I’ve been seeing ads for the Motley Fool’s Stock Advisor Canada service recently that catch the eye… mostly because they promise what we all want, the ability to find that one stock that will turn your small investment into a life-changing fortune.
They do this by starting with the story of “Forty-dollar Frank” ….
“When a Nevada man nicknamed, “Forty-dollar Frank” first purchased his dream vacation home in Tahoe, he gathered his family on the porch for a group hug… and to give thanks to one stock.
“The Wall Street Journal reports that Frank is just one of thousands of ordinary investors who have become millionaires thanks to this same stock.”
And that will probably sound familiar to those who’ve been aboard the good ship Gumshoe for any length of time — “Forty-dollar Frank” is one of the more well-known early investors in Berkshire Hathaway, so named because he bought his first share for $40 in the 1970s and enjoyed the life-changing gains over the following decades as the stock price climbed (that was well before the “B” shares existed or were split — B shares, the ones that trade around $200 now, were created in 1996 as 1/30th of a Berkshire share to make investing in Berkshire more accessible, and then were split 1-to-50 to make the acquisition of Burlington Northern possible about 10 years ago — so Frank bought “A” shares for $40, each of which now represents 1,500 “B” shares, and those A shares are now trading at about $300,000 each).
I’m a happy Berkshire shareholder myself, though I didn’t buy my first share until 2005… so it’s not likely to offer me life-changing returns (and I’m a little guy who started out even littler, so I only own “B” shares). That’s OK, but, like everyone else, I’d be delighted to find the “next Berkshire”… and that seems to be what the Foolies are teasing here.
Sadly, we don’t get a lot of clues… so can we narrow this down? Here’s what the pitch says:
“Iain Butler, the Chief Investment Advisor of Motley Fool Canada, is convinced that he’s found a stock just like this for Canadian investors that could be a “millionaire-maker” in its own right…
“Because it’s following very closely in the footsteps of “Forty-dollar Frank’s” stock – yet it’s 29,479% cheaper to buy as of today.
“And Iain is so confident in this potential “millionaire-maker” that he’s just issued a rare strong buy alert on this remarkable company.”
So that’s one clue. What else? We’re told that…
“the balance sheet of this company is an absolute fortress….”
“it’s already made three exciting acquisitions over the past year alone worth well over $1.4 billion.”
So that’s a pretty big company, and it can somehow be pitched as similar to buying Berkshire years ago.
That “29,479% cheaper” number doesn’t mean anything real, of course, you can’t be 29,479% smaller or lower than something else, since, of course, reducing in size is limited to 100%… but that’s common terminology that pitchmen use, so it probably just means that the stock in question would have to rise 29,479% to be the size of Berkshire Hathaway. Which really just means that the stock being teased is 1/300th the size of Berkshire.
If that were a real assessment, you’d have to use market cap — and Berkshire’s market cap is about $500 billion, so that would mean the stock in question would have a market cap of about $1.7 billion. Small, but not teeny.
They could easily be referring to share price, though, since that is often the fixation that folks have with Berkshire Hathaway and its crazy $304,000 share price (again, for those A shares). If you did the same calculation there, you’d be looking at a share price of about $1,034.
So it’s either a stock with a $1.7 billion market cap, roughly, or one with a per-share price of about $1,034.
I bet you can guess where we’re going with this. $1.4 billion in acquisitions in twelve months is not likely for a company that has a current market cap of $1.7 billion, though we’ll check to make sure, so I’m guessing that we’re dealing with a stock that has a roughly $1,000 share price. And is somehow “similar” to Berkshire Hathaway.
Yes, I know, that rings a big ol’ bell. But let me send the Thinkolator out to check those clues a second time, and we’ll sit and twiddle our thumbs while it cogitates… OK?
Still with us?
"reveal" emails? If not,
just click here...
OK, we’re back… those aren’t definitive enough clues for us to be certain, but the Thinkolator points us right at the stock you’re probably already thinking of: Markel (MKL), so often teased as a “baby Berkshire” that it is probably one of the stocks we’ve seen teased more than any other in the 12 years that Stock Gumshoe has been publishing.
And, yes, it’s also one of my largest personal holdings — second only to big papa Berkshire Hathaway itself. And has been in my portfolio almost as long (I first bought Berkshire in 2005, Markel in 2006, though I’ve added to those positions many times over the years).
I added a little bit to my Markel holdings recently when it dipped to my “worth a nibble” price of about $1,050 (my shorthand over the past year or so has been that I’m happy to nibble below 1.5X book value, and would buy more aggressively below 1.4X book… though book value is gradually becoming less important to Markel, thanks partly to their strategic shifts and acquisitions).
How does it match? Well, they have done some good-sized acquisitions over the past two years. The insurance-linked securities fund manager Nephila was acquired by Markel last fall for $975 million, along with the leather handbag maker Brahmin (terms not disclosed), and in the second half of 2017 they acquired insurance services company State National ($919 million) and ornamental plant grower Costa Farms (terms not disclosed, Costa had annual sales of about $500 million). (They also bought SureTec Financial, a surety bond company, for $250 million — but that closed two years ago, so we can’t really stretch to include that one).
Those amounts don’t match up exactly with $1.4 billion in acquisitions over the