Insurance Theme Checkup and some Buys, Sells and Hedges

by Travis Johnson, Stock Gumshoe | November 1, 2013 12:25 pm

Friday File look at favorite insurers, updates on royalty companies, and thoughts on some recent quarterly results from our Universe.

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Source URL: https://www.stockgumshoe.com/2013/11/insurance-theme-checkup-and-some-buys-sells-and-hedges/


3 responses to “Insurance Theme Checkup and some Buys, Sells and Hedges”

  1. KahnMan0861 says:

    Thank you Travis, for keeping us Gumshoers so well informed on your holdings and opinions. I am fairly new to investing ( 21 y.o. in the Marine Corps) and your insight on the market has aided me in making timely, and well informed decisions. Your service is greatly appreciated and I most definitely will keep reading.
    Semper Fi!

  2. Well, Berkshire reported their earnings a scant few hours after I posted this note — and I have to love what they wrote in their press release, even after Buffett bought a press release distributor (Business Wire) several years ago:

    “Berkshire’s operating results for the third quarter and first nine months of 2013 are summarized in the following paragraphs. However, we urge investors and reporters to read our 10-Q, which has been posted at http://www.berkshirehathaway.com. The limited information that follows in this press release is not adequate for making an informed investment judgment.

    Damn good advice for anyone doing investment research — feel free to skim the press release for the highlights or basic numbers, but to get the full story read the stuff they HAVE to tell you (sez the SEC) but don’t want to emphasize … that’s in the actual quarterly filings.

    Berkshire’s earnings were just fine as far as I’m concerned — they apparently missed some estimates, though how anyone can really estimate operating or investment earnings for this massive conglomerate in any given quarter is beyond me.

    Book value is now about $84.50 per B share, which is meaningful only because it gives some approximation of “intrinsic value” even if it considerably understates that value for a variety of reasons (carrying value of Berkshire’s equity and operating subsidiaries is almost certainly understated in most cases, as is the value of Berkshire’s now $77 billion of insurance float — carried as a liability but also acts as free money for them to use in investments until it’s needed to pay claims).

    Berkshire could potentially start buying back stock if it dips to 1.2X book value or below, which would be just over $100 a share (again, B shares — if you can afford A shares at $175,000 a pop you doubtless don’t have much use for my blather … a B share is 1/1,500th of an A share, with lower voting privileges, and the two generally trade at that multiple). Since Berkshire announced the potential buybacks a couple years ago the stock has bounced every time it has even come close to approaching that level (it was 1.1X book value originally, later raised to 1.2X).

    As I said, Berkshire is already my second largest holding but I’d be happy to even more overweight the shares if they drop to discount prices. Right now they’re eminently reasonable, but not so low that I feel compelled to load up… down 10% from here and you can color me very tempted but I can’t imagine them falling below $100 for very long unless there’s some markedly bad news or a real market collapse that slashes the value of Berkshire’s investment portfolio — my last buy was a very small one at $111.

  3. Markel results out today — excellent performance on the quarter, though book value didn’t rise as much as I optimistically hoped it might. Book value per share is now $462 and change, so the “easy buy” at 1.1X book value gets you to about $508.50 …

    … the “probably still OK” buy at Markel’s historic baseline book valuation of 1.2X before they took on a big reinsurance book from Alterra would be right around $555. The “probably” is because reinsurance companies in general, and Alterra specifically before the acquisition, tend to trade at book or at a small discount, while specialty insurers (good ones, at least) tend to trade at a decent premium to book like Markel almost always has.

    I haven’t read through the filings or listened to the call yet to see how the transition of the Alterra portfolio to Markel’s investment style is proceeding, but the basic headline numbers look good. This was technically a “miss” on the analyst earnings estimate, so hopefully the price will come down a bit and make the stock a better buy, we’ll see.

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