The pace of technological change and rational behavior (not emotional response) of the 21st century is seriously disrupting the commonly accepted productive investment strategy of the 20th century.
One required change is forecast pruning Horizons, with a shift from the multi-year passive approach of Buy&Hold to the active strategy of target achievement on specific price changes or time-limited actions, with reinvestment aimed at new shorter-term targets.
The insurance industry has faced serious disruptions during the Covid-19 pandemic and few corporate participants have been able to keep their profits under control. Aon plc (NYSE:AON), an insurance provider, has more dimensions under its control than many providers.
Description of the equity subject company
“Aon plc, a professional services company, provides advice and solutions to clients focused on risk, retirement and healthcare worldwide. It provides commercial risk solutions, including retail brokerage, cyber and global risk advisory solutions, and acts as captive management and healthcare solutions , such as health and benefits brokers and health exchanges. In addition, it provides strategic design consulting services on their pension programs, actuarial services and risk management services, consulting services on the development and maintenance of investment programs across a range of plan types including defined benefit plans, defined contribution plans, endowments and endowments for public and private companies and other institutions, as well as advice and solutions that help clients with risk, health and wealth through commercial risks. Aon plc was founded in 1919 and is headquartered in Dublin, Ireland.” – Source: Yahoo Finance
These growth estimates were created and collected by Wall Street analysts to show what traditional methods currently deliver. The typical fluctuations over forecast horizons of different periods illustrate the difficulty of making value comparisons when the forecast horizon is not clearly defined.
Risk and return balances among participants in the insurance industry
(used with permission)
The risk dimension consists of actual price declines at their most extreme point while held in the previous pursuit of upside premiums similar to those currently observed. They are measured on the red vertical scale. Reward expectations are measured on the green horizontal scale.
Both scales show a percentage change from zero to 25%. Any stock or ETF whose current risk exceeds its expected return is above the dotted diagonal line. Capital gain attractive issues are in the down and right directions.
Our main interest is AON on site , at the reward limit of 5 to 1 reward to risky situations. A “Market Index” norm of reward-risk trade-offs is offered by SPY . Most appealing because of that illustration 1 The prospect for wealth-building investors is AON.
Comparison of competitive characteristics of other insurers
That illustration 1 map provides a good visual comparison of the two most important aspects of any stock investment in the short term. There are other aspects of the comparison that this card sometimes doesn’t convey well, especially when general market perspectives like SPY’s are involved. If there are “how likely” questions, other comparison charts such as Figure 2 may be helpful.
The yellow highlighting of the table’s cells highlights factors important to security valuations and the security AON that shows the most promise for near capital gains, as ranked in the column [R].
(used with permission)
Why all this math?
The purpose of Figure 2 is to attempt universally comparable answers, stock by stock, a) how BIG the projected stock gain payout can be, b) how LIKELY the payout will be a profitable experience, c) how SOON it can happen, and d) what price loss risk may occur during its active holding period.
Readers who are familiar with our analysis methods after a short examination figure 2 You might want to skip to the next section Price range forecast trends for AON.
The column headings for Figure 2 define investment decision preference items for each series stock whose symbol appears in the left column [A]. The elements are derived or calculated separately for each stock based on the specifics of its situation and the current MM price range predictions. Data in red digits is negative, usually undesirable for “long” holds. Table cells with yellow fills contain data for the stocks of primary interest and for any issues in the ranking column, [R].
The predicted limits of the price range of columns [B] and [C] Be defined by MM hedging actions to protect fixed capital required to be exposed to price changes from volume trading orders placed by large “institutional” clients.
[E] measures potential upside risk for MM short positions created to execute such orders and the return potential for the buy-side positions so created. Previous forecasts such as this provide a history of relevant Price loss risks for buyers. The hardest ones you’ve actually encountered are in there [F]during dwell periods in an effort to achieve [E] profits. This is where buyers are emotionally most likely to accept losses.
The range index [G] indicates where today’s price is in relation to the MM community’s predictions for the upper and lower bounds of upcoming prices. Its numeric value is the percentage of the full forecast from low to high below the current market price.
[H] says what proportion of [L] Sample of previous like-balance forecasts have made profits by either price reaching its [B] target or above [D] Entry costs at the end of a maximum 3-month holding period of patience. [ I ] indicates the net gains/losses of these [L] Experiences.
What makes AON most attractive in the group at this point is its ability to generate capital gains most consistently at its current operating balance of equity price risk and range index return [G]. Its reward-to-risk ratio [T] is exceptionally high.
Other reward-risk tradeoffs include the use of [H] Win odds with the 100 – H loss odds as weights for N-conditioned [E] and for [F]for a combined result [Q]. The typical holding period of a position [J] on [Q] offers a COP [fom] ranking measure [R] useful in favoring portfolio positions. Figure 2 is ordered by rows [R] among the alternative security candidates, with AON at the top.
Along with candidate-specific stocks, these selection considerations are provided for the averages of approximately 3,000 stocks for which MM price range forecasts are available today, and 20 of the top ranked (of from) of these forecasts as well as the forecast for the S&P 500 Index ETF as a substitute for the stock market.
The current market index SPY is not competitive as an investment alternative. Its range index of 30 indicates that 2/3 of its forecast range is up, but only about 6 out of 8 previous SPY forecasts in this range index produced profitable results.
As shown in column [T] In Figure 2, these levels differ significantly between stocks. What matters is the net profit between investment gains and losses actually achieved according to the forecasts as shown in the column [I]. The odds of winning [H] indicates what proportion of each stock’s sample RIs were profitable. Rates below 80% have often proved unreliable.
Current forecast trends of the main topic
(used with permission)
Many investors confuse any repetitive picture of stock prices with typical “technical analysis.” charts” from past History of Stock Prices. These are quite different in their contents. Instead, here the vertical lines of Figures 3 and 4 are a daily updated image forecast recording from price range limits expected in coming weeks and months. The bold dot in each vertical is the stock’s closing price on the day the forecast was made.
This market price point explicitly defines the balance between price-reward and risk expectations held by market participants at the time, with a visual indication of their vertical balance.
The measure of this balance is the Range Index (RI).
With today’s RI of 3, the prospect is for a price change of over 16% to the upside. Of the previous 19 forecasts like today’s RI, 18 were profitable. The market’s actions from previous forecasts turned into realized profits in 32 market days. So, the upside of history could repeat itself 7 times or more in a 252 market day year, likely elsewhere, resulting in a +128% CAGR.
Please also note the smaller low image in Figure 3. It shows the distribution of the range indices over the last 5 years, with the current level marked visually. Almost all recent forecasts for AON assumed higher prices and range indices.
Based on head-to-head comparisons with other insurance competitors, there are several clear reasons to prefer a capital gains entry aon plc compared to other investment alternatives examined.