Lisa Rapuano, “Finding Your Way Along the Many Paths of Value”

By Travis Johnson, Stock Gumshoe, April 3, 2014

These are my notes and instant reactions from a presentation at the Value Investing Congress, the notes below might contain errors, paraphrases, incorrect quotes, or misinterpretations.

Lisa Rapuano presented about the importance of personality and temperament in managing your own investment portfolio.

A common trait among successful investors is adherence to a process. I took a bunch of notes on her thoughts about temperament and process, but they’re a bit disjointed (my fault, not hers — it was a very good presentation) so I’m putting them aside for now and will skip right to the ideas she shared.

Her ideas:

Largest position, Compounder Markel (MKL). She’s preaching to the choir on this one, I imagine at least half of the people in this room already own the stock and I’ve owned it for years. But she’s right.

The underwriting is profitable, the excess capital gets reinvested by a good value investor (Tom Gayner), the culture is for long-term returns and incentives are built for growth in book value.

She says it’s a very good operator, outperforms peers over time and has much lower volatility than the market.

The run off value of the insurance portfolio is about where the stock price is now, with no accounting for future profits. So all future underwriting profit, investment, and ventures growth is free… but the market isn’t going to come around to that way of thinking soon.

It gets valued on book value like all Property and Casualty insurers, so it won’t grow a lot faster than book value unless it gets more of a premium (even if it should get a better premium, or get a better valuation based on their cash flows or the runoff value or their compounding capabilities). Can buy and hold and not worry about selling, an ideal compounder.

Intrinsic value is close to $1,000 a share for Markel… but she doesn’t necessarily think the market will ever give it that kind of valuation.

I pretty much agree with that. I nibble on Markel whenever it gets cheaper based on the metrics the market usually uses, like price/book. Markel has almost never traded below 1.2X book value for very long, so my conservative self likes to buy more when it hits 1.1X book. I was a little worried that the Alterra acquisition might mean investors would value MKL more like a reinsurer, closer to book ...

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