Maverick47

I would agree with the assessment that they seem set to generate a good $200-$250 Can. a year or so in annual EPS and cannot say that any of my other investment ideas can approach this sort of positive future earnings expectations relative even to current market valuation. The next question is what they will do with the $600 to $750 per share over the next three years. Probably $60 Can comes back to us as dividends, but that still leaves $540 to $690 or so to be reinvested over the next 3 years. I am comfortable with the track record of management that they will find advantageous things to do with this. Some are easy, such as buying out minority interests in subs such as Odyssey and Allied World, much as they did with Brit recently. Will they buy back more stock? Given that I believe they are currently undervalued relative to their lesser quality insurance peers, I am willing to trust management that they will do so using a very rational value investing framework. After all, Prem has explicitly mentioned Henry Singleton’s example with Teledyne, and he was willing to use his stock as currency for acquisitions when it was overvalued, and bought the stock back aggressively when it was undervalued. For a good while now I have been thinking of Fairfax in my own portfolio as one I have the strongest conviction for…and when I need to raise funds for retirement income purposes, it is not a name that I have been selling…

I’m not well versed in stock based incentive plans, but I think you may be comparing the market value of total Treasury stock years ago to the current market value of Treasury stock today? For round numbers, say about 400,000 shares 11 years ago in the Treasury at $400 US$ per share gets us close to the $150M and roughly 2 million shares at $1400 US $ per share gets us the $2.8 billion figure today? But only about 10% of the Treasury shares are being reissued for use in SBC in a given year recently, or about $280 million market value through Q3 2024 in @Viking’s sheet. So maybe what we’re seeing is that the company has taken advantage of years of below book value market prices to build roughly a 10 year stockpile of Treasury shares to be used for future stock based incentive grants. Currently they are purchasing roughly the same number of shares as are granted each year, so the Treasury share count has been stable at close to 2 million shares the last few years. I think we could look back at prior annual reports and see how much the current market value of $2.8 billion Treasury stock actually cost the company to acquire. In previous years where the company clearly believed the stock was undervalued, I think we can see that they purchased more shares for the Treasury than were needed to offset those years’ actual share grants. Probably that was partly to scale up the Treasury share count for use with higher employee counts after the Allied World acquisition and others, but it also might reflect a value oriented management choosing to buy more shares for the Treasury in years when Mr. Market provided good value for doing so.

Agreed @Munger_Disciple. I think BRK will be a good proxy for S&P 500 performance, but I wonder whether we might also expect a modest outperformance as well? And if a modest dividend is paid, then a lot of current shareholders will feel less pressure to sell some holdings as they age into retirement (such as myself). Reasons why BRK might still outperform the index? Tax efficiencies of allowing unrealized capital gains, float and deferred tax liabilities to continue to compound to benefit of shareholders. Ability of capital to be allocated within the corporate structure from income generating subs to utility and railroad subs that have ongoing needs of capital expenditure. And finally, the tendency to hold lots of cash and short term bonds as is the case today gives BRK a valuable option to deploy that in times of economic dislocation. And the cash holding provides some downside protection as well. I think that’s one of the main reasons I like holding BRK in my own retirement portfolio. I have a personally recognized weakness of not holding a lot of cash or bonds for downside protection myself. By leaving about a third of my retirement assets in BRK I keep telling myself I’ve got sort of a look through position in bonds and cash to make up for my own blind spot….

I wouldn’t know about any of the reasons behind the sales, but have a couple of observations/theories. First, like Berkshire Hathaway, no dividends have been paid. These family members on the proxy statements were all either executives or board members. It’s possible that other Markels owned stock as well, but wouldn’t appear on this list if they were neither one. Second, once they retired as a fairly well paid executive, even if they stayed on the board, their board member fee income might be lower than their salaries and bonuses when they had been full time officers of the company. With no dividends, they might want to sell some shares to maintain former income levels…or simply want to diversify out of the stock for estate planning purposes. How about Berkshire and Fairfax in succeeding generations? I don’t believe Buffett will leave material amounts of A shares to his three children — and the company is so massive in terms of market cap that I can’t conceive of any successor CEO accumulating anywhere near a controlling interest on their own given that they are likely required to buy any shares of the company with their own money. Watsa may well leave his shares to his spouse and three children. Since the shares pay dividends, they may not have a reason or need to sell to generate income, at least initially. I’m personally most comfortable with Fairfax staying under Watsa family control for longer than Berkshire is likely to remain under Buffett family control, and as @Viking has observed, we really can no longer view Markel as being family controlled at all, so it may well end up being a cautionary tale for the other two companies. I think we have a case study of three similar family controlled businesses, with Markel furthest down the road of diluting family control via several generations of family members, and no current executive managers from the family that I’m aware of. Though the company went public in the late 80’s, I think it began as a family run business sometime in the 1930’s. I would consider Berkshire to be the next longest family controlled business, measuring from the mid 1960’s when Buffett took control, with Fairfax the newest one, beginning in the mid 80’s when Watsa took control. For those of us that see family control as a good thing, and see Fairfax as perhaps having some superior near term economic advantages over the other two, it doesn’t hurt the investment thesis to see that they are likely to have the longest runway for maintaining family control as well.

@Viking As a small holder of Markel, I also was surprised at the recent news of a business review prompted by activist investors. This is something Buffett has been concerned about for Berkshire for several decades now. I think Berkshire is likely to prove to be different from Markel for several reasons: First, Buffett does still have significant voting control through his ownership of A shares with 1,500 times the economic rights and 10,000 times the voting rights of the B shares. And though he gives some shares away each year, he still controls, if memory serves, more than 30% of the voting rights of Berkshire. Secondly, he has promised that his will’s instructions require his executor to continue to hold all Berkshire stock he owns at death and to only distribute these shares over time to the charities he designates. He has stated that he believes it will take at least 10 to 15 years after his death before this is accomplished. His son Howard will be chair of the board after his death, and will be charged with maintaining the culture of Berkshire. All current board members own Berkshire stock they have purchased individually, are independently wealthy and do not require any directors fees from Berkshire to maintain their standard of living. In many cases they have known Buffett for years and are well aware of the culture that he expects them to maintain after his death. As long as they are physically and mentally able, I expect many of them would consider it an honor to continue to serve on the board after Buffett passes away as a means to ensure his legacy continues. I personally think there will be at least five and more likely 10 years past Buffett’s death before any sort of voting challenge to management that might come from outside of the board of directors might even be remotely possible. Given the longevity that Buffett and Munger had to set the initial course and culture of the company, I think that is also a difference from what Markel is experiencing. Fairfax has a similar voting stock structure to Berkshire and Prem appears to be setting up a similar set of expectations that family board members will maintain Fairfax’s culture after he passes on. I think Markel had some second or third generation Markel family members who had been involved in the business, but not as executives for a number of years now. Voting control among that family had also dissipated over the years, and the next generation of non family executive managers had an illogical multiple CEO structure for a number of years that never made any sense to me. Leadership by committee, which is what that essentially meant, led to some confusion among investors as to what defined the company and its strategy. Gayner was seen as the Investment CEO, and Markel Ventures was his pet project. Now that he is sole CEO, I’ll be surprised if the business review results in spinning those companies off, but if it does, that might signal some diminution of his influence on the strategy of the company and his subsequent retirement might then not be much further off. It’s an open question what this would mean for the future of the company. I suspect that the new inclusion of a measure of intrinsic value over time was something he hopes will encourage market value of the stock to more closely follow his opinion of intrinsic value. If he stays on, and the stock responds well, and the Ventures companies are retained, then he might be able to point to the “improved management disclosures” as being at least partly responsible for the market response, justifying his continued leadership. Might be a 50/50 bet on that at the present time, and if he leaves, no way of knowing what to expect from a new leader and a new corporate strategy. Bottom line — I think that Sanjeev showed significant prescience years ago in naming this site the Corner of Berkshire and Fairfax and not including Markel in the name….

I’ve long been impressed by the work of the Howard Buffett Foundation. https://www.thehowardgbuffettfoundation.org/annual-reports/

+1 Pretty sad state of affairs here in the US. The party holding the slimmest margin in the House of Representatives in decades acting as if there is a massive mandate for change and disruption both at home and abroad, while burying their heads in the sand about the importance of character in leadership, value of long term alliances, etc, all for the pursuit of meaningless tactical (not strategic) transactional economic “victories”. Here’s hoping the damage done won’t be irreparable.

Don’t you think that @John Hjorth might not appreciate Trump’s threats to take Greenland from Denmark, which is similar to Trump’s desire to use tariffs to turn Canada into a 51st state? Something else will come along that will pull Trump’s attention elsewhere and some other advisor will get his ear. Or when the weather warms up a bit in the DC area Trump will start golfing some more and get distracted just like a dog who sees a squirrel….and all this will blow over. Besides, just because tariffs are introduced doesn’t mean that trade grinds to a halt. Americans will still want to purchase Canadian oil, gas, lumber and autos. They’ll just have to pay more for them and may not be able to afford as much of them as before, hence the expected inflation and economic dislocation for American consumers and for Canadians as well. Metaphorically Trump is shooting himself in the foot with this decision. It’s unfortunate that he’s injuring his neighbors as well with these actions, but economic decisions have economic consequences and as soon as Trump figures this out, or something else causes him pain, he’ll reverse course. Remember when oil prices rose during the Biden administration and Biden suddenly felt it no longer necessary to punish Venezuela and keep them from selling oil?

I’m just going to throw something out there. If the President really wanted something from Canada, he’d first threaten tariffs to try to get it. Since he doesn’t seem to know what Canada could do to make him reverse his position, and is going ahead with the tariffs without giving Canada a chance to do anything about it….perhaps he just wants the tariffs regardless. We know he hates paying taxes and would like to extend and perhaps even enhance his previous tax breaks extended to individuals and businesses in the US. He probably thinks of tariffs as a way to tax “foreigners” and help him in his desired goal of lowering taxes on his own citizens. He doesn’t think that his previous tariffs caused inflation, so he thinks he can get something for nothing. That’s how we can know for certain he never read Robert Heinlein’s novel “The Moon is a Harsh Mistress”. In that novel, rebels on The Moon often used the acronym TANSTAAFL in their protests, which stood for: “There ain’t no such thing as a free lunch”. Mr. Trump begs to differ, and he thinks he has indeed found a free lunch, and he calls it by what he thinks is the most beautiful word in the English language: tariffs. I personally would anticipate that if the tariffs are kept in place for an extended period of time (say a year or more) that we will see economic dislocations and increased levels of inflation in multiple countries. If so, there may not be enough time for him to reverse course and see the economy improve soon enough to avoid having this impact the next electoral cycle. That may be the silver lining in all of this….multiple countries will have to pay the price of higher unemployment rates and increased inflation…but this pain may result in the US electorate rejecting a Trump dynasty.

@Viking Totally agree with the remarks above. And we continue to see very healthy countrywide property rate increases above current loss trends as companies continue to receive approval of rate changes in response to the inflation of the COVID years. That all bodes well for underwriting income absent unusual cat events in the future. I haven’t reviewed the results of all these companies myself yet, but I think that Evan Greenberg’s comments about the California regulatory environment and its relationship to the Home insurance availability challenges in that state are part of a critical mass/continuing drumbeat of comments from other market participants that will be impossible for the California regulators and politicians to ignore. If we get a bit more flexibility and rationality in California risk pricing, that will also be a tailwind to industry underwriting results going forward given how large a part of the US market California is. The only risk is if California’s regulators follow a Florida path instead: of chasing all the reputable companies out of the market while counting on relatively new, thinly capitalized startups and a large involuntary market FAIR plan to cover the risks instead. I certainly hope that doesn’t occur…since I have family and friends who would be adversely affected if that ends up being the case.

Just one observation about Chubb’s earnings call transcript wherein Evan Greenberg trumpeted that their high net worth property business ran an “outstanding” 83.6% combined ratio in calendar year 2024. When I read this I immediately thought of Richard Feynman’s comment about the first principle of scientific exploration is “not to fool yourself” followed by the observation that one should realize that “you are the easiest person to fool”. A typical combined ratio target to earn a 15% return on allocated capital over the long run for Homeowners business across the entire country in the US would be roughly 90%. So that by itself sounds like Chubb indeed has reason to crow about their results. However, insurers should consider whether some geographies or market segments might be riskier for Homeowners business than the average, and if so, more capital should be allocated to that book of Homeowners business than the average, requiring a combined ratio lower than the 90% in order to achieve a desired 15% return. Is there a reason to suspect that Chubb might have a riskier geographic or market segment profile than the Homeowners business countrywide? As a thought experiment, where might one expect high net worth Homeowners customers to reside? I suspect one might expect them to be much more heavily concentrated and over-represented in ocean coastal areas such as in Florida, New York (Long Island) and Connecticut, as well as in California where they might be more exposed to hurricanes, wildfires and fires following an earthquake than average or below average net worth customers in other areas. These catastrophic causes of loss all tend to be events that happen very infrequently. While premiums are being charged for these risks to the high net worth customers, when the events don’t happen in a given calendar year, it will make Chubb’s reported combined ratio look more favorable as compared to the results of competitors whose books of homeowners business aren’t as exposed to those risks, but which also aren’t charging additional premiums for them. I don’t know exactly what Chubb’s countrywide high net worth homeowners target combined ratio truly should be, but I guarantee you it should be lower than 90%. I wouldn’t be surprised if it should really be near 85% on a risk adjusted basis. So I would suggest that Chubb may have modestly outperformed their true risk adjusted CR target for high net worth home insurance customers in 2024, but with their estimated $1.5 billion wildfire loss in Q1 of 2025, I’d be willing to bet their full year 2025 high net worth Home combined ratio will be a good amount higher than 85%. If you then combine actual 2024 and potential 2025 results together, I would further not be surprised if their two year CR for that market segment ends up exceeding 85%. Hardly the sort of result that I personally would want to highlight as being “outstanding”…but then again, Evan Greenberg’s insurance background is mostly commercial in nature, and to be fair, most Homeowners insurance competitors also don’t generally understand how the results of this line of business should be viewed. I guess I’m not surprised to see him fooling himself about his company’s Homeowners results, but it’s too bad that he is in a position to also fool others (including potential and actual current investors). Alex Morris’s recent book “Buffett & Munger Unscripted” that @John Hjorth recommended in the Books section has Buffett recognizing something similar in regards to underpricing super-cat reinsurance business (page 235 in that book) where he comments that “When you are selling insurance against very infrequent events, you can totally misprice them but not know about it for a long time.”

@John Hjorth I just got my copy an hour ago and looked into Part 6 and the Appendix and I will second your appreciation for them! This is a great addition to my personal library, and the author, Alex Morris, has done his readers an invaluable service in collecting and organizing decades of questions and answers in the manner he has done. Similar to the way in which Lawrence Cunningham organized Buffett’s Chairmen’s letters….

Thanks for letting us know this is available @John Hjorth! I placed my order today and should receive it soon. Looking forward to it…

Thanks for the example, @Dinar. For me, these are always helpful to help me understand a subject of which I am a novice…

@Viking Really appreciate your sharing the above. I try my best to be aware of the impact of accounting nuances and how they might in some cases overstate or understate financial realities, but am more comfortable with GAAP and less so with IFRS. I have to say that I wasn’t aware of how dividends from associates affected carrying values. By the way, thanks for the two- part Top 10 list for 2024 earlier in this thread. When I saw them I said to myself that the only thing better than finding a new long form post from @Viking is finding two new long form posts…