Markel More Berkshire-like Than Ever

Includes: BRK.B, MKL
by: Travis Johnson
I've often noted that I think of Markel (NYSE:MKL), the specialty line insurer, as having the potential to become a junior version of Warren Buffett's Berkshire Hathaway (BRKB). And now, the similarities have gotten just a little bit stronger.

The last time I made this argument, it was based not only on the fact that Thomas Gayner, who runs the investments for Markel, invests in a very Buffett-like fashion, or on the fact that Markel actually owns a big chunk of Berkshire shares (among other value-oriented holdings, listed here on Stockpickr), or on the fact that Markel has begun cautiously diversifying away from straight stock market investing with their investments in First Market Bank and a bakery equipment business.

No, perhaps as importantly, it was based on the fact that Markel's releases read like Berkshire Hathaway releases - or put differently, the Markels and Thomas Gayner sound a bit like Warren Buffett.

And now, they're following in his footsteps in another small way, too. Thomas Gayner was just last week appointed to the board (and the audit committee) of the Washington Post Co. (WPO), one of the bedrock holdings of Berkshire Hathaway and a company in which Warren Buffett has served as a board member for more than 20 years (albeit not sequentially). It's an interesting board and a great company, though I've unfortunately been too timid about their local TV and newspaper holdings to ever invest and reap the rewards of their Kaplan division and the surprisingly strong performance of the division (the rest of the board is listed here, FYI).

So does this add fuel to the fire for speculation that Markel will turn out to be as great an investment as Berkshire Hathaway was a couple decades ago? Well, maybe a little, but it's just a board seat. I consider it just another tiny indication that Gayner is moving in the right company, but that's really all.

To Buy or Not to Buy
More importantly, Markel releases their earnings report this morning. For someone who's been waiting a long time for the shares to dip so I could buy some more, I'm having trouble making a decision about what to do. Should I buy additional shares before the earnings report, or wait until after they report and hope the shares will dip then?

It's a tough call; Markel has solidly beaten the estimates several times in the past year (and missed them once), but their earnings are notoriously hard for analysts to estimate. One thing everyone agrees on is that this past year was exceptional for Markel, thanks largely to the lack of any big insured losses (as they had with the hurricane season of 2005), combined with the higher rates they were able to charge following those hurricanes, and some great investment returns. So all the estimates have Markel's sales increasing slightly for the coming year, but earnings dipping a bit from 2006 levels.

Will the company downplay future performance on the conference call, and emphasize that the huge upswing in 2006 really was a bit of a fluke ... or will they seem optimistic about 2007? It's pretty impossible to tell, and they usually keep their cards pretty close to their vest.

But with the company's ability to grow book value consistently over time, I'm sorely tempted to buy more - whether I do so before or after the earnings release, or both, I'll let you know.

I did end up buying a little bit more MKL yesterday, I purchased additional shares with a limit order that was executed at $490.68 right before the market close. Ideally, I'd like to own a few more shares and may make an additional purchase if we see a dip following the earnings ... otherwise, I'll wait.

Disclosure: I own shares of Berkshire Hathaway and Markel and may purchase more Markel in the near future. I also partner with the Washington Post/Newsweek Interactive Blogroll for advertising purposes.

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