Day: September 24, 2011

Post 1600

Post 1600

Every 100 posts or so, I take a step back to think about the broader issues I face in blogging, and describe what I am up to in my life, so that my readers can understand more about me.

Since my last post on this topic, I have had a difficult time.? Why?? I worry that my firm will not grow fast enough that it will support my family.? That said, I pick up 2-4 new clients per month, and my friends in the Baltimore CFA Society tell me that I am doing better than most.

So, I try to take heart amid the bear market, where it is more difficult to gain clients. Now, it would be nice if there were a database of dissatisfied investment management clients, but that doesn’t exist.? Thus I have to look to others for referrals of those who are dissatisfied with competitors in my business.

Over the last 100 posts, the economic/financial environment has turned from optimistic to pessimistic.? I haven’t changed much.? I still think there is more pain to come, where the big banks have to take losses.

I am more bullish now, but I am waiting for a turn in the momentum to get more aggressive.?? With momentum so negative, I commit small amounts of capital to my best ideas as they fall, like my RGA piece yesterday.

With all that, I thank my readers for reading me.? You have a lot of things you can do with your time, and if you decide to read me, I am flattered.?? I am grateful for any investing referrals.

Aside from that, I still enjoy blogging.? It is an opportunity to call out the powers that be and tell them they don’t know what they are doing.? Away from that, explain to people to avoid common scams.? I have a post coming on one of the scams soon.

I really enjoy writing for all of you.? I hope you enjoy my writing as much.

Reinsurance Group of America

Reinsurance Group of America

I read an article by Zacks on RGA.? I thought it was poorly reasoned.? Here’s what I wrote as a comment:

“However, the primary factors to our Neutral recommendation are Reinsurance Group?s reliance on availability for affordable retrocession. The company had increased the maximum amount of coverage that it retains per life in the U.S. from $6.0 million to $8.0 million. This reduces the amount of premiums it pays to retrocessionaires, but increases the maximum effect a single death claim can have on its results, and therefore may result in additional volatility to its results.

Also interest rates are likely to remain low in 2011 and spreads narrow further. We expect to see additional pressure on the Reinsurance Group?s investment income. Moreover, management?s conservative positioning of the investment portfolio is expected to exert pressure on yield.”

I hate to say this, but you don’t know life reinsurance that well if this is your reasoning. Interest spreads are not a major factor in RGA’s profitability. Also, the retrocession cartel charges an arm and a leg for coverage. The earnings will be more volatile, but they have always been volatile with RGA. The time to buy is after a bad quarter, because mortality is random, but RGA underwrites well.

Let me get this straight. This company has a big moat; it’s part of the life reinsurance oligopoly. It’s trading at a forward P/E of 6, a trailing P/E of 5.5, and 65% of unadjusted book. This company is a leader in its industry globally, and you rate it a hold?

Let me tell you a secret. You almost never lose on companies with little debt, trading at single digit P/Es, and trading below book, conservatively stated.

I own this stock, and so do my clients.

RGA is trading cheap enough that I am considering making it a double-weight in my portfolio.? It is a single-weight at present.? It is genuinely rare that one finds such a quality company with protected boundaries trading at such levels.? There are five companies that dominate life reinsurance globally, and in my opinion, RGA is the best, though they are a close number 2 by most measures of market share.

I don’t like writing about individual companies, because when you are right, one person praises you.? When you are wrong 10 people criticize you.? But for all that I simply say that I am long RGA for myself and my clients.

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