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John Huber

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  • Markel: A Compounding Machine At A Cheap Price [View article]
    Thanks for the comment Butterfly. Yes, Markel's portfolio--and maybe by extension its stock price--will likely be more volatile in the event of a market downturn.

    As for goodwill, I understand your logic for valuing insurance businesses on their net tangible assets. I view Markel as more of a holding company with $1100 per share in net investments. I wouldn't normally think of insurance businesses this way, and I understand completely the desire to anchor on tangible book. I think about Markel as much more than an insurance company, and I think over time this will only increase as MV grows.

    To me it's a financial holding company--almost akin to a closed end fund--with a vast and growing collection of stocks, bonds and businesses that are producing value that accrues almost exclusively to shareholders because the insurance business is both profitable and extremely conservative with their reserve practices.

    Thanks again for your thoughtful comments and thanks for reading!
    Apr 7 07:24 PM | 1 Like Like |Link to Comment
  • Markel: A Compounding Machine At A Cheap Price [View article]

    Good comment and excellent points to consider. I've thought a lot about the Alterra acquisition, and the integration is always a big uncertainty.

    I watched this 9 months or so and carefully tried to get a gauge on management response in calls, and in their letters, and so far--they have seemed to have mostly positive things to say about Alterra operations merging with Markel's culture.

    But it's a good point--and its tough know--and something we won't really know for a few years most likely.

    My guess is that management will be ultimately successful here, and will be able to maintain the culture that is so important to them at Markel.
    Apr 7 12:44 PM | Likes Like |Link to Comment
  • Markel: A Compounding Machine At A Cheap Price [View article]
    Thanks for the comment. Yes, I was having the same discussion with a friend (regarding the relative lack of interest around Markel) and it is really surprising given their record.

    It reminds me of something Peter Lynch wrote about it one of his books... basically Lynch said that certain companies remain almost perpetually undervalued--even as their stock occasionally reaches very high multiples based on a small snapshot in time (say last year's earnings).

    Lynch talks about Walmart, and how you could have bought Walmart 10 years after it was public and when the stock was already many multiples higher than the IPO price, and still achieved incredible investment results over time. You could have paid 50x earnings and gotten a bargain relative to the company's future cash flows. (Of course--I'm not recommending paying 50x earnings for anything, but in retrospect, he was right). Some businesses--even though their business model is not a secret and their past results have been outstanding, still don't seem to get properly valued by the market.

    Reminds me of the Forbes article on Coke in 1938, or even later as Buffett bought it in the 80's. Berkshire Hathaway itself is an excellent example of a perpertually undervalued stock--at least for most of its history.

    The market often has a hard time properly valuing these long term compounders. Why would the market allow us to buy a great business with a widely known business model and formula--and a long term history proving that model is successful--at a price that allows us to achieve returns in excess of average stock returns?

    I actually think it is a very inefficient portion of the market.
    Apr 7 12:39 PM | 2 Likes Like |Link to Comment
  • Markel: A Compounding Machine At A Cheap Price [View article]
    WRB is a great business run by an excellent owner-operator. They produce excellent underwriting results, but their investment portfolio will very likely produce much lower returns than Markel's over long periods of time (10 years+).

    I am less interested in most insurance companies as their investment returns tend to be significantly lower because of their unwillingness to invest shareholder equity in stocks. Absent a really cheap price, these companies just aren't as desirable to own. This doesn't mean some can't be good businesses--and WRB certainly is.

    But I don't think it will produce the same results as Markel over time unless they use more leverage.

    Very few companies are willing to adopt the attitude that shareholder equity is permanent capital, and thus should be invested in permanent securities. This is a really underrated advantage for firms like Markel.

    As for dividends, I'm much happier with Markel retaining and reinvesting as much as it can as long as it continues to produce solid returns on capital.

    In businesses with self reinforcing business models (where competitive advantages can increase as size increases), shareholders should not desire dividends. This might change at a certain size, but for now--I'd much rather have Markel use their balance sheet to be opportunistic and increase their size and scale--and competitive advantages that come with it. There is a reason why Buffett never paid a dividend--his investment acumen along with Berkshire's growing size gave him advantages that meant that each retained dollar was much more valuable in Berkshire's hands than in the collective hands of shareholders.

    My vote would be to keep the capital--and the compounding going.

    Thanks for reading!
    Apr 7 12:30 PM | 1 Like Like |Link to Comment
  • Markel: A Compounding Machine At A Cheap Price [View article]
    Thanks for the comments everyone. I appreciate the nice words. I don't always have time to respond to each question/comment, but I try to respond to everything on the blog.

    Thanks for reading the piece.
    Apr 7 12:12 PM | 1 Like Like |Link to Comment
  • Markel: A Compounding Machine At A Cheap Price [View article]
    Thanks for the comment Butterfly Seeker. I think you have logical points, but I'll comment on a couple of them.

    I agree that 20% book value CAGR is too high to assume going forward. In the post, I used a 10-14% range in my valuation section, which I think is similar to your 13% assumption.

    The other thing I'll mention is goodwill. I really don't think it's sensible to value Markel using tangible book value or any proxy for liquidation value. I'd have to do another post to explain more of why I have this opinion, but basically: Markel's intrinsic value vastly exceeds its accounting net worth. This intrinsic value to accounting value gap will increase as Markel Ventures grows. Take a look at the businesses Markel Ventures owns in its non-manufacturing segment. Many are asset light enterprises that produce very high ROICs and need very little fixed assets, thus their values are many multiples higher than their book values. This will grow.

    Outside of that, I would reference their latest letter which discusses why they feel that CAGR of book value over time is a better method to estimate value than by simply looking at book value. The reason they feel this way is that they know that Markel is worth much more than book value (including goodwill). Of course, Markel is worth vastly more than the net tangible assets that have been invested into the business (tangible book value).

    Buffett had a nice summary of this key difference in the 1985 letter, and he often discusses the difference between economic value and accounting value... basically that the goodwill on the balance sheet in Berkshire's case (not every company's case) is actually valuable--and in fact it understates the intrinsic value--or economic goodwill that the business has. And I think--although not nearly to the same extent--that the same principles apply to Markel.

    Now, book value isn't a perfect indicator with or without goodwill... but it's probably the best back of the envelope proxy for value creation over long periods of time.

    Just some food for thought... thanks for the comments.
    Apr 7 12:11 PM | 3 Likes Like |Link to Comment
  • Barnes & Noble - A Bargain Hiding In Plain Sight? [View article]
    Thanks for reading Brian.
    Apr 4 09:32 AM | Likes Like |Link to Comment
  • Barnes & Noble - A Bargain Hiding In Plain Sight? [View article]
    Thanks Sid. Yeah often times the catalyst is simply material undervaluation itself. I haven't had a whole lot of time to spend thinking about it, but I don't have much intention of selling at 18. There are a couple things to consider here: G Asset offered for 51% of the business, so we may not need to tender our shares at $22. I would be content to see further value created as they would likely sell or spin off the Nook. They think the Nook is worth $5 per share, which would also be interesting if they take a stake in that in lieu of the whole thing. This is also not the first time G Asset has made an offer for B&N, although this offer is more unique (and slightly higher) than their previous offers.

    The other thing is that they are interested in buying at $22, and $22 is the price where they feel B&N is "significantly undervalued". I would agree...

    As to the deal itself, I really have absolutely no idea if it will materialize. I am content to continue to own what I consider to be two good businesses masked by one money losing business at a significant discount to my estimate of value.
    Feb 22 08:53 AM | 1 Like Like |Link to Comment
  • Barnes & Noble - A Bargain Hiding In Plain Sight? [View article]
    Some people aren't interested in paying four times free cash flow for an asset that has produced positive free cash flow for the past 15 years. I understand the pessimism, and your views are right in line with the majority. Some people will not want an asset that produces positive cash flow at any price (not even at a 25% yield) if the sales are declining. Some also place far too much emphasis on SSS.

    Too many people assume bankruptcy. The stores have produced significant free cash flow every year (Amazon is not a brand new competitor by the way... the stores have been profitable for 15 straight years--and in each of those years it competed with Amazon).

    I just think the majority is extrapolating far too much pessimism from other recent failures that you point out in your comment. You can also find companies that have done well in a declining industry. See my blog for a follow up post on a few examples...
    Jan 6 12:42 PM | Likes Like |Link to Comment
  • A Few Thoughts On Buffett And Great Banks [View instapost]
    Thanks for the comment Rich. Yeah the low cost deposits provide a real competitive advantage for the likes of WFC and MTB. And yes, on Citi, they pay about 0.95% for their deposits. Wells pays nearly two-thirds less, paying just 0.36% for their deposits.

    Thanks for reading...
    Dec 17 10:25 AM | Likes Like |Link to Comment
  • Aeropostale Might Offer Turnaround Value [View article]
    Thanks for the comment. Yeah I just use readily available info from sources like the 10-Ks and Value Line to put into excel. The charts other than the excels are from Morningstar and Gurufocus, which have nice 10-year summary tables.
    Nov 10 11:07 AM | Likes Like |Link to Comment
  • Coach: An Overview Of The Numbers [View article]
    Excellent Seinfeld reference
    Nov 10 11:05 AM | Likes Like |Link to Comment
  • Coach: An Overview Of The Numbers [View article]
    Thanks for the comment auto. Yeah I noticed that purchase, and that is a sizable buy.
    Nov 10 11:02 AM | Likes Like |Link to Comment
  • Coach: An Overview Of The Numbers [View article]
    Thanks for the comment. KORS seems like a great company as well, although the stock is perpetually expensive... I will ask my wife about the products, since she supports sales at both companies!

    Thanks for the feedback.
    Nov 10 11:01 AM | Likes Like |Link to Comment
  • Buffett Vs Munger Vs Schloss And Thoughts On Portfolio Strategy [View instapost]
    Thanks Miguel. I appreciate the nice words. Glad you're finding it useful. Yeah Schloss is a role model for me as well, both in the way he ran his portfolio and the longevity it allowed him to have. Plus he lived (from what I can tell) a great life.

    And you bring up a good point. In an interview he once gave with Edwin, they did mention occasionally putting 10-15% of their assets in one stock. So it wasn't always 100 1% positions as some people assume when they read he had that many stocks. Often times they had (according to Edwin) 30 or 40 stocks that were tiny positions (just a few hundred shares or so... far less than 1%), because they started buying and the stock went up and they couldn't buy more.

    So my guess is, with his performance numbers, his best 20 or 30 ideas at most made up the majority of his portfolio.

    In a 1972 interview with Forbes he mentioned buying "15 or 20" of these cheap stocks provides good diversification and allows you to make errors. He made that comment in passing, but still... I don't think he set out to own 100 stocks. It's just that they owned a lot of small positions and a few larger ones.

    Interesting strategy to study... Thanks for the comment.
    Sep 20 09:52 AM | Likes Like |Link to Comment