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Tom Gayner's 4 Main Investment Principles

May 04, 2013 | About:
I've been doing some research this week on insurance as there are a number of stocks in this industry on my watch list. Yesterday I went through the Value Line list of life insurers, many of which are selling well below book value. I'll be taking a look at a few of these in more detail soon.

Of course, insurance is a business that Warren Buffett has used as a foundation at Berkshire Hathaway to build his investment fortune. But there is a far lesser known investor who runs a similar company that would tremendously benefit any value investor studying his thoughts and ideas. Markel Corporation (MKL) is run by Tom Gayner, a superinvestor who uses value investing strategies combined with insurance float to build wealth for himself and his shareholders.

Gayner has led Markel to an incredible 20-year performance, compounding MKL's book value at a remarkably high 16% per year, far better than the S&P 500. This is what happens to a stock's price when the business is growing its book value at these kinds of consistently high rates:

MKL-Long-Term-Chart.jpg

The book value has increased from $20 in 1992 to $403 today. The stock price has risen in corresponding fashion from $31 in 1992 to over $500 today. Patient long-term shareholder's have reaped incredible rewards by investing with Gayner who used MKL as the conduit.

Readers know we love simplicity here at BHI. In the video below, which was recorded in 2007, Gayner outlines his four-point plan for investing in stocks. His plan is logical, simple, and conceptually easy to understand (not to mention, profitable):

  1. High Returns on Capital: Gayner wants above average businesses that produce high returns on capital and require little additional capital
  2. Management with Integrity and Talent (both are equally important)
  3. Compounders: Gayner looks for businesses with attractive reinvestment opportunities. He wants high returns on capital, and he also wants the economics of the business to be such that the company can compound earnings and cash flow, and grow intrinsic value over time (compounding machine).
  4. Valuation: He doesn't want to pay too much, although he mentions that he is willing to pay a fair price for these compounders, as they will grow shareholder value steadily over time.
Gayner has successfully created his own compounding machine at Markel. I strongly recommend reading his shareholder letters, which are excellent resources on both value investing and the insurance business.

Here is the video from 2007.

About the author:

John Huber
I am the Portfolio Manager at Saber Capital Management, LLC. Saber manages an investment partnership as well as separately managed accounts for clients interested in a focused value investing strategy. My investment style has been most influenced by Ben Graham, Walter Schloss, Warren Buffett, and Joel Greenblatt. I am also the author of www.BaseHitInvesting.com, a value investing blog.

Visit John Huber's Website


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