Markel: Why Berkshire Hathaway Invested In This Insurance Company (MKL)

Markel: Why Berkshire Hathaway Invested In This Insurance Company

Markel Corporation strives to be like a mini Berkshire Hathaway with its insurance, investments, and venture companies.

If you like Warren Buffett, Charlie Munger, and Berkshire Hathaway, you may have wondered if there are any other companies out there like Berkshire given its enormous success. One such company may be Markel Corporation with ticker MKL on the NYSE.

In learning more about Markel which is a Fortune 500 company, I’m endeavoring to see if they could be within my circle of competence so that I may wish to really invest in them. So I’m just sharing what I’ve learned over the last month so far.

Markel is a leading specialty insurer with 3 insurance divisions and 1 reinsurance division. They also have at least 19 Markel Venture companies that they either own entirely or have a substantial stake in.

Coincidentally, Markel was founded by Samuel Markel in 1930, the same year that Warren Buffett was born! It was originally in Norfolk, VA then relocated to its current headquarters of Richmond, VA.

Markel has similar cultural values to Berkshire Hathaway in that they invest in high quality businesses and are invested for the long term. Maybe this is part of why Berkshire invested $620 million into Markel in Q1 2022.

One of the reasons why Berkshire invested in Markel is likely because of this shared “value investing” culture and because Markel may have complementary insurance operations that are similar to Alleghany Corporation, which also specializes in insurance and reinsurance. Berkshire agreed to buy Alleghany (ticker Y) for $11.6 billion.

They have a creed which reflects the principles and values of their founder called The Markel Style. Some of it includes how Markel is committed to success, a zealous pursuit of excellence, and helping people reach their personal potential. They strive to have winning results for all stakeholders involved.

I became more acquainted with Markel at the Omaha Brunch they hosted on May 1, 2022. Then I went to Markel’s Shareholders Meeting on May 11, 2022 and enjoyed learning from many value investors and meeting Tom Gayner again.

Tom Gayner, currently a Co-CEO and Chief Investment Officer who is set to become the sole CEO in 2023, has an amazing investment track record. Between 1990-2020, Tom Gayner has had annual compounded returns of 14.4% compared to the S&P 500 at 9.2% per year over 30 years. That is no easy feat.

oTo put his incredible investment performance in perspective, Tom Gayner’s investment performance ranks above Sequoia’s, Seth Klarman’s, Mohnish Pabrai’s, and Guy Spier’s performance according to an Enrico La Quatra chart on Twitter.

However, as well as Markel has performed in the 36 years since going public in 1986, their stock has underperformed compared to the S&P 500 between 2014-2021. MKL returned 11.5% per year on average for a cumulative 80% return while the S&P 500 returned 15% per year or 105% cumulative return over 7 years.

In spite of that, I suspect Berkshire bought into Markel heavily between March 8 through March 24 because the stock price went from around $1200 to $1500 per share in only 16 days. Berkshire may have averaged $1350 per share.

At the time of recording, Markel’s stock was trading at $1400 and had a market cap of $19 billion.

While this may have been the first time that Berkshire bought Markel, Markel has been invested in both BRK-A and BRK-B for a while at having $1.1 billion worth of Berkshire. Markel’s equity portfolio had a market value of $8.4B as of Q1 2022.

Among Markel’s 128 equity positions, they are highly concentrated at 44% in the top 10: Berkshire Hathaway, Brookfield Asset Management, Google, Amazon, Deere, Home Depot, Diageo, Disney, Visa, and Apple.

At the 2022 Shareholders Meeting, Tom Gayner offered a simple math formula to arrive at a suggested value of Markel. Using Q1 2022 figures, we take the total investments of $23B, subtract the long term debt of $4.4B, then divide by the shares outstanding of 13.57M to arrive at $1372 per share suggested value.

I’m not sure if I should include the cash in the total investments, but if we add the $3.9B in cash and equivalents to the total investments and divide it out, we get $1659 per share suggested value.

So Markel could be exactly valued at its intrinsic value or may have some room to go.

Some fun compounding math that Tom Gayner included in the 2021 shareholder letter is if the stock price compounds from $1234 per share on 12/31/21 by 13.5638% for 12 years, the future stock price could become $5678 per share. Get it? The sequence is 1234-5678 for some fun little math there.

I also like to check if there’s any insider buying, and Tom Gayner has picked up a few shares between November 2021 and May 2022 at prices ranging between $1250-$1300 per share so maybe he thinks those are good prices to pay.

Among Markel’s 19 venture companies listed on the website, most are in either housing/real estate or heavy industry with a few more diverse kinds of businesses in retail, food, and consulting, to name a few.

Do you have any insights about Markel? Let me know in the video comments or hit me up in one of my social media accounts! I’d love to hear from you.

If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.

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