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Markel Corporation (NYSE:MKL) markets and underwrites specialty insurance products and programs. Tom S. Gayner is its Chief Investment Officer and President of Markel Gayner Asset Management, the investment subsidiary of Markel Corp. Markel operates in Excess and Surplus Lines, Specialty Admitted, and London markets.

Sam Markel launched Markel in 1930. Markel Service was formed to be a separate, nationwide service organization to take care of both the direct and reinsured business of American Fidelity & Casualty. Nowadays, with $1.98 Billion in gross written premiums and $105 Million yearly in net income, it's one of the biggest companies in the property & casualty insurance industry.

Markel is investing its float in the stock market just like Warren Buffett’s Berkshire. Thomas Gayner has been the head of Markel Gayner Asset Management (Markel’s investment division) since 1990. He has been also chief investment officer of Markel since 2004. Gayner graduated from the University of Virginia Mcintire School of commerce in 1983.

Gayner follows the value investing principles of Warren Buffett and Benjamin Graham. Gayner stated in an interview with Morningstar that the businesses he seeks should have:

  1. A demonstrated record of profitability and good returns on total capital;
  2. High measures of talent and integrity in management;
  3. Favorable reinvestment dynamics over time; and
  4. A purchase price that is fair or better.

Markel's equity portfolio returned 11.1% annually between 2000 and 2009. One of the longest term investments of Markel is American Express (NYSE:AXP). In the last 18 years, AXP has gained 908% vs. SPY's gain of 318%.

According to 13F filings, Markel Gayner Asset Management Corp. has had at least 83 securities with a total value of $1.8 billion as of December 31st 2010. Gayner has been holding 22 of these stocks at least for the last three years. During the last quarter of 2010, he bought 23 new stocks and sold out only three positions, Comcast (NASDAQ:CMCSA), Enterprise GP Holdings (NYSE:EPE), Nestle ADR (OTCPK:NSRGY). Here are the 10 largest new stock picks:

Top Ten New Holdings

Stock

Value in Millions (USD)
As of Dec 31,2010

Return
Since Dec 31, 2010

Wal-Mart Stores (NYSE:WMT)

53.2

1.89%

Union First Market Bankshares (NASDAQ:UBSH)

51.8

-21.92%

United Parcel Service (NYSE:UPS)

51.2

3.79%

RLI Corporation (NYSE:RLI)

32.5

6.70%

W.P. Carey (NYSE:WPC)

30.2

2.56%

White Mountains (NYSE:WTM)

27.4

8.19%

Sysco Corp (NYSE:SYY)

23.6

-3.05%

Level 3 Communications (NYSE:LVLT)

16.7

33.67%

Washington Real Estate Investm (NYSE:WRE)

12.6

0.32%

T. Rowe Price (NASDAQ:TROW)

12.6

7.20%

Value Weighted Performance

0.85%

SPY

5.77%

Four of Jones’ top 10 new positions managed to beat the market.

Gayner’s largest new stock picks have gained 0.85% since the end of 2010, vs. 5.77% gain for the SPY. LVLT has had one of the best performances in his portfolio since the end of December. Gayner had $16.7 million in LVLT shares at the end of December. LVLT has gained 33.67% in the last seven weeks, beating the SPY by 27.9 percentage points. WMT was Gayner's biggest new investment at the end of December 2010. WMT has gained 1.89% since then, underperforming the SPY’s 5.77% return. Gayner has $53 million invested in WMT. Warren Buffet also had nearly $2.1 Billion in WMT and 104 million in UPS. George Soros is another legendary investor who recently bought WMT. RLI Corp is one of the three stocks insiders were buying like crazy at the end of January.

We think it’s more appropriate to check out Gayner’s 10 largest positions to understand more about his performance. Here are the results:

Top Ten Holdings

Stock

Value in Millions (USD)
As of Dec 31,2010

Return
Since Dec 31, 2010

Carmax (NYSE:KMX)

166.4

11.86%

Berkshire Hathaway Class B (NYSE:BRK.B)

126.5

6.08%

Fairfax Financial Holdings Ltd (OTCQB:FRFHF)

114.5

-3.62%

Berkshire Hathaway, Inc. (NYSE:BRK.A)

113.3

5.86%

Brookfield Asset Management (NYSE:BAM)

103.0

-2.56%

Diageo PLC (NYSE:DEO)

93.2

3.67%

Marriott International (NASDAQ:MAR)

58.9

-0.19%

Disney (NYSE:DIS)

55.8

14.88%

Wal-Mart Stores (WMT)

53.2

1.89%

Union First Market Bankshares (UBSH)

51.8

-21.92%

Value Weighted Performance

936.5

3.05%

SPY

N/A

5.77%

His 10 largest positions have returned 3.05% since the end of December, underperforming the SPY by 2.72 percentage points. His two best performing positions are DIS and KMX. KMX is one of the Roberto’s Mignone’s new stock picks during the last quarter of 2010. The biggest drag on Tom Gayner’s recent performance is the decline in UBSH.

Top Ten Long Term Holdings in Last 3 Years

Stock

Value in Millions (USD)
As of Dec 31, 2010

Return
Since Feb 15, 2008

Carmax (KMX)

166.4

89.88%

Fairfax Financial Holdings Ltd (OTCQB:FRFHF)

114.5

28.55%

Berkshire Hathaway, Inc. (BRK.A)

113.3

-11.14%

Brookfield Asset Management (BAM)

103.0

-2.56%

Diageo PLC (DEO)

93.2

3.01%

General Electric (NYSE:GE)

45.3

-28.92%

Home Depot (NYSE:HD)

33.9

52.16%

General Dynamics (NYSE:GD)

27.7

-0.08%

Fidelity National Financial (NYSE:FNF)

24.0

-8.71%

Caterpillar Inc (NYSE:CAT)

23.2

61.70%

Average Performance

744.4

25.06%

SPY

N/A

4.72%

The above table shows the performance of Gayner’s top 10 long-term stock holdings. Gayner’s largest investment over the last three years is Carmax. Carmax has returned almost 90% since February 2008, beating the market by a large margin. Thomas Steyer's Farallon and Richard Perry's Perry Capital recently initiated large positions in Home Depot. Gayner’s largest long term holdings have gained 25.06% since February 2010. Considering SPY’s 4.72% return, Gayner's long term picks are extremely successful. This underlines Gayners talent in picking long term winners.

Source: Tom Gayner's Amazingly Profitable Long-Term Stock Picks