Friday File: Annual Review pt. 4 (Insurance, India, Candy and more)

By Travis Johnson, Stock Gumshoe, February 1, 2019

I haven’t yet gotten to a few of my largest holdings in our Annual Review, so that’s where I’ll begin today — with the insurance conglomerates Berkshire Hathaway (BRK-B), Markel (MKL), and Fairfax Financial (FFH.TO, FRFHF), as well as the somewhat related names Fairfax India (FIH-U.TO, FFXDF) and Boston Omaha (BOMN).

I should be clear about some bias up front: I’m very unlikely to ever sell Berkshire Hathaway or Markel shares. I consider these to be “hold forever” positions — it’s certainly possible that I’ll change my mind if these companies change in some substantial way in the future, but they are generally stocks that I grit my teeth and hold when they seem overvalued, and buy more of when they seem undervalued. Along with Fairfax, they are also stocks that are largely (though not as much for Berkshire anymore) driven by the performance of their insurance companies, and they carry that sector risk — which means I’m always mindful of not concentrating too much of my portfolio in these names. About 25% of my individual equity portfolio is in these three stocks right now, and that Real Money equity portfolio is about 40% of my total investment portfolio (the rest is in diversified funds) so that means a bit more than 10% of my family’s investments are in these three names… I’m very comfortable with that level. I don’t think insurance will go away, it has been one of the most important products in the world for centuries, but it is possible that all insurance companies could do very badly for a long time if the industry is really shaken up by events or changes that they fail to anticipate or adjust to. That seems unlikely to me, the industry is out in front of estimating risks and coping with major trends like cybercrime and climate change that will impact its business, but unlikely is not the same as impossible.

So what is my current valuation thinking for those two?

Berkshire Hathaway (BRK-B) — Buy below $195, great long-term confidence that Berkshire will do well in next down cycle with their huge cash balance… perceptions could change quite a bit as we see what stocks Berkshire bought or sold in the fourth quarter.

Berkshire Hathaway (BRK-B) is uniquely well positioned for the next market downturn, given its massive cash balance and Warren Buffett’s status as the guy who gets ...

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