Friday, March 14, 2014

Warren Buffet's Company Downscales It Reinsurance Business

Warren Buffet is one of America's most successful investors.  His company owns one of the largest reinsurance companies in the world.  Reinsurance firms sell insurance to insurance companies which need to protect themselves against catastrophic loss.  For example, an insurance company that sells homeowners insurance may want to protect itself against widespread loss from a natural disaster.  It will protect itself by purchasing a policy from a reinsurance firm.  One of the reasons that Warren Buffet has reduced his exposure to catastrophic loss in the US is that he expects catastrophic losses from natural disasters to increase in the US.  He has discussed this concern on a number of occasions.  His other concern, is that low interest rates do not enable him to hold safe assets, like US bonds, that would enable his firm to pay for catastrophic losses that it might incur.

Warren Buffet is also a long term investor in the stock market.  He does so because he believes that the firms in which he invests will increase profits over the long term.  Unlike most investors, he is less concerned about short term fluctuations in stock prices.  He only sells a stock when he believes that it has become overpriced, or when he has lost confidence in the long term prospects for the firm.  That is one of the reasons why he is one of America's most successful investors.  He should be a model for most investors. 

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