Time to Invest in Warren Buffett’s Best Kept Secret
We’re fortunate to live in a time with some of the best wealth-building opportunities in the history of the world.
And building wealth is the whole point. Why else invest?
Many of these massive opportunities come in companies that are reshaping our world – like AI darlings, tech innovators, cybersecurity stalwarts, robots, and other life-changing juggernauts.
But the road to riches is also paved with what I sometimes call Stable Mabels. Every investor needs some of those in their portfolios, too.
They’re not always the most exciting companies that will score you the most points at your neighbor’s backyard barbecue, but the returns over time can definitely be worth bragging about.
What’s more, I consider one of these “boring” industries the real secret to Warren Buffett’s legendary wealth.
Maybe that sparks your interest.
I’m talking about insurance, which is not only kind of dull but downright annoying because the premiums are nonstop. It’s great when you need it, but seems like a waste of money when you don’t.
But when you peel back the paint-drying boredom of an insurance company… when you really delve into how it works and its incredible wealth-building properties… you may just want to invest in one now.
We just did. And just see what it’s done for the Oracle of Omaha.
There’s Nothing Boring About Big Profits
Conventional wisdom says Warren Buffett is one of the most successful stock pickers of all time. And sure, there’s a ton of truth in that. But there’s more to it.
His stock-picking prowess is only part of the reason he got so rich. The main reason has to do with insurance.
I’m sure you’ve heard his famous quip: Be fearful when others are greedy, and greedy when others are fearful.
That’s great advice. You can invest in great companies for pennies on the dollar when everybody else is selling. We know that Buffett’s favorite time to buy quality companies is when stocks nosedive and all hope seems lost.
But what if you’re fully invested, as so many people are?
Whether our money is in self-directed accounts or 401(k) plans that put our payroll deductions to work every month, many of us have little to no cash to invest when the time is right. So how can you buy a bunch of stocks when everyone else is fearful?
This is Warren Buffett’s best kept secret…
The magic of the float. That’s the term for the amount of money an insurance company has on hand that hasn’t been paid out to settle claims.
As we all know, most policies don’t pay out. We pay the premiums every month on the small chance we’ll need the coverage, and we rarely do.
Insurance companies make gobs of money that way. That mountain of cash piling up is the float.
You can bet those companies aren’t going to just stick it in a safe somewhere. They invest it. In fact, many insurance companies are required by charter to invest the float to outpace the ravages of inflation.
An open spigot of cash flowing in means you always have cash to invest. I can’t think of a better source of investable dollars than insurance premiums relentlessly pouring in from policyholders.
Warren Buffett understood this extraordinarily well. As you probably know, he began loading up on Geico shares back in the 1960s, and eventually just bought the whole company.
Geico is now part of Buffett’s Berkshire Hathaway holding company, giving him and the firm plenty of ammo to buy stocks when they get stupidly cheap.
The best insurance companies produce the biggest floats by selling a bunch of policies and managing risk to minimize claims and payouts.
(Believe it or not, the story of data-driven risk management is also surprisingly interesting – at least to a nerd like me – and I just shared a quick summary of it with my TradeSmith Investment Report readers to help them fully understand the opportunity.)
Today’s risk management uses concepts created hundreds of years ago, but it’s now better, faster, and more accurate with more sophisticated analysis and technology.
Bottom line: A well-managed insurance business can make a terrific investment. And that’s never boring.
Investing in this Proven Gateway to Wealth
The company I just recommended to my TradeSmith Investment Report subscribers is one such well-managed insurance business. It writes insurance, reinsurance, and mortgage insurance around the world.
It’s also the highest-ranked insurance company in my Quantum Edge system. And in an industry that can sometimes be unpredictable, this company has consistently produced some of the best risk-adjusted returns over the past 20 years. It also has one of the lowest volatility readings among its peers.
Growth is stellar. Earnings have soared 570% since 2018. See why Warren Buffett loves the insurance industry?
That has helped drive this company’s excellent Quantum Score of 75.9, with the data pointing to more profits in the future.
Source: TradeSmith Finance and MAPsignals.com
That strong Fundamental Score of 70.8 is powered by the excellent earnings along with strong sales growth, a healthy profit margin, and little debt.
Shares have zoomed 40% over the last 12 months, with most of that coming here in 2024 as they rallied from the low $70s to $100 just since late December.
And on top of strong fundamentals and technicals, I need to see evidence that the biggest investors on the planet – whose money truly moves stocks – are buying. This stock easily meets that requirement. My system picked up 19 Big Money buy signals (green bars below) over the past 12 months – including three just in May.
Source: MAPsignals.com
This strong company also appeared on my system’s elite Top 20 list in May. These are the absolute best of the best – the highest-quality companies showing the largest Big Money inflows at that time.
Maybe insurance isn’t the most exciting subject in the world, but the business gets a lot more interesting when you talk about producing cash and generating wealth. And this month, we added the best of the best to our TradeSmith Investment Report portfolio.
Consider adding a few of these high-growth “Stable Mables” with incredible wealth-building properties to your portfolio as well. And if you like, there’s still time to get in on my newest recommendation. Click here to learn more.
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends