Markel's a Buffett-In-Waiting - Barron's

How has insurer and Berkshire Hathaway-wannabe Markel (MKL) doubled its net worth and share price every five years since its 1986 IPO? Barron's says partly by insuring small businesses like garages and beauty parlors and not home and auto loans; and partly through high underwriting standards. Those are just some of the Buffett-like value investing ethics that the Markel family has duplicated in their corporate culture.

Yet Markel’s discipline has cost it. The property-casualty market slump impelled industry-wide, cutthroat reductions in fees and poorer underwriting standards. Markel won’t lower premiums to unsustainable levels, and big insurers are moving in on the company’s niche markets. Last year, Markel underwrote $2.4 billion of policies, down 7% from 2006. Q1’08 had 9% less than Q1’07. Shares are down to $400 from $550 last fall.

Bulls insist Markel will gain now that higher underwriting standards are back in vogue. Others might also copy Markel’s incentive model that gives employee’s cheap funds to buy stocks, rather than options. Markel’s P/E is historically low and industry pricing should improve. CIO Thomas Gayner’s stock picks for the holding company have also been remarkably successful—despite a penchant for financials. Bulls see a 20%+ rise for the stock.

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Travis Johnson agrees that Markel is very Buffett-like—and not just because Berkshire Hathaway is a major holding for the company. Markel is also slowly but steadily diversifying its portfolio away from stocks-only in to investments like First Market Bank and a bakery equipment business. Johnson doesn’t know if Markel as an investment opportunity is the next Berkshire, but thinks the company is certainly moving in the right direction.

Comments

[truthinvesting:]

Good article.These guys are a smaller much less efficent version of BRK

2008 Jun 01 06:12 PM

[samadams:]

Markel is only missing one thing, Warren E. Buffett. Lot of pressure to compare them to BRK.

2008 Jun 01 11:02 PM

[fxtrader07:]

buffet is not the only one with a long-term outstanding track record.
so missing buffet does not equal mediocre returns, necessarily.

barron's writing a positive article on mkl is somewhat disturbing to me (me being significantly long the stock) as Barron's has earned a reputation with me over the past 2 years as having tuned into one of the worst financial publications out there with a lot of unfounded made-up articles either pumping or bashing stocks. In many cases it was quite obvious that this was not just due to simple journalistic incompetence but rather deliberation.

2008 Jun 02 06:36 AM

[R. Richard ...:]

There is a difference in the policy of buying operating businesses and aggregating their results (ROC) etc., from picking good "investments" in the form of stocks or interim capital provisions.

However, there is something to be said for a program of investing premiums for gains rather than "yields" in the fashion of Carl Lindner. But even that can get snagged in things like Chiquita and Kroger.

Unique means what the dictionary says.

2008 Jun 02 07:44 AM

[John-Galt:]

Any analsys of MKL has to start with what is it's moat? While BRK is unique in terms of capital strength in the BIG re-insurance market, MKL's specialty lines is much more competitive and easier to enter. At least it is easier to enter stupidly, putting pressure on revenues. Reinsurance sells to a small group of sophisticated (?) clients, while specialty lines are more consumer-price sensitive. OTOH, MKL is not facing a "Buffet retirement watch", or the relative flood of required stock sales (relative to float) as his 30 year donation to the Gates foundation gets monetized. But MKL is still a good long term investment, just not a proxy for BRK.

2008 Jun 02 08:24 AM

[buyforeclos...:]

You have been pumping this since it was in the 500+ range! Same old song and dance. At 350 I MAY buy... White mountain is below book value and I wont buy that unless it drops into very low 400 range..its the economy stupid! lol

2008 Jul 08 04:52 PM

[Wadhamite:]

We need to keep in mind MKL does not pay a dividend. Capital appreciation is the only way to gain. I'm hoping this insurer moves ahead soon.

2008 Jul 09 03:30 PM