Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 9
For those interested:
2024 Markel Brunch Meeting:
Tom Gayner is the sole CEO now.
Praised by name many MKL people.
Was very folksy and pleasant.
IPO was in 1986
BRK was their model of course. Paid tribute to WEB, CTM & culture.
1992 1st Omaha Brunch-6 people attended, $9/ share. (Roger Lowenstein attended the initial mtg)
2000 people registered for the brunch today.
Jeremy Noble- Pres. Insurance division, CPA by training.
Andrew Crowley-Pres. of Ventures.
Prices of wholly owned businesses have been too high but are starting to look more appealing recently potentially.
“Partners” & Golden Rule philosophy.
Chris & Shelby Davis, Larry Cunningham (on Board) present today.
MKL Loss reserves have been honest and have been conservative with margin of safety for decades.
Mgt took a lot of time recently to take a close look at data tied to loss reserves & they feel better going forward after a tough 2023.
Cap allo options- existing businesses, new companies, public equities, buybacks.
They accelerated buybacks in ‘23 & 1Q ‘24 & Gayner himself has recently bought more stock.
They felt a disconnect between market price and IV over last year or 2- share count was 14M, now it is 13M (7% share repurchase)
Ventures-Costa Farms- Ornamental gardening, 51M sq ft, bought Battlefield as add on, 98M plants shipped this year.
“Stir what you’ve got” sometimes response when mgrs get a “no” response to ask for more capital.
Climate change-premium & risk for only 1 year, then renews at higher rate. Challenging, but will have more influence on risk & premiums in time.
$100M in premiums in Asia now-small but growing.
They take in about $10B in current overall premiums.
Thoughtful wrt amount of debt, variable & depends on which group.
Doubts they will invest in China, at least at this stage, rule of law, less expertise.
Profitability is the priority over top line growth.
Combined ratio- (98 in 2023, up from 92 in 2022) but improving in recent quarters. Gayner owned that they have made some mistakes in recent years, but some meaningful changes have been made.
MKL is pro diversity, development of young talent, support college students investing programs at UVA & Delawares State.
Over the last year- Transitions with new architect plan beyond Insurance business model + Transition of leadership in several key positions.
? wrt BRK sold MKL. Gayner has not sold any MKL stock but has purchased more personal stock above what he receives.
Continues warm relationships with WEB and BRK mgt. He was surprised and disappointed but BRK “has its own reasons” for exiting equity positions.
Question was raised- MKL spent $180K on compensation consultants- provided data in the decisions they made for our exec. team compensation and not used to simply promote self interest & compensation.
We try to adjust take EDITDA and interpret and translate it ultimately to Cash.
Be flexible to adjust to “fish where the fish are” and be lifelong learners.
1st stock MKL bought was in 1990 was BRK with unrealized gain over $1B.
The whole MKL portfolio’s unrealized gain is over $7B.
Over 60% of their total public equity value are in their top 20 holdings.
Compensation is spread out over 3-5 years, make it long-term focused, ROC based.
Using AI in bits and pieces but it will grow as we better understand it.
Prioritize the long term over short term results.
Talked about a dinner with Charlie.
They Do write Cyber insurance but it’s not a big ticket, MKL writes way smaller limits & a big spread. They also have a service to provide advice and service to limit client company’s risk/exposure.
They had some exposure to Baltimore bridge collapse & bus. interruption from that event & if you see any natural disaster, there is a good chance they have at least some exposure.
Stock price up 18% over last 12 months.
No. of Recommendations: 1
Great notes, one I'd been looking at. I hadn't noticed that BRK sold out. Is there any discussion as to why their view had changed?
No. of Recommendations: 1
Thanks. No discussion from any higher ups at BRK. We can only speculate. 2023 was a challenging year for MKL. It was surprising to me BRK sold so quickly. BRK understands that business model better than anyone and Chris Davis is on the Board and a great resource for further insight. After the Allegheny acquisition, a lot of folks were thinking an offer for MKL might be on the horizon but appears doubtful for now. Hope MKL can bring their A game for 2024. I sensed a real focus by management for better execution.
No. of Recommendations: 11
We can only speculate. 2023 was a challenging year for MKL. It was surprising to me BRK sold so quickly.
It's become much more difficult to speculate about Berkshire buys and sells of relatively small positions since Todd and Ted joined the crew. We don't know who bought and sold Markel and we don't know why in either case. No one has said anything publicly, other than Mr. Gayner acknowledging he was disappointed in the sale.
Nevertheless, here are a few baseless speculations:
1. 2023 was a disheartening year for observers of Markel's insurance operations. In the midst of a "hard" insurance market that benefited most of the other big players, Markel stumbled badly following the departure of longtime insurance chief Richie Whitt. The horrendous Q4 combined ratio would not have been public knowledge when Berkshire sold in late '23, but the disappointing Q3 numbers suggested the negative trend. This seems like the simplest explanation.
2. Markel's normally sleepy stock was fairly volatile in 2022-23, providing opportunities for short-term profit-taking. For example, I bought a small lot in February of '22 at a price of $1,235 per share. Less than two months later, in mid-April, I sold it at a price of $1,478 per share. I hadn't intended for it to be a short-term trade, but a 20% gain in two months is unusual for MKL shares. It just seemed likely not to last. Four months later, in August, I bought them back for $1,185 apiece. Berkshire is not known for taking trading profits, but the combination of worrisome insurance performance trends and an opportunistic price might have been enough to create an incentive in this case.
3. This is by far the most speculative, but I can't help wondering about Todd and Ted's incentives these days. There has long been speculation that when Mr. Buffett left the stage, Berkshire leadership would be bifurcated between operations (Greg Abel and Ajit Jain) and public market investments (Todd and Ted). This speculation never made clear how resources would be allocated between those two buckets. The news out of the AGM was that Mr. Buffett's thinking has evolved and he now believes it will behoove the board to put Mr. Abel in charge of all capital allocation.
Not only were Todd and Ted not included in the leadership group on the dais, I don't recall their names being mentioned, except possibly for Mr. Combs' role running Geico. I may be reading too much into that particular tea leaf, but their general exclusion from the conversation about succession doesn't seem like a terribly promising sign for their roles in a post-Buffett Berkshire. Neither needs the paycheck and both joined Berkshire to work with Mr. Buffett. Markel's business plan is that of a long-term compounder. If your own time horizon as a portfolio manager is in flux, perhaps that's not the best fit.
It is tempting to think that top managers at Berkshire are above jockeying for position, but it does not seem to me beyond the realm of possibility that Todd and Ted were incentivized to improve their short-term performance as decisions around succession were crystalizing. If so, an opportunistic short-term exit from Markel might have made more sense than in times when future division of responsibilities was not on the table.
---
Again, this is all rank speculation, but given the state of flux in Berkshire leadership and the number of cooks in the stock-picking kitchen, I don't consider either of the Markel transactions a big deal. Markel is a mini-Berkshire with a few obvious warts. It's unlikely to win any short-term stock-picking contests unless you get lucky with the start and end dates. But it does have a long-term record of steady if unspectacular compounding.
Mr. Market seemed happy about the Q1 report. Most of the gains were in the investment portfolio, which bounces around with market sentiment, but the combined ratio came back down into double figures, which was reassuring. My position, which consists mostly of that August 2022 buy supplemented by a small add on the drop following the Q4 report, is up 30% in less than two years. I have found over the years that returns from Markel are all about entry points. This is true of all investments, of course, but my experience has been that Markel offers wider pricing variance than other similar firms. If they can keep the insurance train on track, they should be OK, but that's worth monitoring closely given the recent stumbles.
No. of Recommendations: 5
Great post and very well written! I agree with nearly everything you said, from the speculation to the price volatility. Fyi-I am only up 95% (8.5% CAGR) since 2/2016, so I have been patient and underwhelmed with the return, although I like the MKL vision and Tom G. a lot. My Patience does thin over time, esp. since BRK has risen over 200% over a similar time. One well known equity manager I chatted with in Omaha told me simply “I’d rather own more BRK than MKL”
No. of Recommendations: 1
I agree with wanting to own BRK over MKL but when you're ridiculously overweight BRK, the whole point is trying to find something else besides it. In the past, I've put $$$ into Fairfax, Markel and QQQE. At this moment, I'm clueless. It's what happens when you get ridiculously lucky with BRK in the first place. You end up so top heavy that you wonder if maybe you should spread some of it around. Always open to ideas.
SD
No. of Recommendations: 2
Exactly! In the same boat- over 70% BRK and 10% Apple. I am currently noodling on whether I should trim some Apple and I am considering it more now that WEB trimmed 13% of the position and will trim more. I know that he’s playing a different game however it makes me look in the mirror and wonder whether I should trim and some capacity as well. Of course, there’s always the dang tax situation as these are in taxable brokerage accounts and I would have to ask “and then what” to do with the funds And have to overtime 21% tax hurdle. I realize that we are quite fortunate, and there are many worse problems out there! I am also open to ideas, but I am in the drawdown phase so new purchases & positions will be more limited.
No. of Recommendations: 4
