Quote:
Originally Posted by dippin
For an entire industry to be able to provide significantly higher than average returns over a decade there needs to be an explanation..
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I'll give it a shot.
Health insurance is a mature and stable industry with largely long-term positive growth trends. On a large scale the industry is not going to be subject to short-term economic trends. The stock price over time will reflect the industry stability. Generally, the industry is able to pass increased cost on to consumers and maintain consistent profit margins. The industry is not glamorous it is not high growth. Stock prices generally do not get over-valued, the biggest issue is that they get undervalued. When the stock prices are undervalued, then you will see a period of adjustment. Stock prices tend to be low beta, but they are consistent. On the other hand we have high volatility in many other industries, or high beta industries. You will have periods when health care stocks under perform relative to high beta stocks, generally when people are seeking high growth and are chasing past performance. And you will have periods when people will flock to the security of slow but predictable companies like heath care insurance companies.
In most cases health care insurance companies were not connected with investment banking activities like some other insurance companies, like AIG. Since the health care companies did not have these investment banking components making risky investments their earnings were not impacted.
If Obama's health care plan passes you will see health care company stocks drop like a meteor falling from orbit, because they will be forced into bankruptcy in time.