Growing Rich - Arabictrader.com

KIRK KAZANJIAN
people and bet on them, but try not to pay an unreasonably high
price. It’s just like buying a house. You look for a good location and
then try to strike a good deal. Who needs to be a CFA to buy a house?
I like to always keep this house mentality at the forefront of my
thinking. As a matter of fact, the only thing I own, besides stocks, is
homes.”
THE ATTRACTION OF INSURANCE STOCKS
Financial companies have been attractive to Davis for years. Owning
them is one reason his funds performed so well during the 1990s. “A
good financial company to me is an outstanding investment because
you aren’t paying a lot for it in relation to most of the industrials,”
he maintains. “A financial company can compound assets and earnings
because its product is one that allows it to make a spread on
money. It takes in money from customers, be it banks, insurance
companies, or brokerage firms, then invests or manages it on the
other side and makes a spread in between. Money doesn’t become
obsolete. Everybody needs it, and making a spread on money is the
second-oldest business in the world. Money grows with the economies
of the world and compounds itself. We view financial companies as
‘growth stocks in disguise’ because of their potential for growth and
relatively low price/earnings multiples. These companies are beneficiaries
of two long-term trends: the aging of America’s baby boomers
and the expansion of financial services around the world.”
Like his dad, Davis is especially enamored of insurance companies
in the financial sector. The ultimate modern-day insurance company
CEO, in his opinion, is none other than fellow growth stock investor
Warren Buffett. “He owns several great insurance companies, including
Geico,” Davis notes. “Operationally, they underwrite at a profit. Then
he takes that extra cash flow and invests it. Because Buffett is so
overcapitalized, he can invest most of it in equities and in equity-type
investments, whereas most insurance companies stick with fixedcoupon
instruments or have only part of their free cash flow in stocks.
“I also like the compounding effect you get from investment income
in the insurance business in general, especially with companies that
underwrite well,” Davis adds. “Those that have underwritten at more
or less break-even or at a profit have free cash flow that can be put
to work in other income-producing instruments. Think about it. When
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