SafetyinNumbers Posted February 10 Posted February 10 1 hour ago, wondering said: https://youtu.be/jMO6NDcdI2o?si=DKrIo8u0Z03o9SHn If i remember correctly, Fidelity, is mentioned as FFH’s largest shareholder. Does anyone have an accurate top 10 list? This is what is on Morningstar. I think Edgepoint would be second. Scotia is one of the bank owned fund managers that started buying recently. That’s multiple expansion in progress.
KFRCanuk Posted February 10 Posted February 10 4 hours ago, wondering said: https://youtu.be/jMO6NDcdI2o?si=DKrIo8u0Z03o9SHn He sure loves Francis.
anshulp Posted February 10 Posted February 10 18 hours ago, SafetyinNumbers said: If i remember correctly, Fidelity, is mentioned as FFH’s largest shareholder. Does anyone have an accurate top 10 list? This is what is on Morningstar. I think Edgepoint would be second. Scotia is one of the bank owned fund managers that started buying recently. That’s multiple expansion in progress. Let me know if you want to see more . Technically can pull up top 150 reported.
dartmonkey Posted February 10 Posted February 10 Interesting that Watsa owns just over 2 million shares, or just over C$4b. Last October, Watsa didn’t quite make it onto McLean’s list of the 40 richest Canadians, with #40 (Jack Cockwell) at $3.4b, but he’ll probably be in the list this year.
sshr Posted February 10 Posted February 10 3 hours ago, [email protected] said: Let me know if you want to see more . Technically can pull up top 150 reported. Hmmm. Didn't Allan Mecham wind down Arlington Value Capital?
oscarazocar Posted February 11 Posted February 11 3 hours ago, sshr said: Hmmm. Didn't Allan Mecham wind down Arlington Value Capital? If you click through to the source, this is the translation. It may be that it's the continutation of the parent fund under a different subadvisor. https://www.fundsquare.net/download/dl?siteId=FSQ&v=z/++Edz7f+o41gGTsQ+Xlw+2RSBLIs+ixhWVZOgdnx6z4a5utCf2b31BECHPKx/s5Kqquik+MV5PWuEMtPKee/vkrzFsEsnYQBha1c/4LGo2u8EXokliOEVZRlbgTyPY MercLin II SICAV Investment company with variable capital under Luxembourg law Head office: 12, Rue Eugène Ruppert, L - 2453 Luxembourg Luxembourg R.C.S. No. B-150.351 the “SICAV” NOTICE TO SHAREHOLDERS The shareholders of the SICAV are informed that the investment advisory contract binding Manager of the SICAV (MERCIER VANDERLINDEN ASSET MANAGEMENT) and the Advisor in Investments (Arlington Value Capital, L.L.C.) was terminated effective April 1, 2020. Shareholders are also informed that the Commission of the Advisor in Investments has no longer been paid by the SICAV since April 1, 2020. The current prospectus, the key investor information documents (Key Investor Information Documents, “KIID”), the annual reports and the semi-annual reports of the SICAV are available in French and Dutch free of charge on request at the head office of the SICAV and in Belgium at Banque Degroof Petercam S.A. 44, Rue de l’Industrie, B-1040 Brussels, acting as financial services provider in Belgium for the SICAV. The share price is published in Belgium in L’Echo and De Tijd and can be obtained on written request to Banque Degroof Petercam Luxembourg S.A., 12 rue Eugène Ruppert, L-2453 Luxembourg. The Board of Directors
SafetyinNumbers Posted February 11 Posted February 11 7 hours ago, dartmonkey said: Interesting that Watsa owns just over 2 million shares, or just over C$4b. Last October, Watsa didn’t quite make it onto McLean’s list of the 40 richest Canadians, with #40 (Jack Cockwell) at $3.4b, but he’ll probably be in the list this year. He controls that many but I think his economic position is ~800k shares less because FFH owns a stake in his holding company.
Viking Posted February 11 Author Posted February 11 (edited) Markel - A Deep Dive I follow Fairfax very closely. Markel not so much. So you have been warned. What is happening at Markel today looks like it might be important. My thoughts below are very top-line. And subject to change as we get more information / see how things play out. I am putting this post in the Fairfax thread because I also weave Fairfax and Berkshire Hathaway into the story. Why should a Fairfax shareholder care about what is going on at Markel? There are two broad reasons for a Fairfax shareholder to pay attention to what is happening at Markel. The first is for practical reasons. Peers - It is important to follow other P/C insurance companies. This can provide important insights into what is going on in the industry in general (commentary on hard market, etc). Berkshire Hathaway / Markel - These two companies have business models that are closer to Fairfax’s than other P/C insurance companies. Among other things, they invest a large part of their investment portfolio in equities / control positions in other non-insurance companies. These two companies can provide an additional layer of insight. The second is for sentimental reasons. The history of Fairfax is closely intertwined with that of Markel, especially in the very beginning and first 15 years. ————— Let’s explore the second reason first. This will be short. Sentimental Of interest, Markel was responsible for Fairfax’s entry into the P/C insurance business 40 years ago. Fairfax actually started out as Hamblin Watsa, an investment counselling company, which was established in 1984. Prem teamed up with Tony Hamblin, who was his boss when he was working in the investments department at Confederation Life. In 1985, Hamblin Watsa (via The Sixty Two Investment Company), made their first P/C insurance purchase - a control stake in Markel Financial (Canada). Steven Markel (from Richmond, Virginia) was instrumental in getting this deal done and he agreed to help run the company until a new president could be found. The name change from Markel Financial (Canada) to Fairfax Financial happened in 1987. In 1990, the two businesses separated (Markel US and Fairfax). Until 1998, each (Steven Markel and Prem Watsa) served on the other's board. “I consider him (Steve Markel) one of the founders of Fairfax." Prem Watsa Source: Fair and Friendly - The First 25 Years of Fairfax Financial And as they say, the rest is history. There is much more to the Markel / Fairfax relationship / story. That would make for a fun and interesting future post. Let’s get back to our topic for today. ————— Practical Munger - invert "Be consistently not stupid, instead of trying to be very intelligent." Charlie Munger Inversion involves looking at a problem or decision from the opposite point of view so, for example, rather than focusing on achieving success, Inversion encourages you to consider how to avoid failure. https://modelthinkers.com/mental-model/inversion A good way to avoid failure is to learn from the mistakes of others. So you can avoid them. With that context, let’s now look at what is going on at Markel. ————— Below is a summary of what we will review in this post Markel Group - An update The activist appears Markel drops a bomb on (long term) shareholders Is a low share price the problem? What are the real problems at Markel? Succession planning gone wrong? Loss of family control? Another Mistake made - historic bond bond bubble / bear market What happens next? ————— Markel Group - An update Markel was listed on the NASDAQ exchange in December 1986 with an IPO offered at $8.33 per share. Today, the stock trades at about $2,000 per share. Over the past 39 years, the CAGR in Markel’s share price has been 15%, making it one of the top performing public companies. Outstanding. The Markel family was responsible for over seeing the majority of this run. Steven Markel currently serves as Chairman of Markel’s board. But something appears to have changed at Markel in recent years. And not in a good way. Markel appears to be making some mistakes. Most importantly, its crown jewel, specialty insurance, has been underperforming. In September, 2023, Insurance Insider did a deep dive into Markel and its business. It goes into detail of what Markel’s issues are. We have copied some of the key points below and provided a link to the article. “It’s a good business.” “However, the firm has made repeated missteps in its insurance M&A strategy, with a huge Wrong Side of History Bet on ILS in 2015-18, following on from a so-so deal for Bermudian Alterra and the challenged acquisition of Terra Nova. “Its US E&S business remains strong, but it has arguably lost something intangible that it once had (and Markel is a company that believes in the value of intangibles). Here, Markel chose diversification rather than doubling down just ahead of a Golden Age of US specialty. That choice was reflected in its decision to let Allied World – ultimately sold to Fairfax – go when takeover talks were held in 2016. “Crucially, the firm’s share price has underperformed since the Financial Crisis, lagging the stronger specialty insurers massively and also behind the S&P 500. Some of this likely reflects its desire to walk the Berkshire path of investor relations without the gravitational pull of Buffett, and some of the challenges of getting full value ascribed to its non-insurance “Venture” businesses when it reports as an insurance company.” Click the link below for details. Markel: Trying to be Berkshire without Buffett https://www.slipcase.com/view/inside-in-full-markel-trying-to-be-berkshire-without-buffett/3 ————— The activist appears In November, 2024, activist investor Jana Partners appeared on the scene. On December 14, 2024, CNBC (in an article by Kenneth Squire) provided a good summary of Jana and why they have targeted Markel. We have copied some of the key points below and provided a link to the article. “Jana is a very experienced activist investor founded in 2001 by Barry Rosenstein. The firm made its name by taking deeply researched activist positions with well-conceived plans for long term value. Rosenstein called his activist strategy "V cubed." The three "Vs" were" (i) Value: buying at the right price; (ii) Votes: knowing whether you have the votes before commencing a proxy fight; and (iii) Variety of ways to win: having more than one strategy to enhance value and exit an investment. Since 2008, the firm has gradually shifted that strategy to one which we characterize as the three "Ss" (i) Stock price – buying at the right price; (ii) Strategic activism – sale of company or spinoff of a business; and (iii) Star advisors/nominees – aligning with top industry executives to advise them and take board seats if necessary.” What is Jana calling for? “Jana called on Markel to improve its insurance operations and explore a separation or sale of its private investments business (Ventures). The firm also noted that the entire company presents an attractive acquisition target for larger insurers.” Click the link below for details. Activist Jana calls on Markel to focus on insurance. Here's how the firm can help create value https://www.nbcchicago.com/news/business/money-report/activist-jana-calls-on-markel-to-focus-on-insurance-heres-how-the-firm-can-help-create-value/3624425/?os=ios%2F%3Fno_journeystrue&ref=app ————— Markel drops a bomb on (long term) shareholders When Markel reported YE 2024 results on Feb 5, 2025, they also delivered a surprise ‘update’ for shareholders. Below are a few highlights: “…we believe the value and potential of our combined group of businesses is not fully reflected in our current stock price. “In December 2024, JANA Partners publicly shared their perspectives on Markel Group and offered suggestions we might consider. We took this as an opportunity for broader self-reflection, in line with our commitment to the ‘zealous pursuit of excellence.’ “…we have decided to conduct a review of our business. It will be an opportunity to reflect on the changes over the past two years and ensure our goals and direction align with our shareholders' priorities. “The board will lead this review, assisted by external consultants and advisors. Our foremost focus will be the performance of our market-leading specialty insurance business. Insurance is at the heart of what we do, and we're fully committed to supporting areas within insurance that are excelling while also addressing underperformance. “Additionally, as part of the review we will consider ways to simplify our structure, optimize our approach to capital allocation, and enhance our disclosures. During this period, we expect to focus capital deployment on repurchasing shares under the recently announced $2 billion stock buyback program.” Click the link below for the complete release. Markel Group Inc. provides update for its shareholders https://ir.mklgroup.com/investor-relations/news/news-details/2025/Markel-Group-Inc.-provides-update-for-its-shareholders/default.aspx ————— In November 2024, an activist investor shows up. And in February 2025, Markel announces they will be conducting a review of their business, with the help of external consultants and advisors. Holy shit Batman! External consultants and advisors? Really? I wonder what Charlie Munger would say? (I think I know…) Is this what well run companies do? Nope. Clearly, the board/senior team at Markel don’t know what to do. Or they do know… and they are unable to do it on their own. How did Markel’s shares respond to the ‘update’ provided by Markel? Of course, Wall Street cheered the news - the shares finished the day up 8%. The volume of shares traded tripled. It appears Wall Street is now in control of the company. And maximizing short term value for shareholders is the new objective. What about long term shareholders? Of course, Wall Street doesn’t give a shit about them. —————- So what is the big problem at Markel today? Well one of the lead lines in Markel’s press release was the following: “…we believe the value and potential of our combined group of businesses is not fully reflected in our current stock price.” The big problem appears to be a low share price. But is a low share price really a problem? No. A low share price is a gift. What? Says who? Some guy names Warren Buffett. Apparently, Tom Gaynor has never heard of this guy (Buffett), because if he had he would not be complaining about his share price being too low right now. Instead of complaining (and bringing in expensive ‘external consultants and advisors’ to tell him and the board what to do) he would be vacuuming up as many Markel shares as he could - and counting his lucky stars at his good future. But I can year you retort: ‘Markel is buying back shares.’ Yes, they have been buying back shares. But how much? Over the past 5 years Markel has reduced shares outstanding by 1.5% per year. Not much. Especially if you think your shares are dirt cheap (which Markel evidently does). Let’s look to Buffett again for guidance. "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble." - Warren Buffett. Capital allocation 101 When your shares are dirt cheap, any self respecting value investor knows that is the time to back up the truck. Buybacks increase the per share intrinsic value for long term shareholders. And the action is low-risk / high certainty capital allocation activity. This is an example of jumping over a one foot hurdle. And the longer the shares stay cheap the better (or so says that Buffett guy). It just means management can buy back more. But Markel has just tipped its hand to Wall Street. And by announcing a ‘review’ they have also caused the stock to increase significantly in value. It’s like asking the grocery store to raise prices before you do your shopping. So now Markel gets to complete with Wall Street/short term traders for shares - which of course just means they will now be paying a much higher price. What about Markel shareholders? Isn’t a low share price good for them too? Especially if it stays low for a long time? Well, this is really only true if management at Markel isn’t asleep at the wheel - and is actually buying back shares - and in volume. Which they aren’t. So I guess that partly explains why some Markel shareholders are getting a little testy. And why an activist like Jana is getting the time of day from anyone. As an aside… Fairfax has had a similar problem - a share price trading well below its intrinsic value. Their solution? Over the past 5 years (2019 to 2024), they have bought back 19.1% of their shares outstanding, paying an average price of $630/share. They also got exposure to another 1.96 million via FFH-total return swaps at $373/share (meaning they effectively ‘took out’ 26.4% of shares outstanding at an average price of $560/share). From a capital allocation perspective, buybacks have been Fairfax’s biggest use of cash over the past 5 years. The per share value creation has been enormous (shares were purchased significantly below intrinsic value). Over the past 5 years, Fairfax’s has generated a total shareholder return of 208%, or a CAGR of 25.2%. As a result, Fairfax shareholders are pretty happy campers these days. Over the same time period, Markel has delivered a total shareholder return of 51%, or a CAGR of 8.6%. —— Buffett on share buybacks Below is what Buffett had to say about share buybacks in his 1984 shareholder letter (published February 1985). “The companies in which we have our largest investments have all engaged in significant stock repurchases at times when wide discrepancies existed between price and value. As shareholders, we find this encouraging and rewarding for two important reasons - one that is obvious, and one that is subtle and not always understood. “The obvious point involves basic arithmetic: major repurchases at prices well below per-share intrinsic business value immediately increase, in a highly significant way, that value. When companies purchase their own stock, they often find it easy to get $2 of present value for $1. Corporate acquisition programs almost never do as well and, in a discouragingly large number of cases, fail to get anything close to $1 of value for each $1 expended. “The other benefit of repurchases is less subject to precise measurement but can be fully as important over time. By making repurchases when a company’s market value is well below its business value, management clearly demonstrates that it is given to actions that enhance the wealth of shareholders, rather than to actions that expand management’s domain but that do nothing for (or even harm) shareholders. Seeing this, shareholders and potential shareholders increase their estimates of future returns from the business. This upward revision, in turn, produces market prices more in line with intrinsic business value. These prices are entirely rational. Investors should pay more for a business that is lodged in the hands of a manager with demonstrated pro-shareholder leanings than for one in the hands of a self-interested manager marching to a different drummer. “The key word is “demonstrated”. A manager who consistently turns his back on repurchases, when these clearly are in the interests of owners, reveals more than he knows of his motivations. No matter how often or how eloquently he mouths some public relations-inspired phrase such as “maximizing shareholder wealth” (this season’s favorite), the market correctly discounts assets lodged with him. His heart is not listening to his mouth - and, after a while, neither will the market.” —— Is a low share price really the problem at Markel. No, of course not. But it might be a symptom of bigger problems. To read part 2 - go to the next post in this thread (directly below). Edited February 11 by Viking
Viking Posted February 11 Author Posted February 11 (edited) Part 2 of our long post on Markel... What is really going on at Markel? I think there are two root causes to Markel’s current issues: Succession planning gone wrong. Loss of family control. The first one should be fixable. The second, not so much. Both will have important implications for Markel’s future. Succession planning gone wrong For decades, Markel was exceptionally well run. It had a pretty simple formula: A leading specialty insurance business + invest wisely (Gaynor’s long term record investing in equities has been very good). But the last 8 or 9 years? It appears Markel is having a bit of a midlife crisis. It has lost its way in its core specialty insurance business. And it is trying to build a third stool to its business - Ventures - and become a conglomerate like Berkshire Hathaway. Markel’s struggles today highlight the difficulties and the importance of transitioning from a founder led company to a non-founder led company. Clearly, something has been lost. Hopefully Markel is able to figure it out. But hey, at least Markel is still controlled by the Markel family. So they will be given the time needed to right the ship. Right? Wrong. This used to be the case. This is no longer true. Loss of family control How much of Markel does the Markel family own? At March 14, 2024, the two Markel brothers (Anthony, age 82 and Steven, age 75) owned/controlled 178,375 shares, which is about 1.3% of total shares outstanding (13.8 million). The two Markel brothers also seem to be slowly selling shares each year, which is interesting. All directors, directors nominees and executive officers as a group owned 1.7% of Markel’s outstanding share (at March 14, 2023). Needless to say, from a stock ownership perspective, I think it is safe to say that the Markel family is no longer in control of Markel. (Source - From notice and proxy statement for Markel’s 2024 annual meeting) It is interesting to compare this to Fairfax. Prem’s economic ownership stake in Fairfax is about 9.5%. And his voting control position is more than 40% (due to multiple voting shares). He is also grooming his son/daughter. Fairfax will continue to be a family controlled company for the foreseeable future. But what about Berkshire Hathaway? Is Buffett not giving most of his shares to various charities? Who will be selling chunks every year? Bottom line, it doesn’t look to me like Berkshire Hathaway will have a controlling shareholder. Especially 10+ years after Buffett is gone. Now maybe the sheer size of Berkshire will act as a deterrent to activist shareholders. Or maybe it will be a catalyst - the short term financial rewards of breaking up Berkshire Hathaway could be huge (especially if the company - like Markel - hits some pot holes and begins a stretch of underperformance). ————— The question that is usually asked is the following: ‘Is family control a good thing?’ With what is going on with Markel today, perhaps the better question is: ‘Can the business model survive without family control.’ My view is Markel’s current business model (investing in equities and Ventures) requires family control to be sustainable over the long run. The equity part of the equation is hard enough. There is a reason other P/C insurance companies don’t do it - despite the fact that it will deliver higher returns than a bond only portfolio over the long run (if done well). But trying to also build out a Ventures portfolio - that is even more difficult. These investments are much more illiquid and much of the value creation is not captured in accounting results (EPS and BV) in the short term. Once again, we can look to Buffett for guidance. “Our equation is different. With 47% of Berkshire’s stock, Charlie and I don’t worry about being fired, and we receive our rewards as owners, not managers. Thus we behave with Berkshire’s money as we would with our own. That frequently leads us to unconventional behavior both in investments and general business management.” Buffett Shareholder Letter - 1984 Buffett is telling us that having a control position is what gives him the peace of mind/ability to invest in equities and to buy entire businesses. He is the GOAT. And he thinks this is important. And that is because Buffett understood that investing in equities was volatile - and could result in short term underperformance (short term = a couple of years). At the same time, he also understood that when buying control positions, it might take 5 or more years for the economic value to be reflected in the accounting results (eventually showing up in investment gains). But because he had a control position, he was able to make decisions that he knew would pay off in the long term. Gaynor is good… but he s no Buffett. When it comes to buying both equities and buying control positions. If Markel’s share price underperforms for a few years… well, the Wall Street vultures will probably start clamouring for change… and for value to be surfaced. And what do you know… that is exactly what seems to be playing out today. Now that the Markel family is no longer in control of Markel, having an equity heavy investment portfolio will likely be challenging enough - very strong equity market returns the past 2 years have provided a reprieve (and likely inflated BV at YE 2024)… but another bear market in stocks is coming. What will Jana (and the rest of Wall Street) say when that happens? The Ventures part is the real head scratcher (with no family control). It looks to me like the decision to grow Ventures might prove to have been a strategic mistake. But there is another related problem. Buy and hold forever Over time, economic value that has been created will show up in accounting results - via capital gains. But buy and hold forever slows this process down. This has not been a problem for Buffett. He has created so much value, that if some of it is not recognized right away… well, who cares. But, as we said earlier, Gaynor is not Buffett - his results will not be nearly as good. He can’t afford to wait like Buffett. This is not a criticism of Gaynor… no one will be as good as Buffett. But for Gaynor to want to clone Buffett in this regard… well that is a problem. Markel will look like it is underperforming compared to peers. And that will not sit well with Wall Street or Markel shareholders. I much prefer Fairfax’s approach in this regard. It is more classic Graham. Buy stuff when it is cheap. Sell it when it is expensive. Rinse and repeat. Importantly, this strategy more quickly/continually surfaces the significant economic value that is building on Fairfax’s balance sheet with its equity and control positions. And once it shows up in accounting results (EPS and BV) it gets reflected in the valuation of the company and the share price. ———— Another Mistake made - historic bond bond bubble / bear market If we are going to discuss mistakes made at Markel in recent years, we need to discuss one more forced error. Most P/C insurance companies made this same error. Because most everyone did it… well, it is something not usually discussed today in polite company (especially among analysts). Markel has a ‘policy’ of matching the average duration of its bond portfolio with the average duration of its insurance liabilities. This kind of makes a lot of sense most of the time. When does it not make sense? When a historic bubble in bonds is blowing. Like what we saw in 2020 and 2021. The 5 year US Treasury traded at a yield below 40 basis points for much of 2020. The 10 year treasury traded at a yield below 70 basis points for much of 2020. What were P/C insurance companies doing in 2020 and 2021? They were busy buying bonds - and making sure they were matching the maturity to their insurance liabilities. If that meant buying the 5 year US Treasury at a yield of 0.5% that is what they did. Because they were prudent insurance companies, after all, not market timers or ‘macro’ investors (that would be terrible). What were P/C insurance companies missing? Apparently they did not understand some arcane concept called duration risk. What was the mistake? When interest rates went to zero (across the curve) in 2020 and 2021, investors were not getting paid for taking on duration. There was no margin of safety when purchasing bonds with duration. Taking on duration opened you up to significant losses - of a size large enough to impact the balance sheet. What happened in 2022? The inflation genie got out of the bottle and interest rates spiked higher. The value of bonds got torched, especially those with a longer duration. And because most P/C insurance companies invest primarily in bonds, their balance sheets got torched - with book value per share at most P/C insurance companies falling 10% to 20% in 2022. Yes, it wasn’t a solvency issue for most P/C insurance companies (although it could have been for some if 2021/2022 had been historically bad for catastrophes). Buffett talks about accounting value often being different from economic business value. Interest rates spiking in 2022 was a great example of serious destruction of economic value at P/C insurance companies - that was not reflected in the accounting results (like EPS and ROE). Buffett thought it was idiotic to buy duration in 2021. Why? Value investing 101. And this was not Buffett’s first rodeo with spiking interest rates… a similar thing happened in the mid 1980’s. He wrote about it in his shareholder letters then (and the damage it did to insurance companies balance sheets then). Gaynor is a value investor. He is trying his best to clone Berkshire Hathaway. He should have known better. Policies and procedures are good. But they can’t become a straight jacket. Or used as an excuse for lazy thinking. This is a judgement thing… and it does not look good on Gaynor. It cost Markel +$1 billion - in 2022 BV fell by 10% (and stunted growth in BVPS for years). Even today, their fixed income portfolio yield is low (3.2% for ‘fixed income securities’, which does not include ‘short term investments’ which is 4.8%) - the earn through of higher rates has been slow. Like Berkshire Hathaway, Fairfax recognized that bonds were in a bubble and investors were not being paid to take duration. In late 2021, Fairfax reduced the average duration of their fixed income portfolio to 1.2 years. In Q4, 2021, Fairfax sold $5.2 billion in corp bonds (acquired in March/April 2020) at yield of 1% and booked an investment gain of $253 million. BVPS at Fairfax actually went up in 2022. Some pundits have called what Fairfax did a ‘macro bet.’ It wasn’t. It was simple value investing. And basic risk management - protecting the balance sheet - something that is critically important to an insurance company. Especially at the beginning of a hard market. ————— What happens next? What will happen next with Markel? It is impossible to know. Nothing. Sell Ventures. Sell the whole company. Bottom line, it appears the company is in play. And Wall Street loves it. Fairfax (and Berkshire Hathaway) should be paying attention to what is going on at Markel today. Markel is providing an important teachable moment for Fairfax and Berkshire Hathaway, their boards (and their shareholders). Edited Monday at 07:41 PM by Viking
73 Reds Posted February 11 Posted February 11 1 minute ago, Viking said: Part 2 of our long post on Markel... What is really going on at Markel? I think there are two root causes to Markel’s current issues: Succession planning gone wrong. Loss of family control. The first one should be fixable. The second, not so much. Both will have important implications for Markel’s future. Succession planning gone wrong For decades, Markel was exceptionally well run. It had a pretty simple formula: A leading specialty insurance business + invest wisely (Gaynor’s long term record investing in equities has been very good). But the last 8 or 9 years? It appears Markel is having a bit of a midlife crisis. It has lost its way in its core specialty insurance business. And it is trying to build a third stool to its business - Ventures - and become a conglomerate like Berkshire Hathaway. Markel’s struggles today highlight the difficulties and the importance of transitioning from a founder led company to a non-founder led company. Clearly, something has been lost. Hopefully Markel is able to figure it out. Markel is providing an important teachable moment for Fairfax and Berkshire Hathaway, their boards (and their shareholders). But hey, at least Markel is still controlled by the Markel family. So they will be given the time needed to right the ship. Right? Wrong. This used to be the case. This is no longer true. Loss of family control How much of Markel does the Markel family own? At March 14, 2024, the two Markel brothers (Anthony, age 82 and Steven, age 75) owned/controlled 178,375 shares, which is about 1.3% of total shares outstanding (13.8 million). The two Markel brothers also seem to be slowly selling shares each year, which is interesting. All directors, directors nominees and executive officers as a group owned 1.7% of Markel’s outstanding share (at March 14, 2023). Needless to say, from a stock ownership perspective, I think it is safe to say that the Markel family is no longer in control of Markel. (Source - From notice and proxy statement for Markel’s 2024 annual meeting) It is interesting to compare this to Fairfax. Prem’s economic ownership stake in Fairfax is about 9.5%. And his voting control position is more than 40% (due to multiple voting shares). He is also grooming his son/daughter. Fairfax will continue to be a family controlled company for the foreseeable future. But what about Berkshire Hathaway? Is Buffett not giving most of his shares to various charities? Who will be selling chunks every year? Bottom line, it doesn’t look to me like Berkshire Hathaway will have a controlling shareholder. Especially 10+ years after Buffett is gone. Now maybe the sheer size of Berkshire will act as a deterrent to activist shareholders. Or maybe it will be a catalyst - the short term financial rewards of breaking up Berkshire Hathaway could be huge (especially if the company - like Markel - hits some pot holes and begins a stretch of underperformance). ————— The question that is usually asked is the following: ‘Is family control a good thing?’ With what is going on with Markel today, perhaps the better question is: ‘Can the business model survive without family control.’ My view is Markel’s current business model (investing in equities and Ventures) requires family control to be sustainable over the long run. The equity part of the equation is hard enough. There is a reason other P/C insurance companies don’t do it - despite the fact that it will deliver higher returns than a bond only portfolio over the long run (if done well). But trying to also build out a Ventures portfolio - that is even more difficult. These investments are much more illiquid and much of the value creation is not captured in accounting results (EPS and BV) in the short term. Once again, we can look to Buffett for guidance. “Our equation is different. With 47% of Berkshire’s stock, Charlie and I don’t worry about being fired, and we receive our rewards as owners, not managers. Thus we behave with Berkshire’s money as we would with our own. That frequently leads us to unconventional behavior both in investments and general business management.” Buffett Shareholder Letter - 1984 Buffett is telling us that having a control position is what gives him the peace of mind/ability to invest in equities and to buy entire businesses. He is the GOAT. And he thinks this is important. And that is because Buffett understood that investing in equities was volatile - and could result in short term underperformance (short term = a couple of years). At the same time, he also understood that when buying control positions, it might take 5 or more years for the economic value to be reflected in the accounting results (eventually showing up in investment gains). But because he had a control position, he was able to make decisions that he knew would pay off in the long term. Gaynor is good… but he s no Buffett. When it comes to buying both equities and buying control positions. If Markel’s share price underperforms for a few years… well, the Wall Street vultures will probably start clamouring for change… and for value to be surfaced. And what do you know… that is exactly what seems to be playing out today. Now that the Markel family is no longer in control of Markel, having an equity heavy investment portfolio will likely be challenging enough - very strong equity market returns the past 2 years have provided a reprieve (and likely inflated BV at YE 2024)… but another bear market in stocks is coming. What will Jana (and the rest of Wall Street) say when that happens? The Ventures part is the real head scratcher (with no family control). It looks to me like the decision to grow Ventures might prove to have been a strategic mistake. But there is another related problem. Buy and hold forever Over time, economic value that has been created will show up in accounting results - via capital gains. But buy and hold forever slows this process down. This has not been a problem for Buffett. He has created so much value, that if some of it is not recognized right away… well, who cares. But, as we said earlier, Gaynor is not Buffett - his results will not be nearly as good. He can’t afford to wait like Buffett. This is not a criticism of Gaynor… no one will be as good as Buffett. But for Gaynor to want to clone Buffett in this regard… well that is a problem. Markel will look like it is underperforming compared to peers. And that will not sit well with Wall Street or Markel shareholders. I much prefer Fairfax’s approach in this regard. It is more classic Graham. Buy stuff when it is cheap. Sell it when it is expensive. Rinse and repeat. Importantly, this strategy more quickly/continually surfaces the significant economic value that is building on Fairfax’s balance sheet with its equity and control positions. And once it shows up in accounting results (EPS and BV) it gets reflected in the valuation of the company and the share price. ———— Another Mistake made - historic bond bond bubble / bear market If we are going to discuss mistakes made at Markel in recent years, we need to discuss one more forced error. Most P/C insurance companies made this same error. Because most everyone did it… well, it is something not usually discussed today in polite company (especially among analysts). Markel has a ‘policy’ of matching the average duration of its bond portfolio with the average duration of its insurance liabilities. This kind of makes a lot of sense most of the time. When does it not make sense? When a historic bubble in bonds is blowing. Like what we saw in 2020 and 2021. The 5 year US Treasury traded at a yield below 40 basis points for much of 2020. The 10 year treasury traded at a yield below 70 basis points for much of 2020. What were P/C insurance companies doing in 2020 and 2021? They were busy buying bonds - and making sure they were matching the maturity to their insurance liabilities. If that meant buying the 5 year US Treasury at a yield of 0.5% that is what they did. Because they were prudent insurance companies, after all, not market timers or ‘macro’ investors (that would be terrible). What were P/C insurance companies missing? Apparently they did not understand some arcane concept called duration risk. What was the mistake? When interest rates went to zero (across the curve) in 2020 and 2021, investors were not getting paid for taking on duration. There was no margin of safety when purchasing bonds with duration. Taking on duration opened you up to significant losses - of a size large enough to impact the balance sheet. What happened in 2022? The inflation genie got out of the bottle and interest rates spiked higher. The value of bonds got torched, especially those with a longer duration. And because most P/C insurance companies invest primarily in bonds, their balance sheets got torched - with book value per share at most P/C insurance companies falling 10% to 20% in 2022. Yes, it wasn’t a solvency issue for most P/C insurance companies (although it could have been for some if 2021/2022 had been historically bad for catastrophes). Buffett talks about accounting value often being different from economic business value. Interest rates spiking in 2022 was a great example of serious destruction of economic value at P/C insurance companies - that was not reflected in the accounting results (like EPS and ROE). Buffett thought it was idiotic to buy duration in 2021. Why? Value investing 101. And this was not Buffett’s first rodeo with spiking interest rates… a similar thing happened in the mid 1980’s. He wrote about it in his shareholder letters then (and the damage it did to insurance companies balance sheets then). Gaynor is a value investor. He is trying his best to clone Berkshire Hathaway. He should have known better. Policies and procedures are good. But they can’t become a straight jacket. Or used as an excuse for lazy thinking. This is a judgement thing… and it does not look good on Gaynor. It cost Markel billions - in 2022 BV fell by 10% (and stunted growth in BVPS for years). Even today, their fixed income portfolio yield is low (3.2% for ‘fixed income securities’, which does not include ‘short term investments’ which is 4.8%) - the earn through of higher rates has been slow. Like Berkshire Hathaway, Fairfax recognized that bonds were in a bubble and investors were not being paid to take duration. In late 2021, Fairfax reduced the average duration of their fixed income portfolio to 1.2 years. In Q4, 2021, Fairfax sold $5.2 billion in corp bonds (acquired in March/April 2020) at yield of 1% and booked an investment gain of $253 million. BVPS at Fairfax actually went up in 2022. Some pundits have called what Fairfax did a ‘macro bet.’ It wasn’t. It was simple value investing. And basic risk management - protecting the balance sheet - something that is critically important to an insurance company. Especially at the beginning of a hard market. ————— What happens next? What will happen next with Markel? It is impossible to know. Nothing. Sell Ventures. Sell the whole company. Bottom line, it appears Markel is in play. And Wall Street loves it. Fairfax (and Berkshire Hathaway) shareholders should be paying attention to what is going on at Markel today. Before it is all over, my guess is what happens to Markel will provide some important lessons for the management teams, boards and shareholders of Fairfax and even Berkshire Hathaway. @Viking, remember that Buffett shunned share buybacks for his own company with reasoning that it would take advantage of existing shareholders. I never understood such reasoning but the fact is, Buffett could have repurchased a lot of stock over the years but instead preferred to build an empire. One can only wonder whether this is one of his few regrets.
Dudley Posted February 11 Posted February 11 @Viking Great write-up on Markel. It has seemed for some time that Markel has lost its way. I don't know if getting into Ventures was necessarily a mistake or if they have mis-executed there. The one thing that stands out profoundly to me is that if you believe your shares are undervalued, to your point, why aren't you buying back stock more aggressively? There seems to be a lack of conviction in Gaynor (relative to Buffett and Prem). Perhaps that's becuase he didn't start Markel but rather joined as an employee. Similarly, the "founder mentality" that Zuckerberg has over someone like Sundar Pichai is evident in how Meta and Google are run. Zuck is willing to take bold bets and stand behind his conviction (he has controlling shares in Meta). So, my theory is that it's some combination of lack of control and Gaynor not being the founder that has led to Markel's current situation. Without someone who has unbelievable conviction, it is probably difficult to pull off the insurance-led holdco structure.
Viking Posted February 11 Author Posted February 11 (edited) 8 minutes ago, 73 Reds said: @Viking, remember that Buffett shunned share buybacks for his own company with reasoning that it would take advantage of existing shareholders. I never understood such reasoning but the fact is, Buffett could have repurchased a lot of stock over the years but instead preferred to build an empire. One can only wonder whether this is one of his few regrets. @73 Reds , I think a 'buy and hold forever' approach has serious drawbacks. Buffett's successors are going to inherit some big problems. The more I think about it the more I think a mix is needed: Buy and hold forever Buy low and sell high (more classic Graham) My guess is Fairfax views P/C insurance as buy and hold forever, with the caveat that they will sell businesses like pet insurance, if they offer is stupid high. Bottom line, I like that Fairfax - when it comes to capital allocation - have not painted themselves into any corners. Gaynor, it trying to clone Berkshire Hathaway is painting himself (and Markel) into corners - that seems kind of dumb to me... Edited February 11 by Viking
gfp Posted February 11 Posted February 11 (edited) 19 hours ago, SafetyinNumbers said: He controls that many but I think his economic position is ~800k shares less because FFH owns a stake in his holding company. @SafetyinNumbers I have a question about this interest (49.9% according to the 1992 letter) that Fairfax purchased in the Sixty Two Investment company - are these 800k look through shares counted as treasury stock at Fairfax when we cite a 22 million share count? I assume that these shares are outstanding and not cancelled but could still be handled at treasury stock for accounting purposes (just ask Sardar lol) Edited February 11 by gfp
dealraker Posted February 11 Posted February 11 19 minutes ago, Viking said: Markel - A Deep Dive I follow Fairfax very closely. Markel not so much. So you have been warned. What is happening at Markel today looks like it might be important. My thoughts below are very top-line. And subject to change as we get more information / see how things play out. I am putting this post in the Fairfax thread because I also weave Fairfax and Berkshire Hathaway into the story. Why should a Fairfax shareholder care about what is going on at Markel? There are two broad reasons for a Fairfax shareholder to pay attention to what is happening at Markel. The first is for practical reasons. Peers - It is important to follow other P/C insurance companies. This can provide important insights into what is going on in the industry in general (commentary on hard market, etc). Berkshire Hathaway / Markel - These two companies have business models that are closer to Fairfax’s than other P/C insurance companies. Among other things, they invest a large part of their investment portfolio in equities / control positions in other non-insurance companies. These two companies can provide an additional layer of insight. The second is for sentimental reasons. The history of Fairfax is closely intertwined with that of Markel, especially in the very beginning and first 15 years. ————— Let’s explore the second reason first. This will be short. Sentimental Of interest, Markel was responsible for Fairfax’s entry into the P/C insurance business 40 years ago. Fairfax actually started out as Hamblin Watsa, an investment counselling company, which was established in 1984. Prem teamed up with Tony Hamblin, who was his boss when he was working in the investments department at Confederation Life. In 1985, Hamblin Watsa (via The Sixty Two Investment Company), made their first P/C insurance purchase - a control stake in Markel Financial (Canada). Steven Markel (from Richmond, Virginia) was instrumental in getting this deal done and he agreed to help run the company until a new president could be found. The name change from Markel Financial (Canada) to Fairfax Financial happened in 1987. In 1990, the two businesses separated (Markel US and Fairfax). Until 1998, each (Steven Markel and Prem Watsa) served on the other's board. “I consider him (Steve Markel) one of the founders of Fairfax." Prem Watsa Source: Fair and Friendly - The First 25 Years of Fairfax Financial And as they say, the rest is history. There is much more to the Markel / Fairfax relationship / story. That would make for a fun and interesting future post. Let’s get back to our topic for today. ————— Practical Munger - invert "Be consistently not stupid, instead of trying to be very intelligent." Charlie Munger Inversion involves looking at a problem or decision from the opposite point of view so, for example, rather than focusing on achieving success, Inversion encourages you to consider how to avoid failure. https://modelthinkers.com/mental-model/inversion A good way to avoid failure is to learn from the mistakes of others. So you can avoid them. With that context, let’s now look at what is going on at Markel. ————— Below is a summary of what we will review in this post Markel Group - An update The activist appears Markel drops a bomb on (long term) shareholders Is a low share price the problem? What are the real problems at Markel? Succession planning gone wrong? Loss of family control? Another Mistake made - historic bond bond bubble / bear market What happens next? ————— Markel Group - An update Markel was listed on the NASDAQ exchange in December 1986 with an IPO offered at $8.33 per share. Today, the stock trades at about $2,000 per share. Over the past 39 years, the CAGR in Markel’s share price has been 15%, making it one of the top performing public companies. Outstanding. The Markel family was responsible for over seeing the majority of this run. Steven Markel currently serves as Chairman of Markel’s board. But something appears to have changed at Markel in recent years. And not in a good way. Markel appears to be making some mistakes. Most importantly, its crown jewel, specialty insurance, has been underperforming. In September, 2023, Insurance Insider did a deep dive into Markel and its business. It goes into detail of what Markel’s issues are. We have copied some of the key points below and provided a link to the article. “It’s a good business.” “However, the firm has made repeated missteps in its insurance M&A strategy, with a huge Wrong Side of History Bet on ILS in 2015-18, following on from a so-so deal for Bermudian Alterra and the challenged acquisition of Terra Nova. “Its US E&S business remains strong, but it has arguably lost something intangible that it once had (and Markel is a company that believes in the value of intangibles). Here, Markel chose diversification rather than doubling down just ahead of a Golden Age of US specialty. That choice was reflected in its decision to let Allied World – ultimately sold to Fairfax – go when takeover talks were held in 2016. “Crucially, the firm’s share price has underperformed since the Financial Crisis, lagging the stronger specialty insurers massively and also behind the S&P 500. Some of this likely reflects its desire to walk the Berkshire path of investor relations without the gravitational pull of Buffett, and some of the challenges of getting full value ascribed to its non-insurance “Venture” businesses when it reports as an insurance company.” Click the link below for details. Markel: Trying to be Berkshire without Buffett https://www.slipcase.com/view/inside-in-full-markel-trying-to-be-berkshire-without-buffett/3 ————— The activist appears In November, 2024, activist investor Jana Partners appeared on the scene. On December 14, 2024, CNBC (in an article by Kenneth Squire) provided a good summary of Jana and why they have targeted Markel. We have copied some of the key points below and provided a link to the article. “Jana is a very experienced activist investor founded in 2001 by Barry Rosenstein. The firm made its name by taking deeply researched activist positions with well-conceived plans for long term value. Rosenstein called his activist strategy "V cubed." The three "Vs" were" (i) Value: buying at the right price; (ii) Votes: knowing whether you have the votes before commencing a proxy fight; and (iii) Variety of ways to win: having more than one strategy to enhance value and exit an investment. Since 2008, the firm has gradually shifted that strategy to one which we characterize as the three "Ss" (i) Stock price – buying at the right price; (ii) Strategic activism – sale of company or spinoff of a business; and (iii) Star advisors/nominees – aligning with top industry executives to advise them and take board seats if necessary.” What is Jana calling for? “Jana called on Markel to improve its insurance operations and explore a separation or sale of its private investments business (Ventures). The firm also noted that the entire company presents an attractive acquisition target for larger insurers.” Click the link below for details. Activist Jana calls on Markel to focus on insurance. Here's how the firm can help create value https://www.nbcchicago.com/news/business/money-report/activist-jana-calls-on-markel-to-focus-on-insurance-heres-how-the-firm-can-help-create-value/3624425/?os=ios%2F%3Fno_journeystrue&ref=app ————— Markel drops a bomb on (long term) shareholders When Markel reported YE 2024 results on Feb 5, 2025, they also delivered a surprise ‘update’ for shareholders. Below are a few highlights: “…we believe the value and potential of our combined group of businesses is not fully reflected in our current stock price. “In December 2024, JANA Partners publicly shared their perspectives on Markel Group and offered suggestions we might consider. We took this as an opportunity for broader self-reflection, in line with our commitment to the ‘zealous pursuit of excellence.’ “…we have decided to conduct a review of our business. It will be an opportunity to reflect on the changes over the past two years and ensure our goals and direction align with our shareholders' priorities. “The board will lead this review, assisted by external consultants and advisors. Our foremost focus will be the performance of our market-leading specialty insurance business. Insurance is at the heart of what we do, and we're fully committed to supporting areas within insurance that are excelling while also addressing underperformance. “Additionally, as part of the review we will consider ways to simplify our structure, optimize our approach to capital allocation, and enhance our disclosures. During this period, we expect to focus capital deployment on repurchasing shares under the recently announced $2 billion stock buyback program.” Click the link below for the complete release. Markel Group Inc. provides update for its shareholders https://ir.mklgroup.com/investor-relations/news/news-details/2025/Markel-Group-Inc.-provides-update-for-its-shareholders/default.aspx ————— In November 2024, an activist investor shows up. And in February 2025, Markel announces they will be conducting a review of their business, with the help of external consultants and advisors. Holy shit Batman! External consultants and advisors? Really? I wonder what Charlie Munger would say? (I think I know…) Is this what well run companies do? Nope. Clearly, the board/senior team at Markel don’t know what to do. Or they do know… and they are unable to do it on their own. How did Markel’s shares respond to the ‘update’ provided by Markel? Of course, Wall Street cheered the news - the shares finished the day up 8%. The volume of shares traded tripled. It appears Wall Street is now in control of the company. And maximizing short term value for shareholders is the new objective. What about long term shareholders? Of course, Wall Street doesn’t give a shit about them. —————- So what is the big problem at Markel today? Well one of the lead lines in Markel’s press release was the following: “…we believe the value and potential of our combined group of businesses is not fully reflected in our current stock price.” The big problem appears to be a low share price. But is a low share price really a problem? No. A low share price is a gift. What? Says who? Some guy names Warren Buffett. Apparently, Tom Gaynor has never heard of this guy (Buffett), because if he had he would not be complaining about his share price being too low right now. Instead of complaining (and bringing in expensive ‘external consultants and advisors’ to tell him and the board what to do) he would be vacuuming up as many Markel shares as he could - and counting his lucky stars at his good future. But I can year you retort: ‘Markel is buying back shares.’ Yes, they have been buying back shares. But how much? Over the past 5 years Markel has reduced shares outstanding by 1.5% per year. Not much. Especially if you think your shares are dirt cheap (which Markel evidently does). Let’s look to Buffett again for guidance. "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble." - Warren Buffett. Capital allocation 101 When your shares are dirt cheap, any self respecting value investor knows that is the time to back up the truck. Buybacks increase the per share intrinsic value for long term shareholders. And the action is low-risk / high certainty capital allocation activity. This is an example of jumping over a one foot hurdle. And the longer the shares stay cheap the better (or so says that Buffett guy). It just means management can buy back more. But Markel has just tipped its hand to Wall Street. And by announcing a ‘review’ they have also caused the stock to increase significantly in value. It’s like asking the grocery store to raise prices before you do your shopping. So now Markel gets to complete with Wall Street/short term traders for shares - which of course just means they will now be paying a much higher price. What about Markel shareholders? Isn’t a low share price good for them too? Especially if it stays low for a long time? Well, this is really only true if management at Markel isn’t asleep at the wheel - and is actually buying back shares - and in volume. Which they aren’t. So I guess that partly explains why some Markel shareholders are getting a little testy. And why an activist like Jana is getting the time of day from anyone. As an aside… Fairfax has had a similar problem - a share price trading well below its intrinsic value. Their solution? Over the past 5 years (2019 to 2024), they have bought back 19.1% of their shares outstanding, paying an average price of $630/share. They also got exposure to another 1.96 million via FFH-total return swaps at $373/share (meaning they effectively ‘took out’ 26.4% of shares outstanding at an average price of $560/share). From a capital allocation perspective, buybacks have been Fairfax’s biggest use of cash over the past 5 years. The per share value creation has been enormous (shares were purchased significantly below intrinsic value). Over the past 5 years, Fairfax’s has generated a total shareholder return of 208%, or a CAGR of 25.2%. As a result, Fairfax shareholders are pretty happy campers these days. Over the same time period, Markel has delivered a total shareholder return of 51%, or a CAGR of 8.6%. —— Buffett on share buybacks Below is what Buffett had to say about share buybacks in his 1984 shareholder letter (published February 1985). “The companies in which we have our largest investments have all engaged in significant stock repurchases at times when wide discrepancies existed between price and value. As shareholders, we find this encouraging and rewarding for two important reasons - one that is obvious, and one that is subtle and not always understood. “The obvious point involves basic arithmetic: major repurchases at prices well below per-share intrinsic business value immediately increase, in a highly significant way, that value. When companies purchase their own stock, they often find it easy to get $2 of present value for $1. Corporate acquisition programs almost never do as well and, in a discouragingly large number of cases, fail to get anything close to $1 of value for each $1 expended. “The other benefit of repurchases is less subject to precise measurement but can be fully as important over time. By making repurchases when a company’s market value is well below its business value, management clearly demonstrates that it is given to actions that enhance the wealth of shareholders, rather than to actions that expand management’s domain but that do nothing for (or even harm) shareholders. Seeing this, shareholders and potential shareholders increase their estimates of future returns from the business. This upward revision, in turn, produces market prices more in line with intrinsic business value. These prices are entirely rational. Investors should pay more for a business that is lodged in the hands of a manager with demonstrated pro-shareholder leanings than for one in the hands of a self-interested manager marching to a different drummer. “The key word is “demonstrated”. A manager who consistently turns his back on repurchases, when these clearly are in the interests of owners, reveals more than he knows of his motivations. No matter how often or how eloquently he mouths some public relations-inspired phrase such as “maximizing shareholder wealth” (this season’s favorite), the market correctly discounts assets lodged with him. His heart is not listening to his mouth - and, after a while, neither will the market.” —— Is a low share price really the problem at Markel. No, of course not. But it might be a symptom of bigger problems. To read part 2 - go to the next post in this thread (directly below). I think I am correct recall 25 or more years ago one of my questions to Tony Markel was why he consistently sold stock, a significant amount it seemed to me.
djokovic1 Posted February 11 Posted February 11 @Viking Firstly, I have to say thanks so much for your 550 page compendium. It is such an amazing piece of work. I love it. I have gone through it in detail. Me + 1 run a long only fund from the UK. I looked at Fairfax early 2023 and like an idiot didn't spend time on it because of the 2010 to 2018 period. Could I trust their capital allocation, this idiot said. Well I think it's not too late to correct that mistake. I have fallen in love with Fairfax over the last 2 months and you have helped a lot. So thank you! We now (finally) have a position in this beautiful company. As you and others on this forum allude to, even with the stock run up I think the risk reward on Fairfax right now is unmatched. I look forward to participating in this forum albeit, I wish I was smart enough to have found it at least a few years ago.
Viking Posted February 11 Author Posted February 11 1 minute ago, dealraker said: I think I am correct recall 25 or more years ago one of my questions to Tony Markel was why he consistently sold stock, a significant amount it seemed to me. @dealraker , did you get an answer? Because that was one of the questions I had preparing this post... (I always thought he - the Markel family - still owned a bunch).
73 Reds Posted February 11 Posted February 11 30 minutes ago, Viking said: @73 Reds , I think a 'buy and hold forever' approach has serious drawbacks. Buffett's successors are going to inherit some big problems. The more I think about it the more I think a mix is needed: Buy and hold forever Buy low and sell high (more classic Graham) My guess is Fairfax views P/C insurance as buy and hold forever, with the caveat that they will sell businesses like pet insurance, if they offer is stupid high. Bottom line, I like that Fairfax - when it comes to capital allocation - have not painted themselves into any corners. Gaynor, it trying to clone Berkshire Hathaway is painting himself (and Markel) into corners - that seems kind of dumb to me... The question is, does a buy and hold forever approach still attract potential acquisition candidates? Me thinks this is what is meant by Berkshire's culture, though like you, I wonder whether and to what extent it is necessary for successor management to continue down this road. Clearly it doesn't apply to Berkshire's minority positions held in the form of stocks so if operating companies are no longer holding their own, to what extent does successor management owe a duty to what likely may be successor managers of any such operating companies? My own inclination is that if something can't be profitably salvaged why try to save it? The very unique benefit of a company that can and does invest in anything is that it can and does invest in anything - it is not beholden to subpar. It will be interesting to see what changes come of Berkshire post-Buffett and how much of the company's culture remains tied to the past.
dealraker Posted February 11 Posted February 11 (edited) 41 minutes ago, Viking said: @dealraker , did you get an answer? Because that was one of the questions I had preparing this post... (I always thought he - the Markel family - still owned a bunch). No Viking I did not get an answer. My wife was the CPA/accountant for DeFazio's owned my Joe DeFazio and Tony would eat lunch there often. I'd go to Richmond (her family lived there) with my wife often. The owner Joe DeFazio was a great conversationalist social guy --- and of course I was infatuated with the long tail float business model trying to figure out how much money I could stomach investing there. And Tony's selling just concerned me. But neither Joe's plodding nor I could ever get the big affable guy to chime in with his reasons for a very steady constant selling of stock. Edited February 11 by dealraker
dealraker Posted February 11 Posted February 11 (edited) 8 minutes ago, dealraker said: No Viking I did not get an answer. My wife was the CPA/accountant for DeFazio's owned my Joe DeFazio and Tony would eat lunch there often. I'd go to Richmond (her family lived there) with my wife often. The owner Joe DeFazio was a great conversationalist social guy --- and of course I was infatuated with the long tail float business model trying to figure out how much money I could stomach investing there. And Tony's selling just concerned me. But neither Joe's plodding nor I could ever get the big affable guy to chime in with his reasons for a very steady constant selling of stock. Well, Angela says that I used to say that Tony mentioned that he wanted to diversify as he turned 60. I don't remember him saying that but Angela says that's what I would say years ago. Edited February 11 by dealraker
djokovic1 Posted February 11 Posted February 11 (edited) FYI Intact posted pretty solid results today. They trade at ~2.5x Fairfax's valuation.... I have a couple of questions. It's pretty clear that Fairfax can earn 15-20% ROE for the next few years given the locked in fixed income yields assuming normalised combined ratios and equity returns. 1. Then why are consensus expectations for 2025 and 2026 so low? In my view it doesnt require more than common sense to say, they will do much better than that assuming normalised cat losses and equity returns. 2. How do you think Fairfax would do in a very low interest rate environment. It doesnt seem likely that happens in the near term but for whatever reason if rates go down below 3%, Fairfax's ROE likely finds it much harder to get to 10%-15% ROE? Of course at current valuation, and the fixed income yields locked in, not a big issue for a few years. Edited February 11 by djokovic1
gfp Posted February 11 Posted February 11 Interesting looking back at the 1995 Markel proxy (sorry to muddle up a Fairfax thread, but Prem does make an appearance)
Viking Posted February 11 Author Posted February 11 (edited) 27 minutes ago, djokovic1 said: FYI Intact posted pretty solid results today. They trade at ~2.5x Fairfax's valuation.... I have a couple of questions. It's pretty clear that Fairfax can earn 15-20% ROE for the next few years given the locked in fixed income yields assuming normalised combined ratios and equity returns. 1. Then why are consensus expectations for 2025 and 2026 so low? In my view it doesnt require more than common sense to say, they will do much better than that assuming normalised cat losses and equity returns. 2. How do you think Fairfax would do in a very low interest rate environment. It doesnt seem likely that happens in the near term but for whatever reason if rates go down below 3%, Fairfax's ROE likely finds it much harder to get to 10%-15% ROE? Of course at current valuation, and the fixed income yields locked in, not a big issue for a few years. I think Fairfax can deliver a 15% ROE in the coming years. I try and keep my expectations reasonable. 15% would be amazing (compounding is a wonderful thing). ‘Consensus expectations’ has a big problem with investment gains (realized and unrealized). The number any one year is volatile and impossible to accurately predict. So it looks to me like they pretend it doesn’t exist (use a very low estimate). When the investment gains get reported they adjust their models. Its kind of like driving your car but trying to do so by looking primarily through the rear view mirror. The interesting thing is you can model investment gains with a fair bit of accuracy if you use a three year average. But apparently that is beyond the ability of most professional analysts. In terms of forecasting things for Fairfax I don’t spend any time trying to predict anything more than 3 years out. There are simply too many important moving pieces (that Soros reflexivity thing). In terms of interest rates (and interest income), Fairfax looks locked and loaded for the next three years. If I get 2025 and 2026 right, 2027 and later will look after itself. ————— PS: I am not trying to beat up on analysts (well not too much). Bottom line, they do have a pretty tough job trying to predict one year earnings for a company like Fairfax. Edited February 11 by Viking
djokovic1 Posted February 11 Posted February 11 Yes I agree with your assessment. It's very surprising that analysts dont use a 40 year track record for their inputs for arguably the biggest driver of ROE!! Common sense is again, not that common.
Viking Posted February 11 Author Posted February 11 24 minutes ago, gfp said: Interesting looking back at the 1995 Markel proxy (sorry to muddle up a Fairfax thread, but Prem does make an appearance) @gfp, your chart provides a great summary of how much of Markel the family used to own. They went from about 24.5% in 1995 to 1.3% in 2024. That is a staggering difference. Actions speak louder than words.
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