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Motley Fool and "The ONE Remarkable Stock"

Elliott

New Contributor
Jan 18, 2008
65
12
19
35
Minneapolis, Minnesota, United States
Today I was drawn into the link to a "report" on "The ONE Remarkable Stock." I should have guessed that they'd have you jump through a million hoops to get it, but in the end, they named (NYSE: MKL) What does everyone think?

Here's a summary of what they said:

[FONT=&quot]The ONE Remarkable Stock --
Markel (NYSE: MKL)[/FONT]

[FONT=&quot]Surprised? Don't be. Historically, many of the market's best-performers have been obscure companies with names you've never heard. Even $212 billion Berkshire Hathaway is hardly a household name.[/FONT]
[FONT=&quot]So what exactly makes Markel stand out? [/FONT]
[FONT=&quot]Markel differentiates itself from larger property and casualty insurers by concentrating on more than 90 specialty lines of insurance, generally accepting risks that the large companies are unwilling to cover.[/FONT]
[FONT=&quot]Its key competitive advantages are the expertise and experience of its specialist underwriters and the relationships it has built with brokers and specific trade and other groups covered.[/FONT]
[FONT=&quot]The diversity of product lines means that no one line is responsible for more than 7% of the gross premiums written. In many of the lines, Markel has an incredible retention rate in the high-80% range -- a result of long-term relationships and niche expertise.[/FONT]
[FONT=&quot]Although the company does face price competition in many of its lines, it is considerably less than that found in standard insurance. For the first nine months of 2007, the overall customer retention rate was 87%, up from 86% for the same period of 2006.[/FONT]
[FONT=&quot]What is "float" and how can it work for you?[/FONT]
[FONT=&quot]The secret sauce of any well-run insurance company is its ability to effectively use what's called "float" to produce passive investment profits. In the insurance business, float refers to the cash pool created by money that has been collected from customers but not yet paid out as claims.[/FONT]
[FONT=&quot]Through Markel Gayner Asset Management, headed by Chief Investment Officer Tom Gayner, the company has produced stellar returns on the equity portion of its investment portfolio.[/FONT]
[FONT=&quot]In the five-year period ending Dec. 31, 2006, the equity portion of the portfolio returned 13.9%, while the S&P 500 returned 6.2%. The fixed-income portion returned 5.4% in that time period. At the end of June, equities were 24% ($1.85 billion) of the $7.7 billion portfolio. According to the June 30, 2006, SEC 13-F filing, the top ten holdings include:[/FONT]
  • [FONT=&quot]$232 million in Berkshire Hathaway (NYSE: BRK-A, BRK-B) [/FONT]
  • [FONT=&quot]$150 million in General Electric (NYSE: GE) [/FONT]
  • [FONT=&quot]$112 million in Diageo PLC (NYSE: DEO) [/FONT]
  • [FONT=&quot]$109 million in CarMax (NYSE: KMX) [/FONT]
  • [FONT=&quot]$85 million in Fairfax Financial Holdings (NYSE: FFH) [/FONT]
  • [FONT=&quot]$79 million in Anheuser-Busch (NYSE: BUD) [/FONT]
  • [FONT=&quot]$76 million in White Mountains Insurance (NYSE: WTM) [/FONT]
  • [FONT=&quot]$71 million in Citigroup (NYSE: C) [/FONT]
  • [FONT=&quot]$63 million in Brookfield Asset Management (NYSE: BAM) [/FONT]
  • [FONT=&quot]$53 million in United Parcel Service (NYSE: UPS) [/FONT]
  • [FONT=&quot]$45 million in Forest City Enterprises (NYSE: FCE)[/FONT]
[FONT=&quot]Gayner and his staff stick with what they know best, so the portfolio has a very high concentration in insurance companies.[/FONT]
[FONT=&quot]Recently, the company acquired a 40% stake in supermarket bank First Market Bank. The other 60% is owned by Ukrop's, a family-owned grocery chain. Markel intends to make similar private investments in the next few years.[/FONT]
[FONT=&quot]The best leadership money can buy[/FONT]
[FONT=&quot]As important, Markel has a management team that should get investors excited. It holds approximately 8.5% of the outstanding shares, and bonuses are based on the trailing five-year performance, with no bonus being paid below an ambitious threshold -- clearly aligning its interests with those of the shareholders.[/FONT]
[FONT=&quot]Management is conservative and has cultivated a culture that focuses on underwriting discipline and improving long-term shareholder value rather than on growth at all costs. It's a testament to its discipline that the company had no need to resort to the capital markets to shore up the balance sheet to offset losses from last year's hurricanes.[/FONT]
[FONT=&quot]I strongly believe that Markel is a superior long-term investment that is set to compound absolute shareholder value at rates that will significantly outperform the S&P 500 index for years to come. [/FONT]
 

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randallg99

Bronze Contributor
Aug 9, 2007
1,390
179
92
NJ
Has anyone heard of this stock before?

Does anyone have any comments about it?
I remember reading about this company over a year ago... in Smart Money or Money Magazine... rated this stock as one to buy over a year ago... (glad I didn't buy it then)

balance sheet shows that it's a cash rich company and that the cash position has improved yr over yr in past 3 years. don't know enough about this company, but insurance has a knack for sticking around and making money time and time again...

probably a conservative investment but tech analysis might show this is not the best time to buy.

could be wrong. good luck.
 

KLPInvestments

New Contributor
Jan 22, 2008
40
8
9
Markel is a diversified insurance company. This is a very well managed enterprise and they exert excellent underwriting discipline. The company uses it's huge and growing pool of insurance float(money paid in via premiums that is awaiting to be paid out in claims) to invest in a somewhat concentrated portfolio of equities. The firm is managed almost exclusively by the top one or two guys who have excellent reputations as investors and capital allocators. Much of their earnings/profits come from the buying and selling of securities....leveraged by the interest free float money from the insurance businesses. This company, in many ways, can be compared to Berkshire Hathaway in its operating structure. The similarities being that they are both anchored in the insurance business, and use the insurance float to operate an investment/holding company. So...this is an impressive company managed by competent jockeys at the helm. They have a great track record, allocate capital at high returns, own alot of the stock themselves, and treat their shareholders like partners.

Now, the caveat is that while their returns on their investments have been good, they have not been nearly as good as Buffett at Berkshire Hathaway, Lampert at Sears Holdings, or Steinberg and Cumming at Leucadia National. All of these are diversified holding companies for comparison. What is more, I don't think that the Markel investment portfolio is nearly as concentrated as say Berkshire's or Leucadia's. I just think that when the portfolio is spread out too much, you start to average the results closer to the market's results. Concentration entails more risk, but also allows you to trounce the market by a far greater margin if the investments do well. I'm confident in Leucadia and Berkshire's ability to do this since they have actually proven themselves over a long time period. The guys at Leucadia National are smart! smart! smart! Trust me on this as I have been following them very closely for 5 years or more and also own shares.

I checked into Markel's portfolio holdings recently and noticed that they are well down on some of their recent investments, particularly in the financial sector which took a big hit from subprime. It bothers me that they got into those a bit early and why did they not consider the subprime risks? This is not to say that they will not do well on these investments over the long haul because they are in fact long term oriented. Further, Markel's stock price has been well off the highs and perhaps these temporary missteps are already discounted in the stock price. It should also be noted that these guys are value investors in the Buffett mold and are somewhat 'risk averse'. With Markel's stock price down recently, you might have a good point of entry in here.

In summary, I like the company. They have a good track record. You'll most likely make some good money with them over the long term. But I would rather put my investment dollars with a company like Leucadia National. They have a better longer term track record, and they seem to allocate capital at far higher rates than Markel. The guys at Leucadia are on par with Buffett. The guys at Markel are very good too....but not quite on the level of Buffett and the guys at Leucadia. The Markel guys are a bit younger....so perhaps that is an advantage to them since you don't have to worry about impending succession issues. Companies such as these often depend heavily on the talented guy at the top(Berkshire and Buffett for example)...and they are not easily replaced when they move on. So much of the firm's success depends on their 'jockey'.

Sincerely, Kevin Pickell
 

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