The Boring Stocks Are Back
Trade in Whisky;
Over the past month, Korea’s KOSPI Index is down 36%, a little more than the semiconductor Index, SOX. SpaceX is down 46% from its high, and my favourite momentum chart has seen its “jaws” close. That means the past winners have fallen, while the past losers have rallied.
The Momentum Jaws Are Closing
There is no surprise here, other than it took such a long time to come to fruition. Bubbles cannot last forever, and that is by no means a statement regarding the long-term significance of AI.
The boring stocks are back. I love it when this happens because it makes me look good. Most of our stocks are on the dull side because value stocks are, by definition, out of favour, unexciting, and unloved. But they are cheap, and that works for us, as value drives returns.
There is nothing to be embarrassed about owning these stocks. If you want to lose your shirt in exciting growth industries, so be it. At least you’ll enjoy the adrenaline rush. I prefer boring stocks that make money, and while they might lag during the booms, they always win in the end. The Hare and the Tortoise must be based on a true story because it is all around us.
I have yet another fabulously dull stock for you today. It is undervalued and has a multi-decade track record of growth while delivering great returns for investors. Unfortunately, it has no plans to visit Mars, mimic the human brain, or revolutionise the world of commerce. It is simply an insurance company, and a very good one. It’s so boring that if you mentioned it at a dinner party, you’d be ostracised and blackballed forevermore.
I’ll get to it in a minute, but first I want to check in on the Money Map to remind ourselves why insurance companies are holding firm in the current environment. Insurance companies, like banks, commodities, and heavy industry, sit in the black box in the top right corner. Recently, bond yields have been rising. Inflation a little less so, but commodity prices are certainly more buoyant.
The ByteTree Money Map
Insurance companies make money in two ways. Firstly, from underwriting insurance risk, and secondly, from the investment income earned from customers’ premiums. Since claims lag premiums received, that money earns interest for the insurance company. Most of their investments are in short-dated bonds. Higher yields mean higher profits.
US 10-Year Treasury Yield
Many insurance companies have been showing strength, but most of them are pricey. The good news is that we managed to find one in the USA offering good value while undergoing a recovery.
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