Earning lasting wealth? The stock market could be your best friend. The S&P 500 index is proof, flaunting an average of 10.6% returns each year over the last century. That’s good news if you’re good at playing the waiting game.
Many great businesses beat this index, often thanks to superior cash flow and a competitive edge. Progressive (NYSE: PGR) is one such shining star. Back in 1971, a simple $1,000 bet on this insurer could have turned you into a multimillionaire by now. So, what’s their secret sauce? Let’s do a deep dive.
The insurance industry may not be a thrill ride, but Warren Buffett, the Berkshire Hathaway CEO, is a big fan. Why? The consistent cash flow from insurance products pulled in by individuals and businesses alike.
Plus, insurance is non-negotiable for people and companies looking to shield themselves from financial disasters.
Expert insurers keep a steady balance between risks linked to covering a vast array of policies and the perks of an underwriting profit. Nonetheless, carving out a niche in this super competitive business isn’t an easy task.
Looking at it from a wider angle, insurance companies seem to just break even.
The money made from hefty investment portfolios is their main source of income. Well, that’s not the same story for Progressive.
In 1965, Peter B.
Lewis took the reins of this still-small company as CEO. He vowed to grow through profitably underwritten policies. Sure, some customers jumped ship for cheaper rates, but this strategy carved out Progressive’s path to greatness. Going public in 1971, Progressive established a target to pocket $4 profit from every $100 premiums.
This approach to profitable underwriting significantly contributed to Progressive’s lasting success.
Had you invested $1,000 back then, your investment would be worth a staggering $8.7 million now.