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

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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.

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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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