By David Connell

As we’ve discussed before in this column, the insurance industry plays a key role in noir, the great cult of American literature started by James M. Cain in Double Indemnity and carried on by hard-boiled writers like Chandler, MacDonald and Hammett. The noir classics almost always involve a life policy and a beneficiary that goes bad—really bad.

Of course, the noir classics are also always fun, and make great films. The latest installment of film noir, Out of Time, stars Denzel Washington as a South Florida police chief who is wrongly accused of killing his lover in a house fire for—you guessed it—the payoff on a life insurance policy. He needs the money, you see, to repay cash he "borrowed" from the evidence locker to pay for his girlfriend's experimental cancer treatment—which, of course, is not covered by her health policy.

Although the film is a bit far-fetched, it has gotten good reviews and should provide some fun popcorn entertainment.

Classics from The Street
We go from the ridiculous to the sublime now to discuss two investing classics—The Intelligent Investor and A Random Walk Down Wall Street—that have recently been reissued. The books began the ongoing debate between investors who believe they can predict subtle patterns in the stock market and those who believe in the Efficient Market Hypothesis, which, according to New Yorker reviewer John Cassidy, holds that "if a piece of information or analysis were really valuable … smart investors would already have acted on it, thereby eliminating the chance to make a killing." EMH-ers, in other words, believe in broad-based investing for the long haul.

If readers are interested in these books and their new editions, "Media Watch" insists that you visit Cassidy's amazing review in The New Yorker which details the theories behind the texts—and the modern applications—to such a degree that actually reading the books becomes almost unnecessary. But for those looking for a shortcut here are some notes on Cassidy:

Cassidy goes on to cite some fairly compelling modern studies that serve to debunk the randomness of Wall Street.

On The Intelligent Investor:
Valuing companies based on the information contained in their financial statements constitutes an entire discipline, much of it established by Benjamin Graham and David Dodd in their 1934 textbook, Security Analysis. Graham, who taught at Columbia Business School for years, and numbered Warren Buffett among his students, is regarded as the pioneer of "value investing," the painstaking pursuit of cheap stocks. In 1949, Graham explained his methods to the general public in The Intelligent Investor. Buffett has described it as "by far the best book on investing ever written," and although the case studies it cites are now decades old, its practical advice on how to look at balance sheets and income statements is timeless.

On A Random Walk Down Wall Street:
Though he started out with some colorful material about famous speculative episodes like the South Sea Bubble and the Great Crash of 1929, the heart of [Burton G. Malkiel's] book is an exposition of modern portfolio theory …

Once you posit that stock prices already reflect everything that can be known about the future, Malkiel explained, predicting how the market will behave tomorrow, or next month, isn't just difficult; it's impossible. In such an "efficient" environment, the only sensible thing we can say about the stock market is that it will continue to fluctuate from day to day, with no discernable pattern.

Cassidy goes on to cite some fairly compelling modern studies that serve to debunk the randomness of Wall Street, including research that found stocks that do well in one five-year period tend to do poorly in the next. This reversion theory means that investors who purchase stagnant stocks may reap rewards down the road. However, for the complete analysis, Cassidy is a must-read.

Do not call
"Media Watch" would be remiss if it did not mention the new federal do-not-call rule, which was clearly the hottest story of October. While most articles in the popular press have concentrated on how it is either a) wonderful for the consumer, or b) the death knell of the telemarketing business and all it employs, few have discussed its impact on the financial services industry.

However, one intrepid reporter for the Associated Press was able to track this story down. In the article David Woods, CLU, ChFC, LUTCF, NAIFA CEO and LIFE president, justifies telephone marketing by noting that 94 percent of life insurance agents use referrals and one-in-three referrals leads to new clients. The AP also quotes Michael Gerber, NAIFA general counsel, who says that the association was able to convince the Federal Trade Commission to exempt the insurance industry from the registry rules, but was stymied by the Federal Communications Commission.

To read more about the federal do-not-call registry and its impact on the financial services market please see "News and Trends" on page 28 of your Advisor Today magazine this month. Or visit the NAIFA Frontline archive (NAIFA members only.)

Individual health policies
In health insurance news, USA Today notes that the individual market may be on the upswing. The paper cites UnitedHealth Group's purchase of Golden Rule Financial, a small firm selling individual health policies, and Aetna's entrance into the individual market as proof that business is improving. It also notes that employers are slashing health-care coverage as well as moving benefits packages to high-deductible policies coupled with savings accounts. These corporate cutbacks, the paper maintains, will drive up the need for more individual policies.

Am I missing something? Did you read an essential story on investor confidence? Is Law and Order sticking it to the insurance industry again? Have you read a book that deals with the financial services industry? Is this a poorly written column and a disgrace to the industry? Sound off on "Media Watch" by emailing your thoughts to David Connell.

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