Growing Rich - Arabictrader.com

GROWING RICH WITH GROWTH STOCKS
yet,” Davis points out. “If you’re writing life insurance policies, you
don’t know when somebody’s going to die. You have actuary tables,
but you could get adverse selection. When it comes to property-casualty
claims, you often don’t know about the claim when you’re settling
your books. Even if an auto accident takes place, or a home burns
down, chances are it won’t show up in your books, even though it
happened in the current quarter. It can sometimes take weeks for this
information to get to you.”
But, for the most part, these types of claims are peanuts. The real
threats to insurers are the unknown liabilities you never planned on
or anticipated. One chilling example of this is the liability exposure
many companies began to face in the 1980s after it was learned that
asbestos could cause cancer. “Asbestos was a legal product being sold
and promoted by the government,” Davis says. “It was used as insulation
in submarines and warships, and the government told us to
use it on pipes in our homes. Fifty years later, they find out asbestos
dust causes lung diseases such as cancer and emphysema. Lawyers
began to claim the asbestos companies were liable, even though they
were producing a fully legal product. Nobody could have anticipated
this. One asbestos manufacturer, Johns Manville, which was a blue
chip in good standing and formerly one of 30 stocks in the Dow Jones
Industrial Average, went bankrupt over this.”
This same reasoning once led Davis to believe that tobacco giant
Philip Morris would go bankrupt. He figured if it happened to Johns
Manville, it could certainly happen to Big Mo. “I figured if it lost a
couple of the smoking cases, it would have a giant class-action lawsuit
on its hands with millions of people suing for trillions of dollars,” he
explains. “To settle that kind of claim, the company would have to
go bankrupt and declare Chapter 11.” Interestingly enough, it appears
that a final settlement being worked out with states across the country
will actually reduce, if not eliminate, this risk.
Incidentally, Roy Papp categorically avoids tobacco stocks to this
day. At first it was a personal thing. He smoked a pipe for years before
quitting in 1981. His wife is also a former smoker, though she kicked
the habit almost two decades before he did. Realizing his clients
weren’t paying him to be judgmental, Papp eventually bought Philip
Morris in the late 1980s, though now he won’t touch it. His reasoning
is that the tobacco companies still face too much potential political
and legal exposure, even with the settlement.
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