American Equity Life Shares Plunge and Recover: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Mr. Market has gone nuts again. Shares of American Equity Life (Nasdaq: AEL  ) suffered a staggering 15% loss early only to return to about even as of this writing.

So what: Blame traders who couldn't decide whether this annuity underwriter reported good or awful fourth-quarter results. On the one hand, revenue and net investment income improved. On the other, per-share GAAP profit fell to $0.41 from $0.48 in the year-ago period.

Now what: What matters more? I'd guess revenue and more specifically investment income. We know from years studying Berkshire Hathaway that underwriting profits tend to be a small part of the equation when it comes to insurance earnings. Judging by the data at Yahoo! Finance, it appears analysts were expecting American Equity to post $266.06 million in net investment income in the fourth quarter. What they got instead was $277.9 million, which suggests the early sell-off was, indeed, unjustified.

Interested in more info on American Equity Life? Add it to your watchlist.

Both our Motley Fool Inside Value and Motley Fool Stock Advisor services have recommended members purchase shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Berkshire Hathaway at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Berkshire Hathaway and is also on Twitter as @TheMotleyFool. Its disclosure policy is at least 10% better than other disclosure policies.


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