Posts Tagged ‘investment criteria’

Markel’s sound investment criteria

November 13th, 2009 Comments off

Markel Corp. (NYSE: MKL), one of the stocks this blog follows intensely released their 2009 Q3 results:

The combined ratio improved to 96% from 124% in Q3 2008 and they increased book value/share by 23% to $ 274.33 which was driven by improvement in the market value of the company’s investment portfolio!

So isn’t this a good moment to listen to some comments from Tom Gayner, chief investment officer of Markel, which he made on the conference call?

Markel in 2005 acquired its first controlling interest in a privately owned company.

In 2006 and 2007 prices for this type of investment were simply to high.

So Markel waited patiently with discipline through 2008 and now they saw the opportunities they were waiting for:

In October of this year they acquired privately held Panel Specialists Inc. based in Temple,Texas.

As a result of the dramatic dislocation in the world of private equity and alternative investments controlling interests of 80 to 100% of privately held companies were finally available at prices which represent good investment value.

But what are the criteria they are looking for?

They are the same as when they consider other equity investments:

They are looking for profitable, cash generating businesses run by management teams with equal measures of talent and integrity. These businesses have reinvestment opportunities and capital discipline and are available at fair prices.

When Markel acquires a controlling interest in these companies they are able to decide on capital allocation and executive compensation levels. These are exactly the 2 points where a lot of value gets dissipated in public companies.

Doesn’t this all sounds familiar?

Isn’t it classic Berkshire style?

I think we can expect great things from this company within the next couple of years as the economy continues to improve!

And by the way:

Don’t forget that Tom Gayner sits also on the board of Colfax Corporation (NYSE: CFX) where he can help to evaluate acquisition objects!