Source: Barron's Chinese Author: Nicholas Jaskinski Evan Greenberg, CEO of Chubb Ltd, has a highly influential fan - Warren Buffet, CEO of Berkshire Hathaway. Berkshire Hathaway disclosed last month that it held 6% of the shares in Chubb, one of the world's largest insurance companies, by the end of 2023. Berkshire itself is a major participant in the insurance industry, but it is not the only buyer. In the past year, Chubb's stock return, including dividends, was about 40%, surpassing the S&P 500 index's total return of 25%, and making the company's market capitalization reach $110 billion. This increase in market capitalization reflects Chubb's outstanding performance, which is attributed to its prudent underwriting practices and conservative management of its investment portfolio of about $140 billion. The company's earnings per share increased by 48% in 2023 and its book value per share increased by 21%. Greenberg is the son of Maurice "Hank" Greenberg, the former CEO of American International Group (AIG). Greenberg worked at AIG for 25 years, rising through the ranks. He left the insurance company in 2000 and took over Ace Limited in 2004. The company merged with Chubb in 2016, the largest M&A in the property and casualty insurance industry at the time. Today, Chubb is the largest commercial insurance provider in the United States, and the company is also known for its high-end homeowner insurance for the wealthy. However, about half of the company's premiums last year came from outside the United States. Asia has always been a growth area where the company is bullish: Although Asia accounts for 40% of global GDP, the insurance industry accounts for only 26% of the global insurance market share. This gap is expected to narrow over time. Greenberg sits on the board of several nonprofits that focus on international and Asian affairs. Barron's recently interviewed Greenberg about his underwriting philosophy, the challenges of dealing with increasingly frequent climate disasters, and US-China relations. Following are the edited excerpts of the conversation.
Author: John Train

It is very rare to have the opportunity to personally contact investment masters, but John Train, the author of "Investment Masters," conducted in-depth interviews with 17 investment masters. These 17 investment masters include investment experts such as Warren Buffett, Philip Fisher, Benjamin Graham, and George Soros, as well as relatively low-profile investors such as Paul Cabot, Michael Steinhardt, and Ralph Wanger. Although there is no universal rule for investment, he still found some commonalities among these seventeen investment masters. This article is excerpted from Chapter 18 of the book, "Lessons from the Masters."

Is it possible to catch the market's trends up and down? Investment masters do not believe this is a feasible method. Whether it is Buffett, Cabot, Graham, Soros, Steinhardt or Danton, they will adjust the ratio of stocks and defensive assets according to the market valuation. However, Fisher, Lynch, Danton and Wanger believe that this strategy usually does not make money.

So there is no universal rule.

For traders, especially for traders who use leverage like Soros to trade derivatives, if they take bets in the wrong direction for a long time, they will eventually go bankrupt, so they have no choice but to stay agile to survive.

However, this approach is clearly wrong for a qualified stock investor. If an investor is convinced, after an extensive analysis of a company, that its stock will grow 5, 10, or 20 times in the next 20 years, despite occasional drops of one-third or more, he or she can and should boldly face the volatility, rather than trying to make extra gains from band operations.

Traders like Lynch or Steinhardt can profit from frequent trades, but long-term investors like Price or Fisher (from the core holding point of view, Buffett should also be classified as the Fisher school) will think you are likely to be clever, and will eventually be counterproductive. You seem to have smartly sold the stock for profit, waiting for the stock price to fall again to buy back, but often the stock price begins to rebound sharply to the sky-high level, and you can only sigh in frustration.

I found that most excellent stock analysts are not excellent market trend analysts, and vice versa. Like batters and pitchers in baseball, however, a bad market trend analyst can gain success through stock analysis. In fact, the best sign of identifying an undervalued overall market is to find many obviously undervalued stocks.

The most powerful reason for opposing timing is actually very simple: if you leave the market on the critical three to five days (the market's undervalued bottom), your investment returns will be ruined. The market often erupts from a big bottom or plunges from a top, leaving investors like zebras unable to react.

By the way, the number of people who believe in timing itself is a market indicator. In a bull market, no one considers timing, but at the bottom of a big drop, when people reflect their own losses in despair, timing really seems very attractive.

Here are some principles that are favored by excellent investors:

1.Only buy good companies that you know enough about.

Stocks are not just a piece of paper. You cannot expect the stock price to soar from $50 to $100 like a bird. It represents a small part of a company with certain business characteristics, just like owning a small part of a house.

Assuming you bought a property for a week's ownership, the stupidest way to spend this time is to call the real estate agent every one or two hours and be anxious because of what he said. The wise thing is to have an appraiser check out the house, figure out how much it will cost to repair and improve the house, and maybe even compare the value of similar properties nearby and even elsewhere. You will want to talk with neighbors to understand what possible changes may be coming up in the zoning, and then visit nearby schools, mayors, police, and banks. Only by taking these actions will this week's time not be wasted, and your chances of making wise decisions will be much greater than those who sit at home and only know how to argue with the real estate agent.

So it is ridiculous for investors to buy stocks without fully understanding the true value of the company, whether the management is competent, whether the research and development is effective, whether the machinery can keep pace with the times, whether the company's operations are prosperous or struggling, etc., all of which are Highly related to the company's competitiveness.

However, in fact, few investors really understand the companies they hold, which is indeed ridiculous. After buying stocks, they will pay attention to the stock price in the newspaper rather than the annual report. They usually don't even bother to learn whether the broker who sells them the stock really understands the company's business, not just the surface, but in fact, these brokers often know very little as well.

Therefore, buying stocks without fully understanding the true value of the company is absurd. The most important part of investing in stocks is researching the underlying companies before buying their stocks. You cannot rely on others' opinions or hope that the stock price will go up due to temporary factors or hype. Only by fully understanding and analyzing the underlying companies, investors can make sound investment decisions. After buying stocks, investors should focus on the company's performance and prospects, rather than the short-term fluctuations in the stock price caused by market volatility.

A good investor has a specific and detailed understanding of the companies he is interested in, knows the value of the entire company, and therefore knows how much a one percent or one thousandth of a share of the company should be worth.

2. Try to buy stocks when no one is interested in them, especially during times of crisis.

One effective way to avoid rushing to bid when buying is to have enough knowledge and courage to buy something of value when there is no interest. Another approach is to have a knowledge of a particular type of company such that nobody can surpass you.

3. Be patient and do not be scared by fluctuations.

Stock prices fluctuate up and down just like the weather. What needs to be especially noted is that you should not sell just because a stock falls below your cost price or just because it has turned a profit. Your cost is just an accident. Stocks are not human, they do not know your cost, they are not trying to disappoint you, and stock prices do not affect a company's prospects. Remember to focus on business, not stock market trends.

4. Don't guess blindly.

The cost of a series of half-hearted and ambiguous speculations is astonishingly high, which does not only refer to actual costs (commissions, the difference between buying and selling prices, and the cost of buying low and selling high), but perhaps even more so in terms of opportunity cost. For example, taking chances on the opportunity for an ordinary heavy industry company with weak intrinsic growth to rebound from the bottom is doable for financial institutions that have a systematic study of all industries and understand their values, but for individual investors, even if they do not have a real investment, just thinking about these things will make them give up buying an excellent company, and that's exactly the best investment most of us can hope for. Only buy stocks that you would be willing to hold even if the stock market was closed for ten years. Buffet is obviously very wise about this.

5. High dividends may be a trap.

The most suitable companies for investment are those that can bring a capital return rate of 15%, 20%, or even higher. Leave your money with the company and let it continue to grow at this rate, rather than take it back as dividends. This not only requires taxes, but the money will likely be invested in bonds or other assets that have much lower actual return rates. Furthermore, many high dividend companies are Ponzi schemes. If the speed at which a company's long-term debt increases is faster than the speed at which it pays dividends, it is like running on a deadly treadmill. Stopping will eventually happen, and the stock price will suffer.

In addition, many high dividend companies are Ponzi schemes. If the speed at which a company's long-term debt increases is faster than the speed at which it pays dividends, it is like running on a deadly treadmill. Stopping will eventually happen, and the stock price will suffer.

6. Only buy stocks that are cheap, or those with fast-growing, high-certainty stocks, so that they will soon appear to be worth their purchase price.

Of course, sometimes you can have both. For example, you buy an excellent bank stock at two-thirds of its book value per share, and you can be sure that the value of the stock will grow at a rate of 15% per annum through dividends reinvestment, and it will pay reasonable dividends. Then your investment will be smooth sailing. Someday, the market's offer will be much higher than when you bought it. Of course, the dividend should also double every five years or so, so no matter how the stock market is, you won't run into trouble. This sounds simple, and it's not much more complicated or difficult. What you need to do is not to aim too high, but to do the trading you understand.

7. Do not buy stocks if they do not appear cheap overall.

You should know that the arrival of the next bear market is unlikely to exceed two or three years.

8. Be flexible.

As old principles become overused, they will inevitably be replaced by new principles, which may not necessarily be completely new. This is a basic secret of investment masters, and why the opening of this book uses the phrase 'times are changing, and we change with them.'

Editor/rice