Fidelity National (NYSE: FNF)
And - why government needs to keep the public from buying stock in public companies....observations on financial journalism.
1 – Fidelity National
I like the title insurance business. Title insurance companies leverage massive amounts of land title data.[1] Data aggregation make the large title companies more efficient and creates big, difficult to replicate, competitive advantages.
There are two big players. First American (NYSE: FAF) and Fidelity National (NYSE: FNF).
I bought FNF last week for $50 a share. It’s cheaper now.
Fidelity reports earnings on 2/23 but FAF, Fidelity’s largest competitor, reported earnings on Tuesday.
There are a few things in the FAF earnings call that apply to both FAF and FNF.
“We announced an agreement to acquire Mother Lode Holding Company, a title company with 92 offices across 11 states, including the key markets of California, Texas and Arizona….”
There are 4,500 title companies in the United States[2]. Buying small competitors and absorbing them is a core competency of the large title companies. There’s a lot of room for both FAF and FNF to continue to expand through acquisition.
As mortgage rates rise, fewer people refinance their mortgages. No refinance; no new Title Insurance policy.
Revenue at First American and Fidelity National typically declines as mortgage rates rise. That seems to be holding true in this cycle:
“Refinance revenue declined 46% relative to last year due to the increase in mortgage rates…”
But offsetting that, somewhat, is the rise in investment income as interest rates rise:
“If the Federal Reserve raises rate, we expect to generate additional investment income from our escrow deposits, cash balances, 1031 Exchange deposits, and our bank investment portfolio where we have over $1 billion of floating rate securities. We estimate based on current deposit balances that a 25-basis point increase in the federal funds rate will equate to a $15 million to $20 million increase to our annualized investment income
FAF has dropped $4 a share and FNF $1 a share since I bought them. I still like both businesses.
2 – Talk is cheap and this newsletter is even cheaper.
I buy stock with real money and track how the WSP portfolio is doing. Here it is at the close of business on Friday
I aim to do three things with my WSP newsletter:
1) Earn money in the stock market:
SO FAR SO GOOD
2) Build a portfolio that will, in the long run, out-perform the S&P 500:
SO FAR SO GOOD!
3) Write something people enjoy reading:
NEEDS IMPROVEMENT.
3 – Weed
I just noticed I started this portfolio on 4/20 (2020). Which reminds me. Of something. What was that? Oh yeah, weed. Next week I’ll write a little bit about my favorite Cannabis company. Not a value stock but one I’m definitely high on. It’s on a real roll.
4 – Inflation
2/20/2022 - Newsflash from CNBC:
“Inflation surges 7.5% on an annual basis, even more than expected”
https://www.cnbc.com/2022/02/10/january-2022-cpi-inflation-rises-7point5percent-over-the-past-year-even-more-than-expected.html
1/2/ 2022 The Weekly Stock Pick
“Money supply × velocity of money = price level × real GDP.
38% +(-18%) = Inflation rate +8.4%
20% = Inflation rate + 8.4%
20% - 8.4% = Inflation rate
Inflation rate = 11.6% in the year and a half; so, 11.6%/1.5 years = 7.7% annualized?
That’s right, you read it here first.
5 – Financial Journalism
“If you don't read the newspaper, you're uninformed. If you read the newspaper, you're mis-informed.”
I don’t know if Mark Twain really said that. But I read the financial press and, I have to tell you, whoever said that was on to something.
Here’s two things that caught my eye this week.
First, In Bloomberg Allison Schrager argued the case that:
“Stock Picking Shouldn't Be Allowed for Everyone”
“Most people who own shares in individual companies don't really know what they're doing…. We set up guardrails and warnings when it comes to many other aspects of our lives, from data protection to buying a mattress….
She goes on to say the federal government should
“Only allow accredited investors, people with a high net worth and hedge funds to buy individual stocks[3],”
So, don’t let the public buy shares in public companies?
Expect to see Senator Elizabeth Warren introduce a bill mandating this soon. Bernie Sanders will make it part of the Democratic Party Platform in 2024.
Read the whole story here:
Also this week, In Barrons, Eric Savitz, writes:
“Asana’s CEO Has Bought $1 Billion of Company Stock. It’s Likely the Largest Purchase Ever by a Corporate Insider.”
I challenge anyone – read this story in Barrons.
Then describe the business that Asana (NYSE: ASAN) is in. Good luck.
Thanks for reading. If you enjoyed what you read, please pass it along to a friend.
If you didn’t enjoy it, send a copy to someone you don’t like.
[1] file:///C:/Users/david/AppData/Local/Temp/Title%20Plants%20Nuts%20and%20Bolts.pdf
[2] Wikipedia
[3] In fairness, she also makes this point which is spot on – “Ideally, retail investors should view stock picking as a hobby, not as investing, and only dedicate a small share of their portfolio to individual stocks”.