Question: I have to ask for your view on the following comment in a recent report by Paul Rickard – “I don’t like insurance as an industry”. How does this square with a certain Warren Buffet’s well-publicised affection for this industry?
Answer (By Paul Rickard): I don’t in any way dare put myself up against Warren Buffet. Let me point out a couple of differences:
1. He is an investor, who either takes a material position in the company, or gets involved in managing the company – I am a tiny, insignificant investor with no influence on the management; and
2. I am not sure the US insurance industry is like the Australian industry.
My experience of the Australian general insurance industry is broadly the following cycle:
Catastrophe – Premiums rise – New players enter – Competition drives premiums down below economic value – Catastrophe
Even with re-insurance (all sourced internationally), not a particularly attractive business cycle.
Where are the local success stories?
Question 2: One of the stocks you recommend puzzles me: Orora (ORA). It seems like a very recently-listed company, no history of dividends, but doing well in the current downturn. Can you tell me more about why you recommend it? Also how do you like Fortescue? I bought some a while back because the Switzer guests say go for cyclicals. So far it has been a bit disappointing.
Answer 2 (By Paul Rickard): In regards to Fortescue, it is a pure play iron ore exposure. I have no issues with the company (Charlie Aitken is a huge fan). I just feel BHP provides a more diversified exposure and is lower risk than Fortescue.
With Orora, it is a spin out from Amcor. While it is a new company, it is not a new business – it is essentially the old Amcor’s beverage and fibre packaging business. Very detailed information was published with the demerger and Greg Fraser wrote about it some detail for the Switzer Super Report in November.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
Also in Switzer Super Report:
- James Dunn: Three must-haves in the consumer discretionary jungle
- Fundie’s favourite: REA Group – a good little earner for your fund
- Ron Bewley: Orora the one to watch in a mediocre bunch
- Penny Pryor: Short ‘n’ sweet – going global
- Penny Pryor: Buy, Sell, Hold – what the brokers say
- Tony Negline: What you can and can’t do with SMSF real estate assets
