There’s a new take from the Motley Fool that a lot of folks are asking about recently, a “rare triple-buy alert” for a “practically perfect ‘mini-Berkshire'”, all in an ad to entice new subscribers to their flagship Motley Fool Stock Advisor newsletter (currently $99 for the first year, “list price” $199), and for those of us who’ve long admired Warren Buffett’s long-term returns at Berkshire Hathaway (BRK-B), that kind of promise is overwhelmingly appealing.
But that “triple buy” business sounds awfully familiar…. So is it the same “triple buy alert” that they’ve been touting on and off for years? They imply that this is brand new and urgent, and every time you look at this ad it will have a current date on it… but yes, the basic spiel is the same, and the “triple buy” part (“we’ve already recommended it three times”) has been true since at least 2018.
But don’t let me spoil the surprise, hang on for a moment and we’ll get into the details.
Let’s start with a little taste of the latest version of the ad (previous versions often highlighted Tom Gardner, the founding Fool brother who was the one who actually recommended this stock for Stock Advisor, but this current version does not include a signature or any names… with Tom’s brother David stepping back from picking stocks, maybe they’re trying to be a little less star-driven).
“… anyone who got in early on Buffett’s company and held on turned a mere $1,000 into more than $16 million!
“… what if we could find the next Berkshire Hathaway… a company with the same smart leadership that uses Buffett’s disciplined, commonsense approach of leveraging the insurance business to buy other stocks, bonds, and entire companies? A company with a knack for finding winners in ‘obvious’ places that most people miss?
“Well, I believe we have found a practically perfect ‘mini-Berkshire.’
“And I’m so confident in this company that we’ve already recommended it three times to members of The Motley Fool investing service… and that’s something that just doesn’t happen very often.”
So I guess if they’re using that first-person language this is a repurposing of one of Tom Gardner’s old promo letters. What else do they drop by way of hints?
“While Berkshire is now probably too big to achieve the massive gains it saw in the past, this new company is not: It’s only 1/30th the size of Berkshire… and therefore I believe has much more growth potential.
“What’s more, this mini-Berkshire’s CEO is a charismatic investor and a proven winner: Since the business started 30 years ago, his company’s stock has risen more than 13,000%!
“But I must again state the electrifying part of all this: They’re still tiny compared to Berkshire.
“With its nearly $550 billion market cap, Berkshire Hathaway is gigantic… It’s simply too big to grow the way it has in the past. But our mini-Berkshire, on the other hand, is just 1/30th the size!”
And, of course, that’s what we all want — the chance to put up a small investment and someday own a baseball team and get our alma mater to name a building after us… is that too much to ask?
OK, fine, we’ll settle for helping our kids go to College and retiring without panic… who knows, just that might cost $12 million by the time I’m ready to toss my keyboard in the trash and enjoy my golden years.
We’ve seen these kinds of promotions for years — lots of folks promise you the chance to get in early on the next Warren Buffett, and they’ve been doing it for longer than Stock Gumshoe has been around… some of my first articles in 2007 were about “next Berkshire” ideas, and it wasn’t a new notion then.
But hope springs eternal… so what’s the stock getting the Berkshire Baby treatment today?
This is, sez the Thinkolator, our old friend Markel (MKL). Which I expect I’ve probably owned for about as long as Tom Gardner has been recommending it, perhaps longer.
Markel is a specialty insurance and reinsurance company (reinsurance is “insurance for insurance companies” — a second-level way of spreading out risk), and the comparisons to Berkshire Hathaway come because they make some effort to emulate Warren Buffett’s insurance conglomerate — they allocate much more money to investing in equities than more conservative insurance companies do, using the value investing philosophy of co-CEO Tom Gayner, who is widely admired as an investor, and they also, again like Berkshire, been using their cash flow from insurance sales to buy up smaller operating companies to diversify (they call this Markel Ventures, and it’s been slow-building but those operating non-insurance subsidiaries have grown pretty meaningful over the past decade).
They also are good at communicating fairly with shareholders, and they have much better employee incentives than most companies (they have typically base incentive bonuses not on the share price or the quarterly returns, but on the rolling five-year growth in book value per share, a far superior measurement for an insurance company that’s trying to grow rationally and profitably in the long run).
There’s nothing in this latest promo to suggest that RIGHT NOW is the ideal time to buy Markel, the text is essentially the same as it has been for at least three or four years (and during much of that time, frankly, Markel was overvalued and buying even giant Berkshire Hathaway was a better bet), and they don’t mention valuation or anything like that.
So I’ll share with you the last note of substance that I included about Markel in the Friday File for our Irregulars, just to update you on my thinking… this is from April 30, 2021, following Markel’s last earnings update (they report again later this week, so things could change meaningfully in a few days):
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Markel (MKL) popped in with its earnings update as well, and Markel Ventures continues to get more and more interesting (as they said on the call, “it’s starting to look as good as it is” after a long period of digesting the purchase accounting for a lot of the businesses they’ve bought over the years). It has required a lot of patience, but that’s now no longer a weight on the company and a way to invest some excess cash at a time when bond yields are low… it has become a nicely profitable conglomerate of operating businesses, led by a few pretty big operations like Costa Farms and Lansing Building Products, both of which had extraordinary years last year as the building/landscaping booms took off with the pandemic and are still doing very w