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The Insurance Company That’s Becoming An Elite Compounder Of Capital
This is Porter’s Daily Journal, a free e-letter from Porter & Co. that provides unfiltered insights on markets, the economy, and life to help readers become better investors. It includes weekday editions and two weekend editions… and is free to all subscribers.
What’s going on with our P&C stocks?… AXIS Capital found a replacement genius in Vince Tizzio… Loss ratios and expense ratios are down… BLS releases a grim jobs report… |
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Editor’s note: Long-time subscribers know that I (Porter) take my summer vacation in August. Next week, I’m fishing with my two older sons (Traveler, 17, and Seaton, 14) in the world’s biggest fishing tournament, The White Marlin Open. The total purse should be around $7 million this year – wish us luck. The following week, I’m hosting some pro golfers and members of our Meadowdale Fellowship at my farm for the BMW Championship. And the third week of the month, I plan to fish in the other major marlin tournament, The MidAtlantic Billfish Tournament. So a busy and fun month is coming up for me. While I take a “break,” you’ll hear from Porter & Co.’s other leading analysts – Ross Hendrick, Martin Fridson, and Erez Kalir. I hope you’re enjoying the summer and I’ll see you in late August. (If you want to follow along for the fishing and the fun at the BMW Championship, please follow me on X.com. I’m @porterstansb)
As our paid-up subscribers know, we recently recommended another property and casualty insurance (“P&C”) company, AXIS Capital (NYSE: AXIS).
As we proved last week in our first-ever Big Secret On Wall Street report card, our work on P&C is the most valuable research we produce – although I’m sure Marty Fridson (Distressed Investing) and Erez Kalir (Biotech Frontiers) would take exception to that claim.
But, let’s not get bogged down on which track record is actually the best (it’s Erez).
In P&C insurance, our average return has been 66% over the last three years, with an average holding period of about 18 months. That’s more than double the S&P 500’s returns over matching periods. And we had no losing positions.
Given these firms’ extremely low volatility and the security of their huge balance sheets, that’s an astounding investment performance. (In the background, just imagine Marty and Erez rolling their eyes…)
Our P&C research practice began back in 2012, while still at Stansberry Research. By 2014, we’d created our own proprietary industry model. Since then, using that model and buying the top 10 stocks as it ranks them has created 26% average annual returns. That’s an extraordinary, long-term track record – about twice the S&P 500.
(That model, by the way, is still in use at Stansberry Research, my former company. If you’re a Stansberry subscriber, you can access that model by looking under the “Tools” menu on the Stansberry homepage and selecting “Stansberry Monitors.” The “Insurance Value Monitor” contains the output of the industry model.)
I think we can beat the model at Porter & Co for two reasons.
First, the model’s rankings are based on 10 years of data. As a result, the model will miss new, high-performing companies, like Kinsale Capital (NYSE: KNSL), until they have 10 years’ worth of results to analyze. Likewise, it will also miss the rapidly improving results of an existing business going through a successful turnaround, like AXIS Capital, which is currently ranked number 20.
Second, the model does a poor job of recognizing the rare P&C company that can both deliver incredible underwriting and massive policy growth. That’s led the model to mis-rank Progressive (NYSE: PGR) for many years.