Investing Lessons from a Mini Berkshire Hathaway

The Smart Investor11-21

[ Share Facebook Twitter LinkedIn Email WhatsApp It was the luck of the draw. In 1986, a young analyst, Tom Gayner, was tasked with covering Markel’s (NASDAQ: MKL) initial public ...

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href=https://thesmartinvestor.com.sg/investing-lessons-from-a-mini-berkshire-hathaway/><strong>The Smart Investor</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>[\n\n\n\nShare\n\n\nFacebook\n\nTwitter\n\nLinkedIn\n\nEmail\n\nWhatsApp\n\n\n\n\n\nIt was the luck of the draw. \nIn 1986, a young analyst, Tom Gayner, was tasked with covering Markel’s (NASDAQ: MKL) initial public ...</p>\n\n<a href=\"https://thesmartinvestor.com.sg/investing-lessons-from-a-mini-berkshire-hathaway/\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1366333091.USD","symbol_name":"FIDELITY GLOBAL FOCUS \"A\" (USD) 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investing those premiums into interest-bearing assets, typically bonds. \nMost insurers would take a loss in the insurance operations and make up the difference through investment gains. \nMarkel, a specialty insurance firm, stood out by making an underwriting profit, a rare feat in the sector. Instead of investing solely in bonds, Markel would invest the profit into stocks, taking a long-term approach. \nIntrigued by Markel’s unique strategy, Gayner joined the company in 1990. \nHis persistence eventually led him to become Markel’s co-CEO in 2016 and finally, its sole CEO in 2023. Gayner has undoubtedly played a crucial role in increasing Markel’s value to over US$20 billion today.\nSince 1990, Markel shares have soared from around US$22.25 to nearly US$1,560, an astounding gain that turns every dollar invested into almost US$70.\nOver time, Markel became known as a mini-Berkshire while Gayner earned the nickname “mini-Buffett”. \nGiven his reputation, it was a privilege to hear Gayner speak at a Singapore Markel Group Brunch held earlier in October. \nAs a Markel and Berkshire Hathaway shareholder for more than a decade, these are a few lessons I picked up during this session.  \nMistakes of commission and omission\nIf you had the chance to go back in time, what would you do differently?\nGayner believes there are two types of investment mistakes: mistakes of commission and mistakes of omission. \nMistakes of commission occur when you take an incorrect action, such as buying the wrong stock or selling a winner too early. Mistakes of omission happen when you fail to act when you should. \nInterestingly, most investors are fixated with mistakes of commission. \nThere’s a good reason for this behaviour. These errors are vivid and embarrassing. They often linger in your mind long after you make them. Simply said, the pain of monetary losses due to your own actions are not easily forgotten.  \nHere’s the rub. \nGayner believes mistakes of omission are far more costly than mistakes of commission. \nHe shared a personal example of passing on investing in Berkshire Hathaway (A shares) in 1984 when he first discovered the company. \nAt the start of 1984, shares were trading at around US$1,300. By the time he got around to buying some shares, the stock price had risen to US$5,750. Hence, he missed out on a gain of over 340 per cent. \nI’ll add a second lesson to his point. \nShares of Berkshire Hathaway (A shares) closed at nearly US$694,000 per share last Friday. In other words, even though Gayner did not invest earlier, his shares are worth about 120 times more than what he paid. \nWhile his returns could have been over 530 times if he invested earlier, I don’t think anyone would lose a smile with a 120-fold return. \nSo, here’s my take: if you find a great company with a promising future, it may not be too late to invest, even if the stock has already appreciated. \nIn my view, finding a great company is much harder than finding a cheap stock which may not perform in the future.  \nGayner’s criteria for buying stocks\nMarkel invests in both bonds (fixed income) and equities. \nFor starters, the insurer tries to match the level of fixed income investments with the insurance coverage that is likely to result in claims. \nWhen selecting stocks to invest, Gayner looks for four key factors. \nThe first is about finding a profitable business with minimal to no debt and a good return on capital. The reason is clear; starting with this pool of stocks increases your chances of finding a winner.  \nSecondly, he wants to have a talented management team with integrity. \nGayner may have taken a leaf out of Buffett’s playbook here. As Buffett once said, without integrity, the other positive management qualities, will work against you.\nInterestingly, Gayner also connected the use of debt with management’s character. \nFor him, debt is a character marker.\nIn a podcast recorded earlier this year, Gayner recalled the advice of Shelby Davis, another legendary investor and mentor. Davis pointed out that in the absence of knowledge about a new business, the use of debt can be telltale sign. \nSimply said, if a business is entirely equity-financed, the management team will have no incentive to steal from their own funds. \nTo be sure, this does not mean that a debt-laden company is fraudulent. \nHowever, Gayner argued that leverage creates conditions for a dishonest management team to exploit since the money does not belong to them. \nMy take? \nIt’s a broad-based method that can be effective when you are starting to learn about new companies.\nGayner’s third criterion is reinvestment opportunities. \nIn our view, his first two criteria focused on finding a well-run company with a strong track record, while the third assesses whether the business has the opportunity to continue earning similar returns in the future. \nThe fourth and final factor is a reasonable stock valuation, which is self-explanatory. \nGet Smart: Mastering investing and your guts to take action\nWhat if you have found the right stock to invest in, and are ready to take action?\nBefore you dive in, consider this: Gayner attributes his success to a consistent influx of investment funds. \nIn fact, in the 400 months at the company, he’s had fresh funds to invest in 393 of them. He credits the constant availability of cash for his ability to keep a level head and make better decisions. \nNot all of us have the luxury of consistent cash flow, a key factor to consider.  \nFinally, Gayner acknowledges his own limitations. \nAlthough he admires Warren Buffett, Gayner diverges from Buffett’s strategy by diversifying more. Why does he do so? He readily admits that he is not as smart of Buffett. \nIn my view, Gayner’s admission may be the most important lesson for investors.\nWe should always adapt our investment strategy to our own circumstances. \nIf you don’t have a reliable source of investment funds, consider holding cash as part of your portfolio or investing in dividend stocks to generate income. \nAbove all, keep your feet on the ground and don’t be greedy, says Gayner.  \nNote: An earlier version of this article appeared in The Business Times.\nWe have just revealed the top 7 US tech stocks poised for remarkable growth. In today’s fast-paced market, betting on these giants could mean more money in your pocket. With a focus on solid fundamentals and innovative prowess, these selections should earn a place in your portfolio. Click here to grab your FREE report now and start investing in the future, today.\nFollow us on Facebook and Telegram for the latest investing news and analyses!\nDisclosure: Chin Hui Leong owns shares of Berkshire Hathaway (B shares) and Markel.\n\n\n\n]","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485946815"}