MKL - Markel Corp

[racemize]

I was also not sure what that paragraph was indicating, but your interpretation makes sense. 

[obtuse_investor]

I suppose those comments don't have to be limited to public equities; but could be expanded to private businesses and fixed equities.

 

I assume they are looking for cheaper prices out there.

 

I agree that Gayner (CIO) hasn't been as adroit in the equities market as I would prefer.

[Partner24]

I've been a shareholder of MKL since a few years. I really like their attitude and the way they manage the company.

 

They take the "silver medal", less risky approach to investing. Unlike FFH, they do not make macro bets. That "silver medal" in equities investing produced a 2 percentage points outperformance to the S&P 500 over the last 5 years. It is good, but not as good as I would have expected. They have the benefit of permanent capital, so it maximize their flexibility. I may sound too demanding, but I would expect that these competitive advantages produce higher returns than that. 4-5 percentage points outperformance over the long term would be more satisfactory.

 

Cheers!

[racemize]

I've been a shareholder of MKL since a few years. I really like their attitude and the way they manage the company.

 

They take the "silver medal", less risky approach to investing. Unlike FFH, they do not make macro bets. That "silver medal" in equities investing produced a 2 percentage points outperformance to the S&P 500 over the last 5 years. It is good, but not as good as I would have expected. They have the benefit of permanent capital, so it maximize their flexibility. I may sound too demanding, but I would expect that these competitive advantages produce higher returns than that. 4-5 percentage points outperformance over the long term would be more satisfactory.

 

Cheers!

 

I agree, particularly given the leverage of the float.  That being said, I do like their current position in the "conglomerate evolution" versus the very large size of BRK.  MKL is only a 5% position for me though.

[jay21]

I've been a shareholder of MKL since a few years. I really like their attitude and the way they manage the company.

 

They take the "silver medal", less risky approach to investing. Unlike FFH, they do not make macro bets. That "silver medal" in equities investing produced a 2 percentage points outperformance to the S&P 500 over the last 5 years. It is good, but not as good as I would have expected. They have the benefit of permanent capital, so it maximize their flexibility. I may sound too demanding, but I would expect that these competitive advantages produce higher returns than that. 4-5 percentage points outperformance over the long term would be more satisfactory.

 

Cheers!

 

I agree, particularly given the leverage of the float.  That being said, I do like their current position in the "conglomerate evolution" versus the very large size of BRK.  MKL is only a 5% position for me though.

 

The 2% advantage is their equity portfolio vs the S&P, so it doesn't take into account float. 

[racemize]

Oh sorry, of course you are right.  I was thinking of the recent 9% BV growth (rolling 5 year average) rather than equity performance.

[giofranchi]

The Brooklyn Investor on MKL 2012 AR.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

markel-2012-annual-report.pdf

[original mungerville]

giofranchi,

 

I really enjoy your posts/thoughts and your rather passive investment strategy which is quite efficient. I think its hard to do poorly with your strategy which is very sound.

 

I even like you 10% silver position and your hedge!

 

I think my portfolio is structured largely the same way however I have more concentration, more leverage, more of a hedge and more silver (including options on silver, silver miners) - so my portfolio bounces around a lot more, but at its core it is very similar to yours. 

 

Keep posting I'm reading!

 

Cheers

[giofranchi]

giofranchi,

 

I really enjoy your posts/thoughts and your rather passive investment strategy which is quite efficient. I think its hard to do poorly with your strategy which is very sound.

 

I even like you 10% silver position and your hedge!

 

I think my portfolio is structured largely the same way however I have more concentration, more leverage, more of a hedge and more silver (including options on silver, silver miners) - so my portfolio bounces around a lot more, but at its core it is very similar to yours. 

 

Keep posting I'm reading!

 

Cheers

 

original mungerville,

what can I say? Thank you very much for your kind words!  :)

 

Truth be told, the way I have structured my firm has a great weakness: I do both the strategic planning (capital allocation) and the following of day by day operations. And, believe me, those operations are time consuming! In other words, I lack a sort of operating officer, that would take care of the enhancing of the businesses my firm controls. This weakness without any doubt subtracts much from my ability to structure a portfolio of investments that would match your own (I would gladly accept more bouncing around, with higher long term returns! But I cannot get comfortable with options and leverage… so, that is a game I won’t play!), or the portfolio of Parsad, twacowfca, Eric, PlanMaestro, racemize, valueInv, Paker16, beerbaron, moore_capital, and other great investors on this board.

 

As far as a passive strategy is concerned, I love the quote from WEB, LC chose to use as signature: “Lethargy bordering on sloth remains the cornerstone of our investment style.”  ;D

Because also of the weakness above, the businesses I can claim to truly understand and I truly can be comfortable to invest in are still very few… so, I just stick with them, as long as their price makes sense.

 

Cheers!

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

[buylowersellhigh]

giofranchi,

 

I really enjoy your posts/thoughts and your rather passive investment strategy which is quite efficient. I think its hard to do poorly with your strategy which is very sound.

 

I even like you 10% silver position and your hedge!

 

I think my portfolio is structured largely the same way however I have more concentration, more leverage, more of a hedge and more silver (including options on silver, silver miners) - so my portfolio bounces around a lot more, but at its core it is very similar to yours. 

 

Keep posting I'm reading!

 

Cheers

 

original mungerville,

what can I say? Thank you very much for your kind words!  :)

 

Truth be told, the way I have structured my firm has a great weakness: I do both the strategic planning (capital allocation) and the following of day by day operations. And, believe me, those operations are time consuming! In other words, I lack a sort of operating officer, that would take care of the enhancing of the businesses my firm controls. This weakness without any doubt subtracts much from my ability to structure a portfolio of investments that would match your own (I would gladly accept more bouncing around, with higher long term returns! But I cannot get comfortable with options and leverage… so, that is a game I won’t play!), or the portfolio of Parsad, twacowfca, Eric, PlanMaestro, racemize, valueInv, Paker16, beerbaron, moore_capital, and other great investors on this board.

 

As far as a passive strategy is concerned, I love the quote from WEB, LC chose to use as signature: “Lethargy bordering on sloth remains the cornerstone of our investment style.”  ;D

Because also of the weakness above, the businesses I can claim to truly understand and I truly can be comfortable to invest in are still very few… so, I just stick with them, as long as their price makes sense.

 

Cheers!

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

giofranchi,

 

Is there somewhere where you have elaborated on your investment strategy/holdings?

 

TIA.

[giofranchi]

 

giofranchi,

 

Is there somewhere where you have elaborated on your investment strategy/holdings?

 

TIA.

 

buylowersellhigh,

I just post on the board, when I happen to read something that I reckon to be interesting, or to take part in a good conversation. I don’t think I have really ever elaborated on my investment strategy...

But, a paragraph from Mr. Klarman’s latest letter to shareholders is titled “High Bar”, and, if I had to venture what I think my investing strategy is, it would be the following:

 

To set a very high bar, before accepting any business inside my circle of competence. And, if those very few businesses inside my circle of competence aren’t great bargains, to just hold cash and/or hedges, and to concentrate on maximizing the fcf I can extract from the businesses my firm controls. I focus first on my circle of competence, later on price. Stubbornly refusing to look at its stock price, if I am not sure I can put my whole confidence in a business, I almost always end up having the so-called “scarcest of business commodities”: conviction. (Very useful, if you believe in averaging down! In fact, I am a great believer!  :) ). Beside this, I am also allergic to “opportunity cost”: I really need to minimize it as much as possible! That’s why I always want to have some ready liquidity at hand, no matter what!

 

Ok, now why did you ask?! It’s clearly boring and it clearly leads to leaving lots of fish on the table 8 years out of 10! So, who cares?!  ;D

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[Liberty]

http://brooklyninvestor.blogspot.ca/2013/03/markel-2012-annual-report.html

[CorpRaider]

N/M better book value growth appears to be largely a function of smaller base and superb insurance operation.  I do find the ventures aspect intriguing though.  It is potentially a real competitive advantage in that high quality companies looking for patient capital and low levels of interference sometimes have few options and its growing fast.

[robface]

Regarding the Markel event the in Omaha, what is the criteria? Just reply with an email to the organizer or do I need to be a shareholder?

 

Thanks!

[Liberty]

ICHMOND, Va.--(BUSINESS WIRE)--Apr. 24, 2013-- Markel Corporation (NYSE:MKL) announced today it will hold a conference call on Wednesday, May 1, 2013 beginning at 9:30 am (Eastern Daylight Time) to discuss quarterly results and business developments.

 

Any person interested in listening to the call or a replay of the call, which will be available from approximately two hours after the conclusion of the call until May 13, 2013, should contact Markel’s Investor Relations Department at 804-747-0136. Investors, analysts and the general public may also listen to the call free over the Internet through Markel Corporation's corporate web site, www.markelcorp.com. A replay of the call will also be available on the web site until May 13, 2013.

[jay21]

10Q is out:  http://www.sec.gov/Archives/edgar/data/1096343/000109634313000008/mkl0331201310-q.htm

 

 

Wow!  The debt market is crazy right now:

 

On February 15, 2013, the Company repaid its 6.80% unsecured senior notes ($246.7 million principal amount outstanding at December 31, 2012).

 

On March 8, 2013, the Company issued $250 million of 3.625% unsecured senior notes due March 30, 2023 and $250 million of 5.0% unsecured senior notes due March 30, 2043. Net proceeds to the Company were approximately $491.2 million, which will be used for general corporate purposes.

[jay21]

Anyone know what the bolded means?

 

On December 18, 2012, our board of directors and the board of directors of Alterra Capital Holdings Limited (Alterra) each approved an agreement providing for the merger of Alterra with one of our subsidiaries. As a result of the transaction, Alterra will become our wholly-owned subsidiary and each issued and outstanding share of Alterra common stock (other than restricted shares that do not vest in connection with the transaction) will be converted into the right to receive (1) 0.04315 shares of our common stock and (2) $10.00 in cash. Based on our closing stock price on December 18, 2012 ($486.05 per share), the day the agreement was entered into, the aggregate consideration payable to Alterra shareholders would be approximately $3.1 billion, which includes aggregate cash payments of approximately $1.0 billion. It is a condition of closing that Alterra have no less than $500 million in immediately available unrestricted funds. We anticipate using these funds, along with cash on hand at Markel Corporation, to make the payments to shareholders. Following the transaction, we estimate that our current shareholders would own approximately 69% of the combined company and Alterra shareholders would own approximately 31%. The transaction has been approved by shareholders of both companies. Closing is expected to occur on May 1, 2013.

[racemize]

Anyone know what the bolded means?

 

On December 18, 2012, our board of directors and the board of directors of Alterra Capital Holdings Limited (Alterra) each approved an agreement providing for the merger of Alterra with one of our subsidiaries. As a result of the transaction, Alterra will become our wholly-owned subsidiary and each issued and outstanding share of Alterra common stock (other than restricted shares that do not vest in connection with the transaction) will be converted into the right to receive (1) 0.04315 shares of our common stock and (2) $10.00 in cash. Based on our closing stock price on December 18, 2012 ($486.05 per share), the day the agreement was entered into, the aggregate consideration payable to Alterra shareholders would be approximately $3.1 billion, which includes aggregate cash payments of approximately $1.0 billion. It is a condition of closing that Alterra have no less than $500 million in immediately available unrestricted funds. We anticipate using these funds, along with cash on hand at Markel Corporation, to make the payments to shareholders. Following the transaction, we estimate that our current shareholders would own approximately 69% of the combined company and Alterra shareholders would own approximately 31%. The transaction has been approved by shareholders of both companies. Closing is expected to occur on May 1, 2013.

 

isn't that for the cash going to the alterra shareholders upon merge?

[jay21]

Anyone know what the bolded means?

 

On December 18, 2012, our board of directors and the board of directors of Alterra Capital Holdings Limited (Alterra) each approved an agreement providing for the merger of Alterra with one of our subsidiaries. As a result of the transaction, Alterra will become our wholly-owned subsidiary and each issued and outstanding share of Alterra common stock (other than restricted shares that do not vest in connection with the transaction) will be converted into the right to receive (1) 0.04315 shares of our common stock and (2) $10.00 in cash. Based on our closing stock price on December 18, 2012 ($486.05 per share), the day the agreement was entered into, the aggregate consideration payable to Alterra shareholders would be approximately $3.1 billion, which includes aggregate cash payments of approximately $1.0 billion. It is a condition of closing that Alterra have no less than $500 million in immediately available unrestricted funds. We anticipate using these funds, along with cash on hand at Markel Corporation, to make the payments to shareholders. Following the transaction, we estimate that our current shareholders would own approximately 69% of the combined company and Alterra shareholders would own approximately 31%. The transaction has been approved by shareholders of both companies. Closing is expected to occur on May 1, 2013.

 

isn't that for the cash going to the alterra shareholders upon merge?

 

That makes perfect sense.  I was reading it as MKL shareholders.

[tengen]

Latest results look pretty solid. Combined ratio 91%, book value increases 7% from the previous quarter to $431.10 per share.

[masseyrock]

As of tomorrow, BV will be more like $463 / share so we are trading at 1.16x BV (but probably more like 1.14x netting out that crazy trade at the end of the day).  Not bad for a company that is putting up mid-teens BV growth recently.

 

Investment / share goes up to $1,177 (16% accretion) and with only 42% of BV invested in equities, Gayner has a fat kitty of $2.1b to reallocate towards public equities or MKL Ventures. 

 

In the final tally, MKL ended up paying 16% premium to ALTE's book.

 

The deal analysis with ALTE's final numbers, also released today, is attached.

 

 

 

MKL_ALTE_Deal_Analysis_Apr13.xlsx

MKL_ALTE_Deal_Analysis_Apr13.xlsx

[Palantir]

What premium over book do you think it should get? It seems that they've grown BVPS at about 12% annually, so to get a good (>10%) return, it doesnt seem it would deserve a multiple more than 1.15BV....or am I mistaken?

[racemize]

What premium over book do you think it should get? It seems that they've grown BVPS at about 12% annually, so to get a good (>10%) return, it doesnt seem it would deserve a multiple more than 1.15BV....or am I mistaken?

 

over a longer history, they are in the 20% compounding range.  I'm happy giving them a 15% estimate, so ~1.2 BVPS (or maybe slightly higher) seems appropriate to me.

[masseyrock]

On average and over time, I think they compound intrinsic value ~12-15%.  Assumptions upon assumptions to get there but 4-5% pre-tax portfolio returns, 5% premium growth, 97% combined ratio and low-teens EBITDA growth for MKL Ventures gets you to that range.

 

I look at P/BV as a result of the value, not the driver, but I think ~1.3x is appropriate.  If I sell in 10yrs at 1.0x BV, they can compound at 12-15% and I'd still get ~10% return.  But, like BRK, their BV will increasingly underestimate MKL's true worth so assuming 1.0x in 10yrs is probably conservative.

 

Based on the SOTP (value of insurance + portfolio returns + MKL Ventures), I think the stock is worth ~$600 but a wide range.  That would also coincide with 1.3x BV.

 

I don't think MKL is a $1 for 50c here but I do think my capital will have more purchasing power in 10yrs by owning MKL than most other areas of today's market.  And it compounds tax efficiently.

 

Finally, I like the optionality of the steady stream of excess capital going into Gayner's able hands. 

 

On that note, I hope to leave Omaha with a better understanding of the compounding opportunities in the MKL Ventures portfolio - is there a 100:1 return in there?  AMF seems to be doing several acquisitions and they cited it as having a terrific quarter.

 

[racemize]

I like your answer quite a bit--would you mind elaborating on what you mean by your 12-15% estimation?  e.g., do you mean that's what you expect going forward or that they were 12-15% in the past?  I guess I'm trying to reconcile the previous high BVPS growth with the 12-15%, if you are intending to cover the past performance too.

 

On average and over time, I think they compound intrinsic value ~12-15%.  Assumptions upon assumptions to get there but 4-5% pre-tax portfolio returns, 5% premium growth, 97% combined ratio and low-teens EBITDA growth for MKL Ventures gets you to that range.

 

I'm also planning on going to the Berkshire meeting and the Sunday Markel brunch--I presume you are going to that?