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BRK vs MKL


Shane
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It's no surprise that many board members here own BRK, but there doesn't seem to be nearly as many who own MKL.

 

Given that the two companies are similar in strategy & that MKL is working on building a private equity business, why are people not interested in the company?  Currently berkshire is more than 50x the size of MKL and both are trading at the same multiple to BV. MKL has a higher normalized ROE over the past 10 years and I think it is easy to assume they will keep this up as BRK is a mammoth already.  MKL has more investment opportunities than BRK & is more of an insurance company, which may benefit from the suggested hardening market.

 

On a long-term basis (10+ years) I assume that MKL will continue to compound BV faster than BRK & will not pay dividends, heir runway for growth is much longer.

 

Thoughts?

 

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It's no surprise that many board members here own BRK, but there doesn't seem to be nearly as many who own MKL.

 

Given that the two companies are similar in strategy & that MKL is working on building a private equity business, why are people not interested in the company?  Currently berkshire is more than 50x the size of MKL and both are trading at the same multiple to BV. MKL has a higher normalized ROE over the past 10 years and I think it is easy to assume they will keep this up as BRK is a mammoth already.  MKL has more investment opportunities than BRK & is more of an insurance company, which may benefit from the suggested hardening market.

 

On a long-term basis (10+ years) I assume that MKL will continue to compound BV faster than BRK & will not pay dividends, heir runway for growth is much longer.

 

Thoughts?

 

You are correct.  Berkshire's size will prove to be a detriment.  As far as price to book value goes, Berkshire's non-insurance businesses, and perhaps even their insurance business, deserves a significantly higher premium than many others, simply because they are businesses that are on top of their respective food chains.

 

That being said, I think investors will do better long-term with Markel than Berkshire...and they will do even better with Fairfax than Markel!  ;D  Cheers! 

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And Tom Gaynor is not Warren Buffett when it comes to investing.

 

Definitely not Buffett, but I think he's as good as Weschler and Combs who will be running things.  He's also got a hell of lot more runway than them.  Hamblin-Watsa is as good if not better than Gaynor, and the leverage there should help.  If I had to choose one, it would be Fairfax hands down...but investors will do better than the markets with any of them.  Cheers!

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It's no surprise that many board members here own BRK, but there doesn't seem to be nearly as many who own MKL.

 

Given that the two companies are similar in strategy & that MKL is working on building a private equity business, why are people not interested in the company?  Currently berkshire is more than 50x the size of MKL and both are trading at the same multiple to BV. MKL has a higher normalized ROE over the past 10 years and I think it is easy to assume they will keep this up as BRK is a mammoth already.  MKL has more investment opportunities than BRK & is more of an insurance company, which may benefit from the suggested hardening market.

 

On a long-term basis (10+ years) I assume that MKL will continue to compound BV faster than BRK & will not pay dividends, heir runway for growth is much longer.

 

I am interested in MKL and own a meaningful position.

 

You make some valid points. Size is in their favor and they have a long runway. Management is talented, honest and disciplined. They are good investors. Like Buffett, they like high quality businesses with proven earnings and opportunities to reinvest, although they have a more diversified portfolio. They have a track record as good underwriters, and disciplined underwriting is a deep part of their corporate DNA. Markel Ventures is off to a good start. It's still small potatoes but over time it may become a meaningful contributor to earnings. Finally, given its long term track record and strong ROE, it probably deserves to trade at a higher multiple to book (as it has historically).

 

If you're patient, there is a very high chance of getting a good (and maybe very good) result with MKL. Given their cheap leverage and value investing acumen, odds favor beating the S&P.

 

The Markel Omaha meeting the day after the Berkshire meeting is a must stop when making the pilgrimage to Omaha.

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Could you tell me more about The Markel Omaha meeting?

 

It is held the morning after the Berkshire meeting and includes a very nice breakfast. This year it expanded to the Omaha Hilton across the street from the CenturyLink Center where the Berkshire meeting is held. Tom Gayner and Steve Markel make some opening remarks and then open it up for Q&A. The audience includes a lot of informed investors and large value investors such at Tom Russo, David Winters, Mohnish Pabrai, etc. The discussion is useful and questions are typically informed and intelligent.

 

I have found that attending gives me an opportunity to both follow the investment and take the measure of management, whom I've found to be first class people.

 

 

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Did anyone ever check what returns would have been if you just bought MKL, BRK, FFH (and maybe LUK and others), each equal part of portfolio and rebalancing every few months/year?

 

Should you even rebalance?  Buffett has an analogy about selling your superstar on rebalancing (advocating instead to just let the good ones roll).  On the other hand, they are all fantastic and there is volatility, so perhaps rebalancing makes sense.

 

I'm personally using a good bit of my portfolio to purchase positions in these (although I don't have MKL) whenever they get close to book, hoping for an edge over a mechanistic strategy.  Hopefully, this isn't too much of a "driving looking at the rear view mirror" type of deal though...

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Could you tell me more about The Markel Omaha meeting?

 

It is held the morning after the Berkshire meeting and includes a very nice breakfast. This year it expanded to the Omaha Hilton across the street from the CenturyLink Center where the Berkshire meeting is held. Tom Gayner and Steve Markel make some opening remarks and then open it up for Q&A. The audience includes a lot of informed investors and large value investors such at Tom Russo, David Winters, Mohnish Pabrai, etc. The discussion is useful and questions are typically informed and intelligent.

 

I have found that attending gives me an opportunity to both follow the investment and take the measure of management, whom I've found to be first class people.

 

 

 

They are most definitely first-rate management at Markel.  A more trusted bunch would be hard to find.  Cheers!

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Could you tell me more about The Markel Omaha meeting?

 

It is held the morning after the Berkshire meeting and includes a very nice breakfast. This year it expanded to the Omaha Hilton across the street from the CenturyLink Center where the Berkshire meeting is held. Tom Gayner and Steve Markel make some opening remarks and then open it up for Q&A. The audience includes a lot of informed investors and large value investors such at Tom Russo, David Winters, Mohnish Pabrai, etc. The discussion is useful and questions are typically informed and intelligent.

 

I have found that attending gives me an opportunity to both follow the investment and take the measure of management, whom I've found to be first class people.

 

 

 

Thanks Val.

 

Do you have to be a MKL shareholder?

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Could you tell me more about The Markel Omaha meeting?

 

It is held the morning after the Berkshire meeting and includes a very nice breakfast. This year it expanded to the Omaha Hilton across the street from the CenturyLink Center where the Berkshire meeting is held. Tom Gayner and Steve Markel make some opening remarks and then open it up for Q&A. The audience includes a lot of informed investors and large value investors such at Tom Russo, David Winters, Mohnish Pabrai, etc. The discussion is useful and questions are typically informed and intelligent.

 

I have found that attending gives me an opportunity to both follow the investment and take the measure of management, whom I've found to be first class people.

 

 

 

Thanks Val.

 

Do you have to be a MKL shareholder?

 

No.  Cheers!

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Could you tell me more about The Markel Omaha meeting?

 

It is held the morning after the Berkshire meeting and includes a very nice breakfast. This year it expanded to the Omaha Hilton across the street from the CenturyLink Center where the Berkshire meeting is held. Tom Gayner and Steve Markel make some opening remarks and then open it up for Q&A. The audience includes a lot of informed investors and large value investors such at Tom Russo, David Winters, Mohnish Pabrai, etc. The discussion is useful and questions are typically informed and intelligent.

 

I have found that attending gives me an opportunity to both follow the investment and take the measure of management, whom I've found to be first class people.

 

 

 

Thanks Val.

 

Do you have to be a MKL shareholder?

 

No.  Cheers!

 

I have attended the last couple years with a group of 4 or 5 and I was the only shareholder. As others have said I would highly recommend this  event. I look forward to this brunch as much if not more than Berkshire's shareholder meeting. Tom Gaynor's assistant is always in charge with RSVPs. If you are planning on attending I would send her an email at least a month before the event. Her name is Myra Hey and her email is MHey@markelcorp.com.

 

 

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Why wasn't MKL greedy when others were fearful?

 

I think I remember that the only stock they bought between Oct 2008 and March 2009 was KMX (CarMax).

 

That's it!

 

Good question Eric. I kind of remember this coming up at the meeting. I somewhat recall a combination of factors:

 

1. Meaningful portion of capital already allocated to equities.

2. Lack of available dry powder.

3. Preservation of capital.

4. "Thumb sucking." My words, but I think they made this point in their own words.

 

I realize that these factors contain an element of contradiction and overlap. But, as is the case for all of us, intelligent investing cannot be reduced to a cut–and–dried algorithm and Gayner/S. Markel, like all of us, as a result of human frailty, are less than perfect when it comes to execution. I'm confident they would admit as much, which is part of their attraction (they're humble, transparent and honest). Fortunately, as Buffett has pointed out, successful investing does not require perfection.

 

Others may recall the discussion of these issues better than me, and I welcome their corrections and comments.

 

Sorry if I seem like an apologist for MKL. I'm not. Just giving my two cents. 

 

 

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After being impressed by a couple interviews I saw with Gaynor, I was surprised when I looked at their equity portfolio and saw that it had over 100 names.  That strikes me as glorified index territory.

 

Top ten holdings = approximately 50% of equities. Gayner buys lots of small tracking positions.

 

If memory serves, Buffett has mentioned buying a 100 shares of stocks to get the annual reports. Not sure if he continues the practice today. Nevertheless, MKL is less concentrated than Berkshire.

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5 year CAGR:

 

BRK book value growth last five years => 7.3%

MKL book value growth => 9%

FRFHF book value growth => 19.4% ( 10 year => 12% )

 

You pretty much have MKL and BRK trading at similar multiples to book and FRFHF slightly lower.

 

The problem with FRFHF for me is that the returns are lumpy and the underwriting is poor.  I believe they have made some statements to the effect that they want to improve underwriting and I have no mistrust of Watsa, but it is a riskier company IMO.  I dont argue that FRFHF won't return more, I just dont have that confidence that some board members do.  Maybe if I met Watsa that would change!

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Why wasn't MKL greedy when others were fearful?

 

I think I remember that the only stock they bought between Oct 2008 and March 2009 was KMX (CarMax).

 

That's it!

 

Their equity portfolio actually had a slight tilt towards financials (more insurers than banks) before the crisis.  If memory served me right, they owned their share of agency preferreds, Citi, and maybe ORI at some point. 

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Did anyone ever check what returns would have been if you just bought MKL, BRK, FFH (and maybe LUK and others), each equal part of portfolio and rebalancing every few months/year?

 

Should you even rebalance?  Buffett has an analogy about selling your superstar on rebalancing (advocating instead to just let the good ones roll).  On the other hand, they are all fantastic and there is volatility, so perhaps rebalancing makes sense.

 

I'm personally using a good bit of my portfolio to purchase positions in these (although I don't have MKL) whenever they get close to book, hoping for an edge over a mechanistic strategy.  Hopefully, this isn't too much of a "driving looking at the rear view mirror" type of deal though...

 

Well, if you believe you are able to value them based on some kind of BV measurement and they are indeed all fantastic, I think it would make sense. Maybe once every few months would be way too short. Once every year is probably much better to achieve higher returns because you will gain more in those times of irrational under- & overvaluation. Maybe a combination of rebalancing percentagewise and rules on buying and selling based on BV with option to get in cash (max xx %) and not limited to specific dates would give the best returns, idk.

 

I'm not taking into account taxes on gains and losses as I don't have them here in Europe, so that would probably make a huge difference and then letting your winners run makes a lot more sense.

 

http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1350072000000&chddm=996268&chls=IntervalBasedLine&cmpto=TSE:FFH;NYSE:LUK;NYSE:MKL&cmptdms=0;0;0&q=NYSE:BRK.B&ntsp=0&ei=7zl4UJjQNqeMwAPgGw

 

 

If anyone did the math in any way, let me know!

 

--

 

Btw, at current prices I'm rooting for $LUK to be the biggest gainer in the next 5-10 years. Just a wild guess. But obviously it isn't comparable with the three insurers.

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5 year CAGR:

 

BRK book value growth last five years => 7.3%

MKL book value growth => 9%

FRFHF book value growth => 19.4% ( 10 year => 12% )

 

Why investing is hard -

    here is the return on these three over five years. ( dates don't match with the CAGR return as CAGR is for end of year 2011 )

 

BRK => 4.84%

MKL => -12.22%

FFH.TO => 58.7% (without dividends)

SPY => -8.66% (without dividends)

 

And to good measure, let us add BH which has returned -8.6% after the name change.

 

 

 

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5 year CAGR:

 

BRK book value growth last five years => 7.3%

MKL book value growth => 9%

FRFHF book value growth => 19.4% ( 10 year => 12% )

 

Why investing is hard -

    here is the return on these three over five years. ( dates don't match with the CAGR return as CAGR is for end of year 2011 )

 

BRK => 4.84%

MKL => -12.22%

FFH.TO => 58.7% (without dividends)

SPY => -8.66% (without dividends)

 

And to good measure, let us add BH which has returned -8.6% after the name change.

 

price to book val growth is a good way to measure mkl & ffh value growth. but starting about 10 yrs ago brk's earnings power & intrinsic val growth has accelerated sharply over its growth in mere book thanks to its acquisitions of strong operating businesses at attractive prices utilizing cash

 

but of course brk has the gravity of size to contend with as well as webs own mortality which causes a the inevitable compression of the value multiples the market is willing to afford it 

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