Summary
- Markel has quietly compounded at rates far exceeding the S&P 500.
- Markel is led by a very strong management team that takes the long view and sticks diligently to its principles.
- Markel's portfolio of companies and various lines of business make the company incredibly resilient. As Markel continues to grow so too does its resiliency.
- Every Portfolio should hold a company like Markel to offer a safe store hold of value.
Every portfolio needs a handful of boring companies that either generate largely uncorrelated returns or protect the downside. You won’t brag to your friends about their returns, but you’ll know deep down that your money is in safe hands. In the age of growth investing, it can often be easy to forget proper portfolio construction. However, the first few months of 2021 have proven how quickly last year’s darlings can fall out of favor. That is why every portfolio needs a company that stays away from the spotlight, quietly compounding and growing steadily over time. Markel (MKL) is a great example of a company I look for to fit this mold. The right kind of boring. On paper, the business strategy of Markel is simple. Collect insurance premiums, maintain enough cash on hand to cover worst-case liabilities, and invest the rest. However, investments can often go awry and place a company in jeopardy. In contrast, Markel has been in the game now for 40 years, a testament to the discipline of its management team.
The growth and steadfast nature of Markel can be attributed to Tom Gayner, who joined in 1990 to form the Markel-Gayner Asset Management Corporation, which provides equity investment counsel to Markel as well as outside clients. Gayner is also the president of Markel Ventures and was named Co-CEO along with Richard Whitt in 2016. The Co-CEO model is historically rare and often leads investors to question management’s structure. Who’s accountable? Who’s really in charge? However, increasingly the demands on a modern CEO are too much for one person. In the case of Markel, the delineation of responsibilities makes perfect sense. Richard Whitt, who has been with Markel since 1991 heads the insurance business, while Gayner leads investments and Markel Ventures. Gayner’s approach to investing and overall vision for Markel has been fantastic with the stock price far and away outpacing the S&P since he joined. I encourage everyone to listen to Gayner speak about his investing philosophy. He is both adaptable and resolute in sticking to his four pillars, identifying that some pillars can change over time and in different conditions while others must always remain true. He does not go chasing trends, instead, he believes in staying within his circle of competence and compounding capital over time. The long-term thinking of Markel is also evident in their compensation of managers being based on five-year averages. Gayner’s dedication to shareholders and customers gives me confidence in Markel’s management as he often cites the “Win-Win-Win” philosophy relating to employees, customers, and shareholders.
Often called the “Baby Berkshire” the vision of Markel calls to mind a lot of similar themes as those mentioned in early Berkshire Hathaway (BRK.B) letters. In my opinion, it is largely at a similar stage as when Berkshire began to ramp up its scale to wholly buying businesses. Recently companies such as Markel and Berkshire have moved sideways while almost anything with a catchy name in the growth sector has surged. I get it, a company like Lansing Building Products does not have the same appeal as a potential e-commerce or mobile payments giant, but these are real businesses generating real cash flows and eventually, fundamentals will matter again. We have begun to see a reversal and a rotation into value in 2021 and there is plenty of room to grow for the long run as Markel continues to reinvest the profits from its businesses and investments to fuel growth.
Source: (Koyfin)
Three Engines: Specialty Insurance, Investments, Markel Ventures
Source: (Markel)
