Arohan’s investing life

This next article in the series has been a long time coming, so first of all, accept my apologies.

Let’s dive straight in. The first business I am going to discuss looks eerily similar to Berkshire Hathaway on the surface, with some temperamental differences. This company also has a smaller but equally devoted following with many investors entrusting the core of their portfolio to this company stock.

Markel (MKL)

It is an insurance company dealing in speciality lines which very few other insurance companies will touch. You know, like marine, catastrophe exposed property, product liability, etc. This business is a collection of small insurance niches and not surprisingly, Markel, the company has itself evolved over time with acquisitions of many smaller firms. Its niches are more or less protected from cut-rate competition due to hard to place risks inherent in these lines. Additionally, the Markel underwriting team is very disciplined, at times choosing not to play when the market does not allow them reasonable margins

Markel has another line of business and that is investments. Like Berkshire Hathaway, Markel invests its excess float for superior returns. Markel’s investment philosophy is similar to Berkshire Hathaway; they look for great companies that are selling at attractive valuations and they are happy to wait a long time for the value to be unlocked in their investments.  Their goal is to increase their book value by atleast 18% per year. Tom Gayner, Markel’s Chief Investment Officer, is a well respected value investor and many have speculated that he may be the chosen one to run Berkshire Hathaway’s investments after Buffett is gone.

Markel shares other characteristics of Berkshire Hathaway. They do not believe in splitting the stock. They do not compensate their employees with options grants (employee stock ownership is encouraged with the company providing low interest loans to help employees purchase stock. How quaint!). No dividends are issued. They are shareholder friendly and call their shareholders partners in business. They have expressed the sentiment many times that they want to attract long term oriented investors in their stock.

In my view though, there are some basic temperamental differences. Warren Buffett is willing to take more risks in his investments (albeit the risks that he understands) than Tom Gayner would. I can’t visualize Tom Gayner effecting a Salomon Bros style bail out, nor do I see him betting most of the assets on one stock as Buffett has done in the past. Nor have we seen Markel invest much outside of North America or show much interest in buying out private businesses. It appears to me that even though Markel has and will continue to perform well against any performance benchmarks it does so with a little less oomph in its investments. The upside risk of outsized returns in its investments is less compared to Berkshire Hathaway’s portfolio

However, one should keep in mind that Markel is still a young stock compared to Berkshire with smaller capitalization and over time it is very likely that more room could be made for riskier opportunities in its portfolio

Traditionally Markel trades at around 2x its book value. Currently it is trading at a good discount to this and is likely going to be an excellent purchase if one has patience to wait for many years. I am not going to go into details of Markel’s investments or their financial ratios. These are somethings my dear readers can easily look up and delve through. In investments like these, my main concern is to ensure that the manager has a superior track record, is shareholder oriented, has a skin in the game and a investing philosophy similar to mine and then I look to invest new monies in the stock when prices are attractive.

My recommendation is to buy Markel now and forget about it for 10 or more years.

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3. Stock investors, who is the next Warren Buffett - Part 1
4. Buffet buying Marmon
5. Investments update …