A great way to achieve gains in line with the investing masters is to join them.
I am a proponent of investing in the public securities of these guru investors. The problem is that not all of these investors beat the markets. Sure an off-year or two is acceptable, but it is pointless to invest in them if they cannot beat the markets in the long run, when more money can be made in a low-cost Standard & Poor's 500 fund.
One exception is if a lower risk is desired, and the stock can provide a return that is higher or in line with its expected return based on its level of volatility. I use a 10-year time frame to judge the performance of these masters and decide whether to invest in them. Using this time frame will help weed out the flash-in-the-pan portfolio managers who achieved fame in the beginning with extraordinary gains only to fizzle out after they gained enough publicity to sell their securities to the public.
For the 10-year period as of the close of Oct. 14, the S&P 500 had increased in price by 56%. As in all stocks, the price of the stock can disconnect from the fundamental value of it.
I use GuruFocus’ Valuation Box of value investing measurements to give me a quick view of whether this disconnect has occurred. In the spirit of value investing, I prefer to buy stocks at a discount to these readings. I buy at discounts of either 10% for smaller companies and 25% larger companies using a 50 billion market as my threshold to decide between the two.
Berkshire Hathaway (BRK.A)(BRK.B)
Berkshire Hathaway is the gold standard and is led by the father of value investing, Warren Buffett. The price has increased by 119% in the past 10 years. Berkshire’s five largest listed holdings are Kraft Heinz (KHC), Wells Fargo (WFC), Coca-Cola (KO), IBM (IBM) and American Express (AXP).
Markel (MKL)
Markel’s investing is led by Co-CEO Tom Gayner (Trades, Portfolio). The price of the stock has increased by 131% in the past 10 years. Just like Berkshire Hathaway, Markel’s core business is insurance with a float that is invested in a value investing manner. Tom Gayner (Trades, Portfolio) is also running Markel Ventures, a business unit of Markel where permanent investments are made in businesses outside of the insurance industry. The five largest listed holdings of Markel are Berkshire Hathaway (BRK.A)(BRK.B), CarMax (KMX), Walgreens Boots Alliance (WBA), Brookfield Asset Management (BAM) and Walt Disney (DIS).
Fairfax Financial (TSX:FFH)(FRHFH)
Fairfax Financial is led by Prem Watsa (Trades, Portfolio). The price of the stock on the Toronto Stock Exchange has increased by 325% over the past 10 years. Watsa is commonly called the Warren Buffett (Trades, Portfolio) of Canada. He runs a similar type of business with insurance at its core. The difference with Fairfax is that the company is known to hedge its portfolio in a way where the company will outperform in the event of a market crash. The five largest listed holdings of the company are BlackBerry (BBRY), IBM (IBM), Kennedy-Wilson (KW), Resolute Forest Products (RFP) and Overstock.com (OSTK).
Brookfield Asset Management (BAM)
Brookfield Asset Management is led by Bruce Flatt. The price of the stock has increased by 101% over the past 10 years. Flatt is the real estate guru of the bunch and Brookfield is a great way to get real estate exposure. Brookfield’s five largest listed holdings are General Growth Properties (GGP), Brookfield Renewable Energy (BEP), Brookfield Property (BPY), Simon Property Group (SPG) and American Tower (AMT).
Investor AB (OSTO:INVE A)(IVSBF)
Investor is the leading owner of Nordic-based international companies and has been run by the Wallenberg family since the company was founded one hundred years ago. The price of the stock on the Oslo exchange has increased by 100% over the past 10 years. The five largest listed holdings of Investor are Atlas Copco (OSTO:ATCO A)(ATLCY), ABB (ABB), SEB (OSTO: SEB A)(SKVKY), AstraZeneca (AZN) and Wartsila (OHEL:WRT1V)(WRTBY).
Jardine Matheson (SGX:J36)(JMHLY)
Jardine Matheson is led by the Keswick family with Sir Henry Keswick as the chairman and Ben Keswick as the managing director. It is a conglomerate that holds a diversified portfolio of businesses principally in China and Southeast Asia. The stock on the Singapore exchange has increased 213% over the past 10 years. The five largest listed holding of Jardine Matheson are Hong Kong Land (SGX:H78)(HNKGY), Astra (ISX:ASII)(PTAIY), Dairy Farm (SGX:D01)(DFIHY), Jardine Cycle and Carriage (SGX:C07)(JCYGY) and Jardine Lloyd Thompson (LSE:JLT)(LLTHF).
Alleghany Corporation (Y)
Alleghany’s success has not been attributed to a single family or individual throughout its history such as the other companies. Its business model is similar to Berkshire Hathaway with insurance at its core. The price of its stock has increased 99% over the past 10 years. The five largest listed holdings of Alleghany are Alphabet (GOOGL), CVS Caremark (CVS), Walt Disney (DIS), Microsoft (MSFT) and Blackrock (BLK).
As mentioned above, I generally only buy stocks that are underpriced by at least one of the fundamental values listed in GuruFocus’ Valuation Box. Of the companies listed above, only Berkshire Hathaway, Alleghany, Investor and Jardine Matheson are undervalued, according to at least one of the Valuation Box measurements. These measurements can be seen by looking up the stock at GuruFocus. The links provided in this article will lead you directly to those pages. The stocks listed in this article are companies that are known for their value investing portfolios and have beaten the S&P 500 over the past ten years. If you know of any other companies that meet this criteria that you would like to share, please mention it in the comments section below.
Disclosure: I own shares of BRK.B, MKL, FRFHF, BAM, IVSBF, and JMHLY.
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