Stock Of The Month. Onveston Report #3

The Sure Thing Almost Nobody Plays

Dear investor,

first of all, congratulation to all readers who read The Onveston Report #1 and #2.

The first stock is currently up around +12% since I published my analysis a few months ago. (A few months are still early to judge an investment thesis, but nevertheless it’s good to see a stock being up).

If you’re a new reader you can download the whole analysis of this “Regulatory Goldmine” that’s one of Wall Street most solid performers here:

The second stock is currently up around +9% since I published the analysis.

If you’re a new reader you can download the whole analysis of this fast-growing food producer here:

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Below are the first pages of today’s report with a link to the whole file at the end:

Imagine walking into a luxurious casino. Just beyond the grand entrance, there are two gambling areas - one in striking red and the other in soft green. The red section looks tempting, but let’s head first into the quieter green room to observe what’s happening.

The atmosphere in the green room is relaxed. The blackjack tables aren’t crowded, and each player is surrounded by stacks of green and black chips.

At first, you wonder if you’re in the wrong place. Everything seems normal - standard table limits, everyday attire, and familiar games. But something doesn’t add up.

How do these seemingly ordinary players have so much money?

Then it clicks. They’re all winning.

As you move through the green room, it’s hard to spot anyone losing. You know the house typically has a 5% edge in table games, but as you watch, the players seem to be winning about 60% of the time. Curious, you recount the results. The pattern holds steady.

A pit boss notices you and comes over.

“Excuse me,” you ask. “Is this real? Do the odds actually favor the players here?”

“That’s right,” the pit boss replies. “In the green room, the odds are usually 60% in the players’ favor. It’s been that way since we opened.”

“But that means most of them must walk away winners.”

“They do. At these odds, about 9,999 out of 10,000 players leave with a profit. At our high-stakes tables in the back, the odds are even better - winners outnumber losers by about 20,000 to 1. Good thing we don’t get many players, or the house would be in trouble.”

Amazed, you thank the pit boss and shake your head. Determined, you make a plan to gather your life savings, return to the casino, and win the fortune you’ve been dreaming about.

On your way out, you glance into the red room. The energy is electric - much livelier than the green room. The space buzzes with noise and excitement, packed with people placing bets. Intrigued, you step inside.

The players are betting on multiple tables, calling for change, and praying for luck. But something feels off. There are fewer green and black chips here, and the players seem to be losing. Their chip stacks shrink with every hand.

You start counting the odds again. This time, they seem flipped - around 60% in favor of the house.

You approach another pit boss to confirm your observation.

She nods and grins. “You’re right. The odds here are 60 to 40 in favor of the casino. This room is a goldmine for us. In fact, 9,999 out of 10,000 times, the house wins here.”

It’s painfully clear this isn’t where you want to gamble.

You head home, collect your savings, and return to the casino, ready and eager to try your luck. You’re confident you’ll do even better this time. But something strange happens - you walk into the red room and start playing.

It feels like a dream turning into a nightmare. Yet, this kind of behavior is all too common in the stock market. The odds in the green and red room aren’t just for show - they’re real. On Wall Street, some investments steadily earn money, just like the green room, while others lose just as predictably as the red room.

Despite this, many investors ignore the safer, smarter bets. Drawn by the excitement and noise, they pour their money into high-risk investments where the odds are stacked against them. It sounds surreal, but it’s not. Generations of investors have consistently passed up reliable opportunities to chase losing ones.

In fact, there’s a whole sector that operates similar to a Casino. A sector whose business model is based on having the odds on your side and winning in the long-run. A sector that no one cares about because it’s so lame, despite printing cash for smart investors - year after year.

I’m talking about the insurance industry.

Why should you be a player at the table when you can be the owner of the house?

Casinos and insurance companies might seem worlds apart, but they share significant similarities in their business models, both of which are fundamentally built on the principles of probability, risk management, and expected value. Here's a breakdown of their parallels:

1. Risk Transfer and Risk Pooling

Casino: Customers (players) transfer the risk of winning or losing to the casino by betting on games of chance. The casino aggregates the bets of many players, pooling the risks, and relies on the law of large numbers to maintain profitability.

Insurance Company: Customers transfer the financial risk of potential losses (e.g., from accidents, health issues, or property damage) to the insurer. The insurer pools the risks of many policyholders to make payouts manageable and predictable.

2. House Edge and Premium Margins

Casino: Casinos design games to have a statistical advantage (the "house edge"), ensuring they win more money than they lose over time.

Insurance Company: Insurers calculate premiums based on the likelihood of claims, adding a margin to ensure profitability. The premium customers pay is generally more than the expected cost of claims, providing a "house edge" for the insurance company.

3. Reliance on Predictable Outcomes at Scale

Casino: Casinos depend on the law of large numbers - while individual outcomes are unpredictable, the aggregate results over thousands of games conform to expected probabilities.

Insurance Company: Insurers rely on actuarial science to predict loss probabilities and set premiums accordingly. While individual claims may vary, the collective risk over a large number of policyholders becomes predictable.

4. Behavioral Influence

Casino: Casinos employ psychological tactics to encourage players to keep betting, such as offering free drinks, creating exciting environments, and leveraging near-miss outcomes to keep players engaged.

Insurance Company: Insurers may incentivize behaviors that reduce risks (e.g., discounts for safe driving or installing home security systems) to minimize claims and improve their profitability.

5. Customer Perception of Risk

Casino: Gamblers perceive the chance to win as worth the money they risk, often underestimating the house edge or overestimating their likelihood of success.

Insurance Company: Policyholders perceive the potential financial protection against losses as worth the cost of the premiums, even if they never make a claim.

Casinos and insurance companies operate in very different industries, but their business models share many parallels. Both rely on risk transfer, predictable outcomes at scale, and controlling the balance of inflows and outflows. Despite their differences in purpose, they are good examples of how businesses can use the principles of probability and risk management to achieve success.

Which brings us to todays stock. A large-cap U.S. insurance company which is the best in its class:

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Disclaimer: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from my research. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.