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Investing Specialists

Six New Money Purchases by an Ultimate Stock-Picker

Markel sees enough value in six wide-moat firms to build new positions in them.

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By Jim Ryan | Senior Stock Analyst

As you may recall, when we relaunched the Ultimate Stock-Pickers concept back in April we noted that our list of top managers would continue to include several insurance companies. Unlike most of their peers in the mutual fund business, managers of equity portfolios at insurance companies tend to have far less turnover owing to the simple fact that they don't face the pressure to sell holdings in order to meet investor redemptions. That said, they do need to have capital on hand to meet claims when they arise, which will at times require the sale of some of their holdings, so it's not unusual to see an insurance company trim its holdings from time to time or shift its holdings into other less volatile investments such as fixed income. As part of their ongoing research on these firms, our analysts covering the insurance companies regularly sift through the holdings of each firm, looking for insights into overall portfolio strategy and capital allocation decisions. Much like we do with  Berskhire Hathaway (BRK.A) (BRK.B), we take the extra step with several of these insurance firms--namely,  Markel (MKL),  Alleghany (Y), and  Fairfax (FFH)--of looking for stock ideas in these portfolios that our analysts believe are worth buying right now.

Specialty insurance underwriter Markel stands out not only because of its long track record of market-beating results, but because much like Berskhire Hathaway the firm follows a value-oriented investment approach with long time horizons attached to its holdings. Chief investment officer Tom Gayner and his team focus on businesses that have a demonstrated record of profitability and good returns on total capital, and they also look for businesses with talent and integrity in management, favorable reinvestment dynamics over time, and a purchase price that is fair or better. It should come as no surprise then that Markel routinely has more than three fourths of its stock investments in companies that Morningstar analysts consider to have either a wide or narrow moat (which is an indication that a firm has some durable competitive advantage that will allow it to generate above-average profitability over an extended period of time).

The Morningstar Ultimate Stock-Pickers Team does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.