by Travis Johnson, Stock Gumshoe | December 20, 2016 11:53 am
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I’m trying to decide between Markel, Fairfax and Berkshire. I think Markel’s valuation is a little too high. But I think BRK will do especially well for the next 3-4 years especially under Trump. Fairfax is the one I really can’t gauge, but will wait to dive in.
Good timing Travis. The day of the recent election result I “hedged” my portfolio buying a large holding in Fairfax and Sandstorm. Lol, the market reaction was opposite of expected and these have been way down since then. Fortunately, my large Biotech holdings went generally in the other direction. Better times ahead (I hope) in FFH and SSL.
I put in a limit order today for Fairfax Financial but the price spiked and I really don’t want to chase the price. I think we may in for a good bull run as the price has appreciated quite a bit this month. I may have to wait this one out until there’s another pullback.
P/B is about 1.3 which is not ideal, but still better than Markel and BRK at the moment.
Fairfax tends to be pretty volatile and Watsa makes some pretty big equity bets, so there may well be dips for buying if you’re interested — Markel I’ve been waiting on adding to because of the revaluation it enjoyed over the past two years (book value per share up about 18%, share price up 33%), but perhaps that was just a recovery from several years of being undervalued and it won’t get back down to 1.2X book value again. We’ll see. Berkshire is more than reasonable on a price/book valuation, but that’s a special case — if the big subsidiaries like the utility and the railroad were valued like their peers that would boost price/book valuations considerably, but there’s also the risk of their oversized equity positions (Wells Fargo and IBM, for example) and, despite the fact that it’s been over-stressed over the past decade, the risk of some succession and future performance uncertainty if Warren Buffett is driven away from Kiewit Plaza in an ambulance after collapsing at work some day.
Why not buy Allied World. The price seems in line with the offer, plus if Fairfax keeps moving up, The number of shares being transferred to Allied shareholders is protected.
A not unreasonable option, there is some price protection within a range. Not guaranteed to be better than owning Fairfax and there are several variables in the acquisition formula, but if things stay relatively stable Allied World is likely to have similar results through the close of the acquisition.