“Expensively purchased knowledge should help us avoid future errors.”
Bruce Berkowitz, Fairholme Funds
Something special happened in the last Markel conference call. Something that rarely happens in a corporate sponsored conference call: humor. Not just humor, but humor on mistakes.
In the first quarter, Markel’s total investment return was negative .3% (+.9% on fixed income and -5.4% for equity). That’s not very bad considering most other insurance investment returns were disappointing. Even more interesting, the Current allocation to equities stood at lower than normal 66% of stockholders equity. Typical exposure is 80%. Lowest ever? In 2000, at 50%.
This is a number I will be paying a great deal of attention to going forward. After about 3 years of getting to know the company, it’s finally on my radar. At times, it felt like an opportunity lost. It was always on the watch-list and I always admired the company. In fact, I would say they are in the top 5% at doing what they do.
Here’s what Mr. Berkowitz had to say about Markel, “The company’s accounting is conservative and management has a record of generating excellent returns for owners…compensation to employees is fair and management spends significant time discussing past mistakes and future risks when communicating to shareholders.”
Here’s what Markel has to say about themselves. In every annual report, at the very beginning you will see the “Corporate Profile” it states:
“Markel Corporation markets and underwrites specialty insurance products and programs to a variety of niche markets. In each of these markets , we seek to provide quality products and excellent customer service so that we can be a market leader. Our financial goals are to earn consistent underwriting profits and superior investment returns to build shareholder value.”
Sure seems to satisfy the Fairholme insurance investment checklist.
After the “Corporate Profile” you will see a section titled “The Markel Style.” After reading it, you want to own a piece of this wonderful business, immediately. It states:
“Market has a commitment to Success. We believe in hard work and a zealous pursuit of excellence while keeping a sense of humor. Our creed is honesty and fairness in all our dealings”
“The Market was is to seek to be a market leader in each of our pursuits. We seek to know our customers’ needs and to provide our customers with quality products and service.”
“Our pledge to our shareholders is that we will build the financial value of our Company. We respect our relationship with our suppliers and have a commitment to our communities.”
“We are encouraged to look for a better way to do things…to challenge management. We have the ability to make decisions or alter a course quickly. The Markel approach is one of spontaneity and flexibility. This requires a respect for authority but a disdain of bureaucracy.”
“At Markel, we hold the individual’s right to self-determination in the highest light, providing an atmosphere in which people can reach their personal potential . Being results oriented, we are willing to put aside individual concerns in the spirit of teamwork to achieve success.”
“Above all, we enjoy what we are doing. There is excitement at Markel, one that comes from innovating, creating, striving for a better way, sharing success with others…winning.”
If Markel was a brand of toothpaste, Dentist would be out of business, If it was an engine, you would never need an oil change. And if it was a significant other, you’d be marrying up no matter what your financial situation was.
If you don’t believe in owning a business with a partner who has a commitment to success, a sense of humor, who is honest and fair, respecting of customers and always looking to improve. You have problems, and I can help, send me an e-mail and I will find the closest mental institute.
Rewinding back to the beginning of this post, regarding the conference call and why it was special.
Mr. Tom Gayner, the Chief Investment Office at Markel found humor, in a good way.
Here are a couple of quotes:
-“We are in a number of wonderful businesses at attractive prices.”
-“We have chosen to participate in this worldwide growth through companies with intangible brand values, manufacturing networks, and intellectual expertise.”
-“Our goal is always to have reserves established at a level that is more likely to prove to be redundant and deficient”
-On Reserves “Imprecise science.”
-Meyer Shields, Stifel Niicolaus “I guess, Tom, I know verly little about analyzing banks, but I would think…”
-Tom Gayner, “It turns out so do I, but go ahead with your question.”
-“Well clearly, when you make mistakes, you need to admit it, recognized it, and figure out what you can learn from it and move on.”
-“We are at an unusual time in the markets where the highest quality things that you have the highest degree of confidence in are also selling at bargain prices.”
-“There’s more capital in the P-C industry than there are premium opportunities.”
-“We are managing the business as if they are not going to change quickly.”
-“Our underwriters, with the help of our actuaries, have a keen understanding of where we drive that line in the sand and we just simply don’t go past that point. And consequently we’ve lost some premium volume because of it.”
I mentioned last week that I had written this weeks post already, because I don't think I will get a chance to purchase Markel at book, I had talked myself into 1.25X. I have not yet purchased the equity in question, but it is getting close...Here are a couple links worth looking at:
-On Moral Hazard
-Anyone that attended the Berkshire Annual should recognize this lighthearted British humor that was shown to shareholders before the meeting started.
-Finally, a person in the blogosphere is in the process of painting the value worlds Sistine Chapel. I will be paying very close attention to this over the coming weeks and months as well as take part in the discussion.
-Lastly the obituary of Mr. Templeton. While your presence will be lost, your ideas and thoughts will not.
In the meantime, take care. Not sure what I will write about next week and that's where the fun begins. If you have any ideas, I'm all ears.
Regards,
S.K.
