Time was running out.
music selection: “Airplanes, Part II” — B.o.B
A deadline was approaching. Interactive Brokers is no longer going to allow partnerships in tax advantaged accounts as of the 30th meaning I had to exit my UVXY put trade there early. I still have 10 strikes in my taxable account that I’m going to hold a little longer.
On 1NOV2017, I purchased 28 contracts of UVXY190118P00010000 for 5.60 a share. It is somewhat disappointing but I was only able to get 5.65 a share for the same contract today. The trade was in force for 28 days and yields 11.64% annualized.
Since I am unable to roll the position forward into more UVXY puts, I have chosen to buy insurance companies with the proceeds. I’ve written before about insurance being arguably the best business in America. When a company is underwriting profitability and investing its float, they essentially are investing on margin with a negative interest rate. Even when investing very conservatively, the companies can compound wealth at an enormous rate for decades.
First up is Arch Capital (ACGL). This is a property and casualty insurer with a 10 year average combined ratio of 91. A combined ratio under 100 denotes profitable underwriting. Their ten year growth in book value per share comes to 527% which gives a glimpse into the kind of wealth compounding I expect in the future from them. Shares are trading for approximately 1.54 times net book value. This is a good price for a company with strong growth in book value per share.
My other insurance buy today is HCI Group (HCI). I’m excited about the enormously strong 10 year average underwriting performance here with a combined ratio of 75. That is outstanding. The company grows book value per share even faster than ACGL with a 10 year return of 839%. Despite being a much stronger performer than Arch Capital, HCI trades for a small premium at 1.61 times net book value. HCI also yields 4.63% through its quarterly distribution. Importantly, HCI is a small insurer that should be an attractive buy out target by larger firms looking to add market share that comes with strong underwriting discipline. This one could yield a quick homerun.
In other news, I want to point readers towards a resource produced by Joshua at Finance Footing. If you are interested in the Oil and Gas sector (which is HOT right now), he details 51 O&G ETF and ETNs at http://financefooting.com/crude-oil-etfs-etns/ He includes a link to a free resource that analyses the performance of these 51 tickers and finds they are not all created equal. Some are total dogs while others are rockstar performers. This resource could give you and edge if you are looking for exposure to Oil and Gas.
Devour your prey raptors!