-2006, 11:24 AM   #10
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Re: Insurance sector investments great for ER ?

Quote:
Originally Posted by Delawaredave
I'm trying to reduce the potential volatility of my equity portion of my portfolio.

Just wondering if insurance stocks are a "balanced/stable" way of getting "equity ckass" returns.

Kind of like folks used to buy utilities - nice yield, stable growth, limited downside.

I haven't yet looked at Price to cash flow, book value, earnings, etc ratios.
My initial reaction was "good luck with that" because it seems that insurance companies & utilities are at least as subject to volatility issues as anything else these days. I suspect the ease of trading (low commissions, Internet access) has more to do with that than any fundamental change in the industries.

But upon further consideration I think that the insurance industry is finally beginning to understand & use computing tools to re-evaluate their risks. There used to be a huge push to generate business, which led many companies to write policies at any cost in order to generate market share. That's finally being appreciated as "losing a little on each transaction but making it up on volume". Companies are also beginning to realize that derivatives aren't the panaceae they were originally perceived to be, and I think there's going to be an industry shakeout over the next few years.

I'm not suggesting that you'd want to invest in Berkshire Hathaway, but Buffett & Ajit Jain make some good points. A great website to research their thoughts is Sandman's Place.
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