Thanks for the article! When you write "A quick look at the results would result in an immediate conclusion that Markel does pay a price for its float" did you mean "doesn't"? Or am I misinterpreting something?
I meant it in a way that there might be years when combined ratio is above 100%, but if you view longer history, or values cumulated over some arbitrary periods of time, their float is actually almost free. I should do a 2024 update of this article. Valuing Ventures became easier with more detailed disclosures since a year or so ago.
In your analysis you leave out “Unpaid losses and loss adjustment expenses” from the liabilities side of your calculation, among some other important balance sheet accounts. Is there a reason? My version of MKL valuation is very similar except my net short investments is about $9.4B
It won get you rich that is a fact. But it should protect your principal investment in a long run. This is a rare property in most listed corporation. In my case, portfolio I am managing is there as a fail safety for my son once he finishes his education and I can afford to invest with extremely long horizon for most people investing out there (20 years ahead).
Hi Nick, Can you explain to me why if Tom Gayner is correct the market so under prices MKL's shares and has done so for so many years? I suppose what I am wondering (speaking as a MKL shareholder) why the shares have been so lack luster for so long if it is such a great company?
I do not know. But I am relatively recent investor in Markel as I have purchased my first shares in 2020 and last in October 2022. However, based on what I have seen (and roughly shown here https://nicoper.substack.com/p/v-markel-corporation-calculating), it might have been overvalued at some points between 2018 and 2020. CATCo excursion and bad reinsurance performance did not help to build trust. Based on the selection of the anchor point you select, you will always get different measures of relative performance. If we are to trust them, and at least I do, they learned from it and will improve it. For the past 3 years, underwriting performance has significantly improved, according to their promises and 10-5-1 plan.
Thanks for the article! When you write "A quick look at the results would result in an immediate conclusion that Markel does pay a price for its float" did you mean "doesn't"? Or am I misinterpreting something?
I meant it in a way that there might be years when combined ratio is above 100%, but if you view longer history, or values cumulated over some arbitrary periods of time, their float is actually almost free. I should do a 2024 update of this article. Valuing Ventures became easier with more detailed disclosures since a year or so ago.
Ah thanks. I'd love to study an update for 2024! I was just trying to go through that exercise, but couldn't quite make it work.
In particular, your methodology makes me think that Mathematical Value = Investments + cash - debt + Ventures EBITDA * 10 + ILS EBITDA * 10
But when I look at https://substackcdn.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F6ff9c59b-65a1-46b3-9e17-25f7dd588422_2168x481.png, you must use another formula, because for say 2007, my mathematical value would be 7310550 + 477660 - 680700 = 7107510. Dividing by 9940 shares gives $715, rather than $852.
Are you adding some value expecting underwriting income?
I will try to find the original file, it was a while back. If you wish, I can send you the updated file which has evolved since.
If you'd be so kind, that would be amazing!
In your analysis you leave out “Unpaid losses and loss adjustment expenses” from the liabilities side of your calculation, among some other important balance sheet accounts. Is there a reason? My version of MKL valuation is very similar except my net short investments is about $9.4B
Sorry for typo, I meant net investments not net short investments
Correct. Here I just followed his approach without modifications. However, after that I did something similar to what you mentioned. https://nicoper.substack.com/p/v-markel-corporation-calculating
This article leads you to seeking alpha article I wrote. Paywall should be removed.
Thanks for following up. I agree with your article on SeekingAlpha and appreciate you publishing your research
In fairness Tom Gaynor does say in his speech that it will take time. But I don't know if I have the patience to wait 12 years as he suggests :-)
It won get you rich that is a fact. But it should protect your principal investment in a long run. This is a rare property in most listed corporation. In my case, portfolio I am managing is there as a fail safety for my son once he finishes his education and I can afford to invest with extremely long horizon for most people investing out there (20 years ahead).
Hi Nick, Can you explain to me why if Tom Gayner is correct the market so under prices MKL's shares and has done so for so many years? I suppose what I am wondering (speaking as a MKL shareholder) why the shares have been so lack luster for so long if it is such a great company?
I do not know. But I am relatively recent investor in Markel as I have purchased my first shares in 2020 and last in October 2022. However, based on what I have seen (and roughly shown here https://nicoper.substack.com/p/v-markel-corporation-calculating), it might have been overvalued at some points between 2018 and 2020. CATCo excursion and bad reinsurance performance did not help to build trust. Based on the selection of the anchor point you select, you will always get different measures of relative performance. If we are to trust them, and at least I do, they learned from it and will improve it. For the past 3 years, underwriting performance has significantly improved, according to their promises and 10-5-1 plan.
This was dope, thanks. Gonna share this in my newsletter on Sunday.
Feel free. Glad you liked it!