What's Investing Style?

Understand Investment Styles and Determine Which Fit Your Portfolio.

By Melissa Phipps

Successful investors and investments don't just pick companies on a whim. They narrow their focus on investment styles. They may target companies of a certain size, look at company fundamentals as a predictor of long-term value or annual growth, manage every stock move or set the investing on auto-pilot. Most mutual funds or ETFs have a pre-determined style that does not (or should not, sometimes funds get tricky) vary. Often, these investments target a combination of styles. So how do you make sense of it all? Learn the types of investment styles, and it can help you determine which investments best suit your style.

1. Investing by company size: Large Cap, Mid Cap, Small Cap

Companies perform in different ways at various times in their growth cycles. Investors focus on capturing companies at different points—when they are just starting, just starting to grow, in mid-growth, or well established. You can do this by focusing on market capitalization, or the number of outstanding shares multiplied by share price. Large capitalization or big cap companies are those worth more than $10 billion. Mid-caps or mid capitalization companies are about $2 billion to $10 billion. Small-caps or small capitalization companies, between $100 million and $2 billion. There are micro-caps below that, then nano caps, then... I guess angel investments. Fund managers typically choose a market capitalization to focus on. For example, "This fund seeks to generate capital appreciation by investing in small cap companies" or, more specifically, "This Fund seeks capital appreciation principally through the investment in common stock of companies with operating revenues of $250 million or less at the time of initial investment."

So what's the difference? Typically, small-cap companies offer more growth potential. If you get in at the right time (think early Microsoft, 1990s Apple), you can get a great investment return. But small-caps can be riskier than established large-caps. Only the strongest small companies survive. The risks increase as companies get smaller. Micro-, nano- and other tiny-capitalization investments could have serious potential, but unless you are a very agressive investor and can afford the loss, they shouldn't represent a huge part of your portfolio.

Large-cap companies move the market. They are the dominant players, produce consist returns over time, and may even return dividends to investors. They are also liquid companies, meaning it's easy to buy and sell their shares. There typically offer decent returns with less risk, and since they represent the larger market these companies should play a dominant role in your portfolio.

In between are mid-caps, which some investors think is a sweet spot where you can find companies with growth potential that act like value plays (more on growth vs value below).

Different-sized companies seem to perform differently, meaning when large caps are down, small move up. These are assets that are non-correlated, they don't move in the same way. Owning companies of each size helps to balance some of the risk of your portfolio.

2. Investing in company fundamentals: Growth Investing and Value Investing

Some investors use analysis of fundamentals to determine where a company is headed. Growth investors look for companies they think will increase earnings at least 15% to 25% a year on average, based on management, new products, competition, etc. Value investors look for companies that are selling cheap compared to intrinsic value or the value of tangible assets.

For many investors, the real win is a combination of growth and value. A good company with solid long-term prospects at a reasonable price. That's super investor Warren Buffett's way (he doesn't believe in the two separate strategies).

3. Investing with or without a manager: Active vs Passive

An actively managed fund is one with a manager or team of managers picking stocks in an attempt to beat the market. A passively managed fund, also known as an index fund, follows a set group of stocks to achieve its stated goals. Index funds perform like the index they follow, and because there is no one to pay the expenses are typically cheaper than actively managed funds.

Active managers can try to reduce risk when the markets are turbulent, but managers rarely beat the markets by enough to justify the extra expense of an actively managed fund. A recent study found that only 24% of actively managed funds beat their passive counterparts.

4. Investing in a market segment: Sector Investing

Some investors narrow their style to invest in a specific industry or sector, say technology, consumer goods or manufacturing. Sector funds are not diversified in and of themselves, but they can help balance out a portfolio that is heavily weighted in a certain sector because it contains a lot of company stock, for example.

A balanced portfolio can contain a combination of the fund styles mentioned above. It really depends on your personal tolerance for risk, your goals, and the types of investments available to you through your 401(k) or individual retirement account. You can use an asset allocation calculator (this one from Bankrate) to figure out what's right for you. (Some people are just as well off putting everything in an index fund, which is just a cheap way to own the entire market, or a target retirement fund, which does the asset allocation for you.) Choose based on what works for your own investment style.

http://retireplan.about.com/od/investingforretirement/tp/What-Is-Investing-Style.htm

Common Stocks and Uncommon Profits - 15 Investment Secrets to Help Make You Rich

The Legacy of One of the Greatest Investors of All Time

Philip Fisher (1907-2004) was one of the greatest investment minds in history. Working from a modest office on the West Coast in the aftermath of the Great Depression, he developed a buy-and-hold value and growth model for investments that has been considered on par with Benjamin Graham’s The Intelligent Investor by no less a giant as Warren Buffett. In addition to teaching at the Stanford School of Business, he authored several books including the watershed Common Stocks and Uncommon Profits. It was this text that introduced the now-famous “scuttlebutt” approach that encouraged investors to develop a deep understanding of his or her investments by thoroughly analyzing the financial statements, interviewing managers, competitors, employees, vendors, and customers.

Philip Fisher was extremely successful at selecting a core portfolio of seven or eight stocks with above average potential at attractive prices. According to Andrew Kilpatrick in Of Permanent Value, “Fisher always said to think of the long-term and have low turnover in your portfolio. Fisher bought Motorola in 1955, back when mobile telecom signified radio systems for police cars. In the Investment course McDonald [the long-time resident value investor at Stanford] took in 1956, Fisher talked about Motorola as a ‘great growth company’ when Motorola’s market capitalization was $300 million. As a long-term investor, Fisher still owned Motorola 43 years later when he died in 2004.”

Going on, he said, “Fisher told McDonald’s class in 2000, ‘I believe strongly in diversification,’ and by that he meant seven or eight stocks – a concentrated portfolio in today’s parlance. Importantly, Fisher himself did the lion’s share of the investment research on companies owned by the clients of Fisher & Company, so that he had a high level of knowledge and conviction on each of the seven or eight companies … ‘I do not believe in over-diversifying … My basic theory is to know a few companies and know them really well – and be sure your diversification is real diversification. Having Ford and General Motors is not diversification. Diversification means owning companies that do not sell into the same markets – companies with real differences.”

The Investment Secrets in Common Stocks and Uncommon Profits

In his book, Fisher laid out fifteen things that a successful investor should look for in his or her common stock investments. Here’s a rundown of what they are. (Do yourself a favor. Run out to your local store or navigate to your favorite online book retailer and pick up a copy of Common Stocks and Uncommon Profits – this basic summary of the book can’t possibly do justice to all of the excellent information in its pages.)

1. Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potential when the growth potential of currently attractive product lines have largely been exploited?
3. How effective are the company’s research and development efforts in relation to its size?
4. Does the company have an above-average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improveprofit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company’s cost analysis and accounting controls?
11. Are there other aspects of the business somewhat peculiar to the industry involved that will give the investor important clues as to how the company will be in relation to its competition?
12. Does the company have a short-range or long-range outlook in regard to profits?
13. In the foreseeable future, will the growth of the company require sufficient financing so that the large number of shares then outstanding will largely cancel existing shareholders’ benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well and “clam up” when troubles or disappointments occur?
15. Does the company have a management of unquestioned integrity?

Fisher also had five “don’t” rules for investors, which were:

1. Don’t buy into promotional companies
2. Don’t ignore a good stock just because it is traded over-the-counter
3. Don’t buy a stock just because you like the tone of its annual report.
4. Don’t assume that the high price at which a stock may be selling in relation to its earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price?

http://beginnersinvest.about.com/od/investorsmoneymanagers/a/philip_fisher.htm

Common Stocks and Uncommon Profits by Philip Fisher

Fisher has a fairly simple investment plan:  buy only outstanding companies and sell only when they are no longer outstanding.  Although many people try to time the market, this is the method that he has found will consistently return good results.  However, finding outstanding companies is a bit of a challenge and the book mostly concentrates on suggestions on how to find the good ones and avoid the bad.

Fisher discovered that his main method of discovering quality companies was through "scuttlebutt".  Detailed analysis of company financials simply cannot provide the necessary information;  one must talk to people who know the company.  These, of course, are quite varied individuals, from competitors to vendors and customers, and when used with caution, former employees.

After scuttlebutt clearly points to a promising company, then an evaluation can be made with a list of requirements.  The requirements did not seem much different that Graham and Dodd propounded in The Intelligent Investor, and certainly not nearly as elegantly as inGood to Great.  They are designed to answer the questions "is management good" and "is the company doing what it needs to in order to maintain and expand its market position".  The latter focuses largely on technology research, an area that Fischer feels is required for continued success.

The book concludes some advice to investors on what not to do, which can be fairly effectively summarized by saying "ignore what Wall Street thinks is important".

While no means a thorough treatment of investment, Fisher provides very practial guidelines to how the investor can realize consistently good profits.  Unfortunately, as a fund manager Fisher is able to talk to management of a company, a luxury not necessarily afforded to the individual investor and some of his points require this ability.  However, there is no way to be sure one's judgement is correct;  his guidelines merely significantly increase the probabilities, and if the individual investor must settle for slightly worse probabilities, following Fisher's methods should still produce significantly better than average results.

Summary

• Buy only high quality companies
• Find these companies by talking to competitors, customers, vendors, and if one factors in the inevitably strong bias, from former employees.  After scuttlebutt consistently suggests that the company is good, continue investigations.
• Fifteen points to look for.  Require fourteen, perhaps thirteen if the others are strong.

1. "Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?"
2. "Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?"
3. "How effective are the company's research and development efforts in relation to its size?"
4. "Does the company have an above-average sales organization?"
5. "Does the company have a worthwhile profit margin?"
6. "What is the company doing to maintain or improve profit margins?"
7. "Does the company have outstanding [superb] labor and personnel relations?"
8. "Does the company have outstanding [superb] executive relations?"
9. "Does the company have depth to its management?"  (i.e. more than just one or two people)
10. "How good are the company's cost analysis and accounting controls?"  (i.e. ability for detailed cost analysis)
11. "Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?"
12. "Does the company have a short-range or long-range outlook in regard to profits?"  (the latter is desirable)
13. "In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this accelerated growth?"  (An answer in the negative is desirable)
14. "Does management talk freely to investors about its affairs when things are going well but 'clam up' when troubles and disappointments occur?"
15. "Does the company have a management of unquestionable integrity?"

• We do not know enough to guess market trends.
• The best time to buy is when a superb company has just spent lots of money developing a new product and (inevitably) delays occur, causing investors to push down the prices.  This always happens with new products and if you can have confidents in the outcome, the stock is now selling at a discount.
• "If the job [selecting a company] has been correctly done when a common stock is purchased, the time to sell it is--almost never" (p. 91).
• "Perhaps the most peculiar aspect of this much-discussed subject of dividends is that those giving them the least consideration usually end up getting the best dividend return"  (The better stocks typically have a lower dividend, but the company grows faster than the stocks with the bigger dividend, so the end result is a larger total dividend, although it is a smaller percentage)
• Ed:  This is not quite the view of Graham and Dodd (The Intelligent Investor);  they claim that stocks with dividends generally increase faster than those without and virutally mandate consistent and increasing dividends.  However, Graham and Dodd lack a theory of how to pick great companies.  I think their view is that consistent and increasing dividends is a trait of companies likely to do well.
• Ten don'ts for investors:

1. "Don't buy into promotional companies"  (ie. IPOs)
2. "Don't ignore a good stock just because it is traded 'over the counter'"
3. "Don't buy a stock just because you like the 'tone' of its annual report"
4. "Don't assume that the high price at which a stock may be selling in relation to earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price"  (i.e.  the high P/E might be an indication that the company will continue to grow at those rates)
5. "Don't quibble over eighths and quarters"  (i.e. don't try to get get a stock for 50 cents cheaper;  it may never get there and you never buy an excellent stock)
6. "Don't overstress diversification"
7. "Don't be afraid of buying on a war scare"
8. "Don't forget your Gilbert and Sullivan"  (i.e. don't give too much weight to things that don't matter, like the price of the company four years ago, or the historical earnings.  What matters is the state of the company now.)
9. "Don't fail to consider time as well as price in buying a true growth stock"
10. "Don't follow the crowd"

http://www.physics.ohio-state.edu/~prewett/writings/BookReviews/CommonStocksAndUncommonProfits.html

Habits of Financially Successful People

Sometimes wealth comes to those who are lucky; they win the lottery or they decided to invest in Apple in 1981 when the share price was just $28.83. However, it’s far more likely their wealth came through good habits.

Wealthy people actually have a lot of the same traits and habits that enable them to persevere through difficult times and come out on top with millions (or billions) of dollars. It’s not a coincidence that the rich share these habits.

Of course, that doesn’t mean waking up early and reading more is guaranteed to make you a millionaire in 10, 20, or 30 years. However, there’s no denying the “rags to riches” story. Marketing firm NowSourcing reported that 68% of the Americans on Forbes’ Billionaires List are self-made billionaires—they didn’t inherit their fortunes.

Clearly the right habits can be a roadmap to success. Author Tom Corley interviewed 233 wealthy people and 128 poor people during a 5-year period. He found that the wealthy people had similar habits to one another and the poor people had similar habits, and there was a huge difference between the 2 groups.

The rich are definitely creatures of habit with 84% believing that good habits create opportunity and 76% believing that bad habits have a negative impact.

To-do lists
According to NowSourcing, 81% of wealthy maintain a to-do list and, more than that, they check off at least 70% of that list a day. In comparison, just 9% of people who struggle financially have a to-do list. Having goals and writing them down gives them a purpose, something to strive toward.

Don’t allow a list to overwhelm you, though. Financially successful people focus on accomplishing a specific goal at a time, and they make sure their daily actions are aligned with longer-term goals. While 80% of wealthy people focus on a specific goal, just 12% of poor people do the same.

In order to get through that list and actually accomplish what they want, successful people have learned how to manage their time effectively.


Wake up early
True, there isn’t an overwhelming majority of wealthy people who wake up early, but 44% of them get up 3-plus hours before work, which is far more than the 3% of poor people. In the hours before going to work, successful people focus on self improvement and reading educational material relating to their jobs.

Waking up early is also a common trait of the super wealthy. Many CEOs and business leaders are the type of people who wake up at 5 in the morning, read the paper, send out some emails, and fit in some time to exercise all before heading in to the office.

Keep healthy
Corley found that 70% of wealthy people ate less than 300 junk food calories each day. In comparison, 97% of poor people ate more than 300 junk food calories a day.

True, healthy foods aren’t cheap, but financially successful people try to eat healthy and stay fit because health issues can interfere with their ability to make money. Plus, staying healthy reduces medical expenses and lessens the strain on their finances.
 Three-quarters of successful people are said to exercise aerobically 4 days a week compared to 23% of people who struggle financially.

Read
Instead of relaxing in front of the TV, wealthy people gravitate toward books. Not only does 86% claim that they love to read, but 88% read at least 30 minutes each day and 63% listen to audiobooks during a commute.

According to Corley, the reading that wealthy people do is often for education or for career-related reasons. He also found that 76% read 2 or more education-related, self help-related books a month, which is something the poor don’t do.

Continue to learn
Related to their desire to read, wealthy people believe in the importance in continuing to learn throughout their lives. They put an emphasis on education, reading, and self-improvement and as a result wealthy people commonly adapt and evolve easily.

While 86% of successful people believe in lifelong educational self-improvement, just 5% of those who struggle financially agree.

Successful people stay successful because they aren’t afraid to change their minds or entertain other viewpoints. In their pursuit of knowledge, they allow what they learn to mold them. Continuous learning helps them develop new skills to keep them valuable to shareholders, clients, and consumers.

Surround themselves with other wealthy people
Wealthy people spend a lot of time around other successful people. In fact, 79% network 5 or more hours each month. They place importance on building relationships by returning phone calls, remembering personal information about the people they meet with, and, of course, networking regularly.

Successful people limit their exposure to negative people and naysayers and spend time with those who effect change and who will be a positive influence. They network to find people who can help them on their way to further success.

Even people who haven’t reached financial success should spend time with wealthy people. The best way to pick up their habits and traits is by keeping company with the people whose behaviors you want to emulate.
 

Do what is difficult
People with money work longer, harder, and smarter. They sacrifice today in order to reap the rewards further down the line. And they aren’t happy with the easy road. Instead, they usually make their money by finding the gaps in the market, by coming up with something no one else has before.

Furthermore, successful people are persistent. They don’t let failures keep them down, and, believe it or not, wealthy people usually have even more failures than most people. However, they learn from their mistakes. According to Inc.com, while financially successful people use their mistakes to help them succeed the next time, only 17% of the middle class can say the same.

Successful people realize that mistakes are inevitable. It’s how they react and move forward that sets them apart from the rest of us.


- See more at: http://www.hcplive.com/physicians-money-digest/personal-finance/lbj-habits-of-financially-successful-people/P-3#sthash.Lrjbptfu.dpuf

Aeon Credit Q4 earnings up 22.6% to RM47.82m

Wednesday April 16, 2014


KUALA LUMPUR: Aeon Credit Service (M) Bhd’s earnings rose 22.6% to RM47.82mil in the fourth quarter ended Feb 20, 2014 compared with RM39mil a year ago due to higher fee income, including from sales of insurance products, point management fee and higher recovery of bad debts.


It said on Wednesday its revenue rose 42.7% to RM187.99mil from RM131.68mil. Its earnings per share were 33.21 sen. It recommended a dividend of 24 sen per share.

In the financial year ended Feb 20, 2014, its earnings rose 30.7% to RM175.35mil from RM134.12mil in the previous corresponding period. Its revenue saw a 44% increase to RM672.76mil from RM467.13mil.


http://www.thestar.com.my/Business/Business-News/2014/04/16/Aeon-Credit-Q4-earnings-up-to-RM47pt82m/

A quality strategy - appreciating the future earning potentials of wonderful companies.

Though Warren Buffett popularized the idea of the moat, he credits partner Charlie Munger for bringing him around to the idea that "it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

A quality strategy is a bet that the market doesn't appreciate wonderful companies enough, particularly their earnings potential many years out. 

As Charlie Munger said, "If a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with one hell of a result." 

(Of course, it's not easy to identify in advance firms that can sustain such high rates of return for so long.)




http://news.morningstar.com/articlenet/article.aspx?id=643125&SR=Yahoo

Retailers Accounting 101 (A Conceptual Overview)

Investing in Retail:  Understanding the Cash Conversion Cycle (CCC)

One of the best ways to distinguish excellent retailers from average or below average ones is to look at their cash conversion cycles.

The CCC tells us how quickly a firm sells its goods (inventory), how fast it collects payments for the goods (receivables), and how long it can hold on to the goods itself before it has to pay suppliers (payables).

Naturally, a retailer wants to sell its products as fast as possible (high inventory turns), collect payments from customers as fast as possible (high receivables turns), but pay suppliers as slowly as possible (low payables turns).

The best case scenario for a retailer is to sell its goods and collect from customers before it even has to pay the supplier.

Wal-mart is one of the best in the business at this:  70% of its sales are rung up and paid for before the firm even pays its suppliers.


COMPONENTS OF CCC

INVENTORY TURNS
Looking at the components of a retailer's cash cycle tells us a great deal.

A retailer with increasing days in inventory (and decreasing inventory turns) is likely stocking its shelves with merchandise that is out of favour.

This leads to excess inventory, clearance sales, and usually declining sales and stock prices.


RECEIVABLES TURNS
Days in receivables is the least important part of the CCC for retailers because most stores either collect cash directly from customers at the time of the sale or sell off their credit card receivables to banks and other finance companies for a price.

Retailers don't really control this part of the cycle too much.

However, some stores, have brought attention to the receivables line because they've opted to offer customers credit and manage the receivables themselves.  

The credit card business is a profitable way to make a buck, but it is also very complicated, and it is a completely different business from retail.

Be wary of retailers that try to boost profits by taking on risk in their credit card business because it is generally not something they  are good at.


PAYABLES TURNS
If days in inventory and days in receivables illustrate how well a retailer interacts with customers, days payable outstanding shows how well a retailer negotiates with suppliers.

It is also a great gauge for the strength of a retailer.

Wide-moat retailers such as Wal-Mart, Home Depot, and Walgreen optimize credit terms with suppliers because they are one of the few (if not the only) games in town.

The fortunes of many consumer product firms depend on sales to Wal-Mart, so the king of retail has a huge advantage when ordering inventory:  It can push for low prices and extended payment terms.

Extending payment terms to their suppliers allow the retailers to hold on to its cash longer and to reduce short-term borrowing needs; effectively increasing the retailers' operating cash flows .



Additional Notes:
In retail and consumer services, most economic moats for the sector are extremely narrow, if they exist at all.

Therefore, not surprisingly, you don't find a ton of great long-term stock ideas in retail and consumer services.

The only way a retailer can earn a wide economic moat is by doing something that keeps consumers shopping at its stores rather than at competitors'.

It can do this by offering unique products or low prices.

Although you can do well buying high quality specialty and clothing retailers when the industry sees one of its periodic sell-offs, very few of these kinds of firms make great long-term holdings.

Asset Management Accounting 101 (A Conceptual Overview)

The single biggest metric to watch for any company in this industry is assets under management (AUM), the sum of all the money that customers have entrusted to the firm.

An asset manager derives its revenue as a percentage of assets under management, AUM is a good indication of how well -or how badly - a firm is doing.

Unlike a bank or insurer, where big losses can cause the firm to become insolvent, big losses in asset management portfolios are borne by customers.

Big losses will affect fee income by reducing AUM, but an asset manager could lose well over half the value of its assets under management and still remain in business.

In a worst-case scenario, customers could withdraw their remaining dollars and the firm could fold if its fee income became inadequate to support its operations.

But because asset management requires almost no capital investment, these companies can pare back to the bone to remain in business.



Additional notes:
Asset management firms run money for their customers and demand a small chunk of the assets as a fee in return.

This is lucrative work and requires very little capital investment.

The real assets of the firm are its investment managers, so typically compensation is the firm's main expense.

Even better, it doesn't take twice as many people to run twice as much money so economies of scale are excellent.

This means that increases in assets under management - and therefore, in advisory fees - will drop almost completely to the bottom line.

All this adds up to stellar operating margins, which are usually in the 30% to 40% range - something you won't see in many industries.

Property/Casualty Insurance Accounting (A Conceptual Overview)

Property/Casualty Insurance Accounting 101

INCOME STATEMENT

UNDERWRITING PROFIT/LOSS
Premium revenue is used to fund claim payments, sales commissions for insurance agents and operating expenses.

Insurers typically express each of these expenses as ratios to earned premiums.

Claim expenses, for example, typically consume 75% of an insurer's net revenues.

Adding together these three ratios produces the combined ratio.

Combined ratio is an insurance company's key underwriting profit measure.

A combined ratio under 100 indicates an underwriting profit.

For example, a combined ratio of 95 means that the insurer paid out 95% of its premium revenue for losses.  The 5% remaining is the underwriting profit.

A combined ratio exceeding 100 indicates an underwriting loss.

For example, an insurer with a combined ratio of 105 paid out 105% of its premium revenue to cover losses, meaning that it had an underwriting loss equal to 5% of revenues.

Companies with combined ratios exceeding 105 for more than a short time have a difficult time recouping their losses via investment earnings, and this type of poor underwriting track record suggests that an insurer's competitive position is unusually weak.

Insurers unable to earn even the occasional underwriting profit will produce the industry's poorest returns and may be tempted to accept large investment risks to boost profitability.


INVESTMENT INCOME
Insurers also make money from investment income, which they often report as a ratio of premiums.

Adding the investment ratio to the combined ratio yields the operating profit ratio.

In many instances, investment income is a key profit determinant because it offsets underwriting losses.



BALANCE SHEET.

ASSETS

INVESTMENTS
The key asset for most insurers is investments.

In addition to float, most insurers invest a large portion of their own retained earnings as well.

The investments account reveals the size of an insurer's investments relative to its asset base and details the asset allocation employed.

As a starting point, look for insurers with no more than 30 percent invested in equities (unless the company is run by Warren Buffett).


UNEARNED PREMIUMS
Unearned premiums represent premiums received but not yet considered revenue.

When an insurer receives a premium, it is deemed to earn it gradually across the year.

After all, if a customer cancels a policy, the insurer must refund that portion of the coverage not consumed.

After six months, an annual auto policy would be 50% earned, and half the premium would be considered revenue.

Before this occurs, the premiums are held in the unearned premium account, and the insurer is free to invest them.




WHAT DO YOU WISH FOR.

Look for an insurer who is able to consistently earn underwriting profits on a large, growing customer base.

In effect, this insurer would be getting paid to profit from investing other people's money and could retain this float indefinitely (as long as it grows).

Unfortunately, for investors, these situations rarely occur.



FLOAT

Insurers enjoy a peculiar business advantage.

Premiums are received well in advance of the firm's requirement to pay claims.

This money is often referred to as float.

An insurer enjoys the use of this money between the time it receives a premium and the time it has to pay a claim.

Insurers exploit this by investing these premiums and keeping the money they make from the investments.

How much money they can make this way depends on market performance, the insurer's asset allocation, and how long the insurer holds premiums before making claim payments.

Insurers writing long-tail insurance hold premiums longer and, hence, can invest more in equities.

(The length of an insurance policy's tail refers to the time it takes for damages to become apparent.
Short-tail policies are those where damages incurred during the insured period become known quickly, such as a car accident.
Long-tail policies cover damages that may not become apparent for many years, such as an asbestos injury_

The Magic Words - A Healthy Attitude

Today, Earl Nightingale is remembered as the greatest philosopher of his time, and his best selling programs and books continue to sell daily, inspiring people around the world to reach their highest potential.

Success is not a matter of luck or circumstance. It's not a matter of fate or the breaks you get or who you know. Success is a matter of sticking to a set of commonsense principles anyone can master. In Lead the Field Earl Nightingale explains these guidelines: the magic word in life is ATTITUDE. It determines your actions, as well as the actions of others. It tells the world what you expect from it. When you accept responsibility for your attitude, you accept responsibility for your entire life. Earl Nightingale -- the "Dean of Development" -- offers you a treasure trove of uplifting and insightful information like: * The importance of forgiveness * How "intelligent objectivity" can improve your professional life * The usefulness of constructive discontent Now it's your turn to bring positive changes to your own life, changes that will allow you to lead the field yourself!