Welcome back, fam! We in this!
OK in looking at the MFA portfolio as a whole, one sector that is conspicuously missing is quote-unquote “financials,” which is a category that covers a lot of ground. It could include any of the below, such as
Landmark Bancorp, a tiny regional bank that only has branches in Kansas and lends money to, I would imagine, farmers and small-town folk
Banco Santander, a massive international bank that lends money to God knows who for God knows what
Adyen, a newfangled payments platform beloved by the investing maniacs
Western Union, an old-timey payments platform hated by the investing maniacs
Robinhood, a brokerage platform hated (or at least hugely distrusted) by moi
Fannie Mae, Goldman Sachs, Wells Fargo, Deutsche Bank, Prudential, Nasdaq, Aflac, American Express, Lending Tree, Moody’s, BlackRock, PayPal, SoFi, etc. etc. etc. etc. — you get the point. There’s a hell of a lot of publicly-traded financial companies. Where to begin?
To start, I don’t love investing in banks. I do own shares in several, and I could explain which ones and why, but as a category they tend to trouble me, for three primary reasons:
The history of redlining in this country is well-documented. It started from the federal government and flowed down to banks from there, but what the hell. I don’t want to own a piece of that history.
JP Morgan Chase is the #1 lender to the fossil-fuel industry. The other big U.S. retail and investment banks are key players here too. I don’t want to own a piece of those profits.
It’s, um, not an accident that every world religion has had injunctions against usury. I don’t want to be a usurious bastard.
Meanwhile, like those in every other sector, individual financial companies are capable of wild swings as a result of external factors that may not have any bearing on them. When Silicon Valley Bank imploded in 2023, for example, it pulled down everything in the financial sector with it. How a run on a lender to tech startups jeopardizes a tiny lender to Kansas farmers, I don’t know. That’s how all this nonsense works. I’ve said it before (quoting William Goldman on Hollywood) and I’ll say it again: nobody knows anything.
So—beating ye olde deadde horse here—you cultivate rational detachment, keep putting your hard-earned regular-person dollars into sane, simple, understandable things, and trust that in 15 or 20 years, failing a lasting and true global financial meltdown the likes of which ordinary UnitedStateseans have not experienced in a century, you will have made a more-ethical nest egg by steadily investing cash even through volatility.
Anyway, point being, I like insurance better than banks:
I like having life insurance on myself for my family. The sales pitch on life insurance—“Sleep well at night knowing your family is provided for in the event of your untimely demise!”—fam, that’s meaningful to me. I am almost the exact same age today as my mother was when she died. I have four, count ’em, four children. I need to know that if I die before they are grown, there’s some financial cushion in place for my BAAW to help provide for them.
When a driver hit our SadVan a few months ago (everyone was fine) I appreciated that the guy’s insurance paid for SadVan’s repair and paid the bulk of the rental fees for a sweeeeet VW Passat while SadVan was in the shop.
I hated paying the damn PMI on our first house. Hated it. Felt bitter. But I guess there’s a case for mortgage insurance when you’re putting down such a small down payment. I can see it from the lender’s side. Whatever.
Financial advisors who are actually fiduciaries (i.e., have a code of ethics that requires them to put the client first) tend to be big on annuities as a source of steady income for old people who can afford them. That seems legit to me.
(Medical insurance is of course a much thornier issue. A while back I held very small shares of United Healthcare and Cigna until I read more about them and realized they are, to my mind, part of Big Sleaze and so I sold out of them. If healthcare is A HUMAN FREAKING RIGHT, then I am not about to try to retire on the backs of the millions of people who can’t afford coverage, who are in medical bankruptcy, who have to choose between eating dinner and buying their pills, who go to the ER for their aches and pains because the ER is mandated to take them but the actual *physician* is not, et cetera et cetera ad nauseam.)
(PSA part 9,000: If you are buying the index, you are buying UHC and CI along with your Exxon and your Lockheed Martin, homie.)
All told, seems like a number of forms of insurance—life insurance, property and casualty insurance, maybe even mortgage insurance—have a place in a healthy economy for human beings.
Insurance is capable of wild swings, like *every other sector of the market*. Property insurance companies that insure places hit by natural disasters, or life insurance companies in a pandemic, could all get crushed at times. (And that’s not to speak of the obvious fact that climate change is a creeping catastrophe for insurance markets, homeowners, and, uh, planet earth.)
But it also seems like there is some pretty resilient and durable quality to insurance. Even in a recession, my mortgage payment is going to require property insurance. I'm going to keep paying the premium on my life insurance policy.
(Reminder: Insurance companies make money with “float”—i.e., my life insurance company takes my premiums, invests that money, and then pay me only if and when I die within my 30-year term.1 I don't have the time to research where a life insurance company is investing the float, and whether or not it's something sleazy. I’m going to permit myself to like insurance companies as long-term investments.)
Some of the investing maniacs steer clear of insurance because it’s a commodity business—like oil, or wheat, or gravel, or orange juice futures, or currency, the stuff is just the stuff. People aren’t trading around high-quality gravel vs. low-quality gravel. Morgan Stanley’s dollars are identical to Goldman Sachs’s dollars. Ditto insurance. According to this line of thinking, it’s a bad business to be in because the business becomes simply a race to the bottom in pricing. Instead, the argument goes, you’d rather be in the business of selling, say, fancy yoga pants, or Ferraris, or mission-critical software—anything where you have pricing power.
Fair enough. But my goal is not to make the most money possible; if it was, I’d be investing in all sorts of sleaze. I’m not looking for the sexiest thing; I’m looking for things that don’t make me hate myself which are also durable and reasonably intelligent fiscal investments.
(It also happens that you make good money buying simple and predictable things over the long term. I’m not looking to lose my retirement money here, you know? I invested in shares of two European insurance companies a little while back when they were dirt-cheap and they have slain: Munich Re was at $23/share when I bought it; it’s at $50/share today. AXA was at $21; it’s at $33 today. I’ll just sit on these until retirement. I don’t want to buy more at these prices, but if they ever plummet near to those lows, I’ll get more.)
One insurance company that I have owned now for a year and a half operates in kind of an obscure specialty niche, which we can get into below for paid subscribers.
Thanks for reading,
Nico
Keep reading with a 7-day free trial
Subscribe to Money for Artists to keep reading this post and get 7 days of free access to the full post archives.