Berkshire and Lookalikes

Berkshire Hathaway (BRK.B)

Intrinsic Value: $222, Current Price: $158.7

This is the company I read most about. Primarily from Warren Buffett's shareholder letters, but also financial filings and multitude of articles and a few books. In May 2015 I even made it into the famous shareholder meeting in Omaha.

The stability of earnings from various wholly-owned businesses, stock portfolio of strong companies and $20B of cash held at all times is fairly unique. Even more unique is the liabilities side of balance sheet: insurance float, deferred taxes on unrealized investment gains and depreciation of long-lived and intangible assets. Finally I strongly believe in the business and investment acumen of Buffet, Todd Combs, Ted Weschler and all the managers of operating businesses. I see them making smart decisions within their businesses and even more so in deployment of cash that they generate.

From the individual investor’s standpoint the stock repurchase plan with 1.2 book value limit provides almost a hard downside protection. I am convinced Buffett (or his successor) will buy back a lot of stock at significant discount to intrinsic value, or find even better ways to deploy capital elsewhere.

I am not certain why market undervalues Berkshire. Maybe it is because it is old and boring? Maybe they are worried about Berkshire after Buffett? Or maybe consistent selling from Bill and Melinda Gates foundation drives the price down. Neither thing worries me.

Leucadia (LUK)

I think of Leucadia mostly as ‘baby Berkshire’ with the same principles and source of funds (insurance float). Their wholly-owned businesses did not do great in last few years which caused them to be undervalued - I jumped in then and added on a dip. With price close to book value, I am confident in the long term prospects of this investment. Recently it tracked higher, perhaps partially because the businesses improved and because US-focused businesses overperformed after Trump election.

Markel (MKL)

Markel is another ‘baby Berkshire’, with a better track record and therefore with market capitalization at non-trivial premium over book value. Given its consistent performance I am happy to pay this premium. I was even happier to pick up more of Markel after the post-earnings dip. Unfortunately, only one of my orders got fulfilled, and then market run away.

Alleghany (Y)

Yet another example of baby-Berkshire. Another shareholder-friendly company, with value-investing principles and sensible capital allocation approach. Bought around book value and holding for the long term. I expect all baby-Berkshires to be consistent ‘compounding machines’ and having all of them provides some diversification for my otherwise very concentrated portfolio.

Fairfax (TSE:FFH)

The most recent addition to my portfolio - I bought a small position today after checking on performance of ‘discarded’ investments I wrote about yesterday.

Fairfax dropped heavily post US election and is now well within what I was ready to pay when I evaluated it the first time. The drop presumably comes from Fairfax hedging all (or even more than all) of their equity positions in expectation of market’s decline. They seem to be wrong for the time being, with post-election gains in the market. But I see this rather as an attractive entry point, given the proven record of management’s good judgement and the fact that company is diversified by having great insurance underwriting record and wholly-owned businesses. The potential losses from these hedges do not justify the drop, and current premium over last reported book value is in the order of only 10%.