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A Look At Berkshire Hathaway And Its Best Clones

Mar. 06, 2020 4:46 PM ETBRK.A, MKL, BRK.B23 Comments
Gio Danisi profile picture
Gio Danisi


  • Berkshire Hathaway is not the only choice for long-term investors who want to enjoy the power of compounding.
  • Alleghany and Markel, despite their relatively small size, can compete well with Warren Buffett's gigantic holding.
  • How well have these excellent companies performed during the last five years?

Even at the risk of shocking the investment community a bit, my thesis is that for a long-term shareholder, it makes more sense to invest in a Berkshire Hathaway's (BRK.A) (BRK.B) clone like Alleghany (Y) or Markel (MKL). I will argue why Y is the best choice right now.

Although I am a passionate follower of Warren Buffett's investment philosophy, it's also my personal belief that the best days of his renowned holding, Berkshire Hathaway are gone. The value mindset dictates to place few but big bets, and if you are already a whale, a few fish will hardly be able to satisfy your appetite. In my view, its dry powder at record levels shows how increasingly difficult it is for the company to find acquisition targets that can fit its requirements: big, available for sale, and at a reasonable price.

This problem will not be solved anytime soon. Instead, it may worsen as Buffett and Munger approach the end of their extraordinary career.

Luckily, there are a few interesting options in the market that are likely to replicate Berkshire's outstanding results in the years to come and are better positioned to take advantage of its unique business model, which can be defined as compounding power on steroids! Their size is still small in comparison with BRK (more than thirty times smaller!), so they will skip easily BRK's dilemma and don't have to worry about their size for the next 2 or 3 decades! On top of that, you don't have to pay an extra price for them as their P/B numbers are in line with their bigger counterpart.

Berkshire's alternatives

As mentioned, my favorite ones are two Berkshire copycats: Markel and Alleghany. Now that the FY2019 results are all out, I have the opportunity to compare the recent results

This article was written by

Gio Danisi profile picture
Private “part time” value investor. I've been managing my personal funds since May 2008.As stocks are just pieces of businesses I try to look at mine with an enterpreneurial approach: that's why my portfolio is made-up by 6-8 holdings, which I follow costantly. My holding period is ideally "forever", even though I can't exclude to make some changes from time to time.

Analyst’s Disclosure: I am/we are long Y. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (23)

Gio Danisi profile picture
My new article about alleghany is free!

If you broaden horizons a bit, and consider holding companies with a value bend to them whether or not they are in the insurance business or not, then the "BRK clone" I've been keeping an eye on is BAM. They also do pay a small but quickly growing dividend, and I don't see that as a bad thing. I'm not sure that shares are priced right to dive in at the moment, though.

Benone per l'articolo e molto grazie; very interesting and informative to read; need to DD stocks and seguirti
Gio Danisi profile picture
Kind reader: I hope you enjoy reading.
If you are interested in further information about the companies included in this article, don't forget to "follow" me.
Best Regards
hawkeyec profile picture
I used to have Allegheny. Made some good money back in the day when that sort of firm was more in vogue. The problem with BRK for me is no dividend! They have plenty of cash moldering in the bank they could use to get started. Yeah, if you started with these guys 35 years ago you are rich now. Almost no one but the boss actually did that, I suspect. The point is that if you were fortunate enough to be shopping for Monet's just before WWII you could pick them up pretty cheap in Paris. You put them on your wall and lo and behold in 50 years or so they are worth millions, too (also no dividend). How do you get your riches out? You sell the investment but then you no longer benefit from it. No more return. No compounding. A BRK clone might be interesting but no dividends there, either. And what if you had planned/needed to sell Mar 1? Whoops, now we got to wait. 10% had disappeared. That's two year's income from a dividend aristocrat, gone. There is one other way, BIF. I had this until last week, mostly for fun. This CEF has a third of its assets in the two BRK stocks. It also doubles up on several things owned by BRK so nearly half mirrors the master. And BIF pays out 4% from its non-BRK holdings. Plus it sells at a 17% discount to NAV so you get your BRK at a bargain price. Just sayin'
Comments would apply to a lot of people, but for some of us a reliably good performing fund that will basically only produce capital gains is exactly what we need.
swaps profile picture
Interesting comment. Buffett himself prefers dividend paying stocks so he can reinvest them. But I might over invest into something like Oxy, which I have.
Now that the price of BRK has dropped close to book value, Buffett will be using some of that cash to buy back his own stock.
maybe I missed it, but there seems to be a huge difference in cagr that is not really explained or analysed when declaring these companies as comparable substitutes?
Gio Danisi profile picture
there is also a difference in buy-back activity.
Speaking in general terms Y has a much more conservative approach than BRK or MKL and in the last 5 years that has not worked out well.
The year 1985, my wife's first job on Wall Street. She comes home and tells me of a company with a price tag $1850 per share, and suggested to buy a couple of shares. As a result, 30 shares of BRK.A was acquired. The gist of this story, listen to your wife.
Gio Danisi profile picture
I think luckiness plays a big role in our successful or unsuccessful stories.
My mum persuaded my father to buy roughly the same amount of shares of a local bank here where I live: they lost the whole sum.
And my mum is much wiser than my father!
It's important to act logically, learning from mistakes and always improving.
It is a mistake buying a stock without knowing how to read a balance sheet, even if the outcome is positive in the end.
I agree with you. But for some reason , my wife's intuition was right at every step of investment process, and because of her advise, we are sitting on 8 digit portfolio.
sgm8g profile picture
@shogan ....what is your wife's investment picks at the moment? Sounds like she has great intuition.
Tony Naples profile picture
Article is too simple in its analysis.
Averaging Combined Ratios does not represent the true picture of net income after 5 years.
There is a reason Allegheny Capital is trading so close to book. Author has not uncovered.
WHEN not IF the shit hits the fan, opportunities will come knocking on BRK door , much like thee 10% interest with Option BRK got from Goldman in late 2000s. That wont happen with Y.
The Book Value CAGR speaks for itself over the lat 5 years. Y lags both BRK and MKL by significant amount , especially if you compound BV growth 5 more years at constant rates.

Nice attempt, yet weak support and thin analysis.
Good words Tony.
Gio Danisi profile picture
@Tony Naples
I didn't argue that combined ratios give a picture of real net income, just a picture of the insurance performance. Again BRK insurance operations are much bigger so it is hard to have compelling performance.
When the shit hits the fan, opportunities arise everywhere, for Y much more opportunities than BRK given the smaller size.
thanks for commenting and remember: simplex sigillum veri!
...and let me add that the “opportunities” won’t come back knocking on BRK’s door any time soon: the Fed has eliminated that business.
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