Good post, Smithyex50. I'm like you: I've been buying QBE on the...

Good post, Smithyex50. I'm like you: I've been buying QBE on the dips and taking part profits on the upswings all year. I'm starting to think of QBE as "old reliable" - it never seems to stop going up, and down, up and down.

Yep, sure, today's drop was a bit of a nasty surprise, but there was only one sensible thing to do - double up while the stock is cheap. A shame I didn't get in faster, but QBE at $11.30 was still a nice buy. I'm just annoyed I didn't get twice as many!

I have a rule with trading stocks: never buy anything you wouldn't be happy to hold in at least the medium-term. Then, if you pick the short-term direction of the market wrong, it doesn't matter: just hold and watch the price recover.

QBE is a great example. The company has excellent fundamentals and remains (even before today) very attractively priced with limited downside and plenty of upside. People who say insurance is just gambling don't understand how the business works: an insurance company is nothing like a sailor (drunk or sober!), insurance companies sit on the other side of the gambling transaction and, just like bookies and tote boards and casinos, seldom lose money for more than a short while unless the management is very poor.

The key issues for QBE are (1) digesting and streamlining their many recent aquisitions, (2) getting better investment returns, and (3) charging appropriately for risk.

For (1) we just have to wait and see how the management goes. I don't think the ordinary investor has a hope of second-guessing this.

For (2), the outlook is poor. QBE has always been very conservative with its cash, and only invests in very safe bonds, which in today's international very low interest environment means a sub-zero real return. There is nothing to be done about this: like all big insurance companies, QBE is obliged to hold large amounts of cash and near-cash in the countries it does business in. Until the US and European bond markets start paying decent interest again, low and sub-zero real investment returns are just a fact of life for all insurance companies.

For (3, we have already seen a very substantial rise in insurance premiums around the world as climate change kicks in and catastrophic weather events become more common, but it looks now as though there will be further big premium rises ove the next year or so. All the insurance companies are doing this (they have no choice if they want to stay solvent!) and QBE has already demonstrated this year that it has the discipline to walk away from markets where the going rate is still, in QBE's view, too low to provide a decent safe margin. That is reassuring.

One last thing to note about insurance is the response to premium increases. With most products, a price rise prompts customers to go without and demand drops strongly. But where natural disasters like flood and fire cause insurance premiums to rise, people will generally just pay the extra 'cause they are very aware of the risks. Climate change, in other words, is no disaster for the insurance industry. Yep, prices have gone up and will go up more still, but the need for disaster insurance is more pressing than ever.

I'm looking to hold into the new year and perhaps sell around half my holding for something close to $14. Next time the price does another dive, I'll buy again. I love QBE when it goes up, and I love QBE when it goes down!