OT: MKL

This company has been a beast over the years and appears to be a deep value pick at the moment based on metrics like PE, operating cash flow, etc … I will need to do a lot of studying before investing as I don’t really understand the company well at all. The market apparently doesn’t believe they have any growth to speak of from recent levels of earnings, as it’s priced like a pure cash cow.

Anyone care to share their thoughts on Markel?

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Price to book is still not such a bad valuation metric to watch.
Markel Ventures really should be valued on multiple of earnings, but it’s still such a small part of the firm that it doesn’t change things much. Yet.

Arguably the best investment case recently is a bit stale, from their 2020 report:
Over the five-year period ended December 31, 2020, the compound annual growth in book value per
common share outstanding was 10%. Over the five-year period ended December 31, 2020, our share price
increased at a compound annual rate of 3%.

It’s a lot cheaper than it was when I bailed a few years back.
Book per share is up 10.7%/year in the last 4.75 years. P/B of 1.28 doesn’t sound bad for that, if it continues.

If you want a quick and dirty rule of thumb, the average price in a given year has historically averaged about 50% more than the book per share at the end of the prior year.
With book at 981, that gives a short term target price of around $1470.
About 18% more than the current price.
Remember the “quick and dirty” comment.

Though it’s not very active, there are some good comments on the Markel board.

Jim

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Owner since the day it came public. Wife was CPA and from Richmond, VA where many were quite aware of Markel and eager to be investors.

Long ago Markel has float such that investments were 3.5 times equity thus writing longer tail insurance at break even was very profitable. Not so much that way any longer.

Well run business obviously. Mr. Market for years didn’t give good entry points to Markel stock, but that’s changed too. From time to time you can buy Markel cheaply.

Years ago Morningstar would value Markel’s stock based on investments per share, sometimes assigning the stock a intrinsic value of well over 3 times book value. Today? Weehaa! They’ve changed that tune and constantly under-value the stock in my view.

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My 2 cents-I bought some of both MKL and BRK in 2/16. MKL is up 55% vs. 143% for BRK. I realize it’s the past but I much prefer owning BRK, although I do appreciate MKL’s structure, management and integrity. I have not sold the original MKL position but certainly have considered it as returns have been disappointing over 6 years.

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I bought some of both MKL and BRK in 2/16. MKL is up 55% vs. 143% for BRK.

I’m in a similar boat with my second purchase of MKL shares. My first purchase in 9/14 has worked out a bit better–those shares are up about 93% while shares of BRK that I bought at the same time are up about 133%. So still not as good as BRK, but closing the gap.

In hindsight, P/B for MKL seems to have gotten ahead of itself for large stretches in the 2015-2018 timeframe. If I had known better (and been reading this board more) at the time, I probably would not have made the second purchase when I did or would have sold at some point along the way. For example, the price hit over $1220 per share in 2018–not much lower than the current price.

As Jim pointed out, P/B is better now. As a result, I would expect the price to track growth in book value more closely going forward (as opposed to lagging by several percentage points per year, as it did over the last several years). So, a reasonable expectation might be for the price to grow in the high single digits to low double digits per year going forward. Not setting the world on fire, but also a steady grower with little risk of permanent loss of capital (in my view) at the current price. I’d be surprised if it grew much faster than that, and if it did and the P/B ratio got inflated again, I might be tempted to sell. Otherwise, I plan to hold for the long term.

For what it’s worth, my position in BRK is far larger than my position in MKL. I plan to keep it that way.

Thanks for your comments, y’all.

Mungo wrote: Book per share is up 10.7%/year in the last 4.75 years. P/B of 1.28 doesn’t sound bad for that, if it continues.

If you want a quick and dirty rule of thumb, the average price in a given year has historically averaged about 50% more than the book per share at the end of the prior year.
With book at 981 that gives a short term target price of around $1470.
About 18% more than the current price.
Remember the “quick and dirty” comment.

Of course no guarantees, but thank you for your shorthand.

Book at 981 was for quarter ending 9/2021. We’ll have new numbers soon. Public comments made in the earnings press release and in an interview Gaylor gave in November indicate that the company was clicking on all cylinders in the 4th quarter. If I guesstimate a 3% gain in book value when results are announced, that would take book to $1010/share and current price/book to 1.23. Of course I haven’t looked into what their largest stock holdings did over the last quarter, so emphasis on the ‘guess’ in guesstimate.

The company sold ~20% of their equity holdings during the brief and vicious bear market of 2020, as their insurance liability shot up and they wanted to beef up cash/short term notes and bonds to be prepared for the worst and also to be ready to take advantage of expected opportunity to write more profitable insurance policies. The insurance biz has done very well since then, so, while the sales at a poor price were not ideal, the business is growing nicely again.

Looks like a solid value play at this price. I’ll probably nibble tomorrow.

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