Value Investing News

Markel Corporation (MKL) is an insurance company specializing in niche markets that are underserved by competitors. MKL invests with a specific target for annual growth in book value. The growth rate in book value has been consistently high for several years and the company generates abundant cash due to sound underwriting policies. Intrinsic value, as measured by consensus of professional and non professional investors is $525 per share. Currently trading at $480 after dropping back from close to the $525 target. Potential for long term growth is strong, barring any underwriting missteps ( as measured by the combined ratio). The company's investment portfolio is heavily weighted in insurance company stocks, which at 2006 year end comprises about a third of the total portfolio. The largest position in the portfolio is BRK (A&B combined), followed closely by Fairfax Financial; then White Mountain, XL, Progressive, Marsh McClennan etc.

Does anyone have an opinion on the level of risk inherrant in MKL's portfolio? Seems to me that if the large insurance companies are investing in each other's stocks. Does this not multiply the risk of investing in MKL, or any of the others? A Katrina type catastrophe would affect them all. The underwriting policies of these companies must compensate for such probabilities, and I am sure that each of these companies relies on its own staff of actuarial genius. But, is anyone else uncomfortable with the level of risk involved in all this cross investing among the industry's major players?

Here is info from the MKL 13F filing at year end 2006.
The source for this public information is the SEC:
-----------------------------------------------------------------------
Form 13F SUMMARY PAGE

Report Summary:

Number of Other Included Managers: 8

Form 13F Information Table Entry Total: 315

Form 13F Information Table Value Total: $ 1,892,060
(thousands)

Markel Gayner Asset Management Corporation
FORM 13F
December 31, 2006
=======================================================================

The industry and sector info is added to the 13F data and the percentages were calculated.

Here's hoping the columns line up. They did when I created this post, but you know how it can go wrong.

Largest Holdings Analysis: 21 stocks account for 68.5% of the portfolio.
Markel Investments at 12/31/2006

Company Industry Market Value Percentage
Progressive Corp. Propty&CasIns $1,127,000 0.06%
Cincinnati Financial Propty&CasIns $24,934,000 1.32%
RLI Corporation Propty&CasIns $35,628,000 1.88%
XL Capital Propty&CasIns $42,120,000 2.23%
White Mountains Propty&CasIns $84,191,000 4.45%
Berkshire Hathaway, Inc. Propty&CasIns $88,982,000 4.70%
Berkshire Hathaway Class B Propty&CasIns $115,813,000 6.12%
Fairfax Financial Holdings Propty&CasIns $145,274,000 7.68%
Brown & Brown Insurance Brokers $10,314,000 0.55%
Marsh & McLennan Insurance Brokers $38,747,000 2.05%
Aflac Accident & Health Insurance $16,983,000 0.90%
Ambac Financial Surety & Title Insurance $891,000 0.05%
Investors Title Co Surety&Title Insurance $12,301,000 0.65%
T O T A L Insurance Industry $617,305,000 32.63%

Other Positions Comprising 2% or more of Portfolio
Carmax Auto Dealerships 145,131,000 7.67%
Anheuser Busch Beverages - Brewers $78,212,000 4.13%
Diageo PLC Beverages - Wineries&Distillers $101,598,000 5.37%
MBIA Inc. Closed-End Fund - Debt $46,875,000 2.48%
General Electric Conglomerates $99,894,000 5.28%
Home Depot Home Improvement Stores $41,823,000 2.21%
Forest City Enterprises Property Management $48,298,000 2.55%
Citigroup Regional - Northeast Banks $76,241,000 4.03%
International Game Tech. Toys & Games $40,732,000 2.15%
T O T A L Other Positions >= 2% of Portfolio $678,804,000 35.88%

S U B T O T A L Insurance Industry PLUS 9 Other Largest Positions $1,296,109,000 68.50%

All Other Positions $595,951,000 31.50%

T O T A L $1,892,060,000 100.00%

Industry Analysis
Markel Investments at 12/31/2006

Industry Sector Market Value Percentage
Accident & Health Insurance Financial $16,983,000 0.90%
Aerospace/Defense Products&Svcs Industrial Goods$29,379,000 1.55%
Air Delivery & Freight Svcs Services $4,056,000 0.21%
Asset Management Financial $65,411,000 3.46%
Auto Dealerships Services $145,131,000 7.67%
Auto Manufacturers - Major Consumer Goods $5,056,000 0.27%
Beverages - Brewers Consumer Goods $78,212,000 4.13%
Beverages - Wineries&Distillers Consumer Goods $101,598,000 5.37%
Business Equipment Consumer Goods $462,000 0.02%
Business Software & Services Technology $15,179,000 0.80%
Cigarettes Consumer Goods $10,170,000 0.54%
Closed-End Fund - Debt Financial $61,318,000 3.24%
Conglomerates Conglomerates $101,637,000 5.37%
Credit Services Financial $22,654,000 1.20%
Discount, Variety Stores Services $34,705,000 1.83%
Drug Manufacturers - Major Healthcare $28,527,000 1.51%
Entertainment - Diversified Services $497,000 0.03%
Farm & Construction Machinery Industrial Goods $210,000 0.01%
Farm Products Consumer Goods $3,154,000 0.17%
Food Wholesale Services $26,311,000 1.39%
General Entertainment Services $206,000 0.01%
Home Furnishing Stores Services $1,067,000 0.06%
Home Improvement Stores Services $41,823,000 2.21%
Insurance Brokers Financial $49,061,000 2.59%
Investment Brokerage - National Financial $10,710,000 0.57%
Investment Brokerage - Regional Financial $8,453,000 0.45%
Jewelry Stores Services $6,734,000 0.36%
Lodging Services $33,233,000 1.76%
Major Integrated Oil & Gas Basic Materials $28,004,000 1.48%
Management Services Services $7,836,000 0.41%
Money Center Banks Financial $18,554,000 0.98%
Personal Services Services $7,488,000 0.40%
Processed & Packaged Goods Consumer Goods $4,690,000 0.25%
Property & Casualty Insurance Financial $538,069,000 28.44%
Property Management Financial $92,218,000 4.87%
Publishing - Books Services $33,031,000 1.75%
Publishing - Newspapers Services $4,045,000 0.21%
Real Estate Development Financial $2,175,000 0.11%
Recreational Vehicles Consumer Goods $705,000 0.04%
Regional - Midwest Banks Financial $14,381,000 0.76%
Regional - Northeast Banks Financial $82,210,000 4.34%
REIT - Diversified Financial $19,540,000 1.03%
Resorts & Casinos Services $18,096,000 0.96%
Sporting Activities Services $24,446,000 1.29%
Surety & Title Insurance Financial $13,192,000 0.70%
Toys & Games Consumer Goods $40,732,000 2.15%
All Other All Other $40,711,000 2.15%
T O T A L $1,892,060,000 100.00%

Sector Analysis
Markel Investments at 12/31/2006
Sector Market Value Percentage
Basic Materials $28,004,000 1.48%
Conglomerates $101,637,000 5.37%
Consumer Goods $244,779,000 12.94%
Financial - Insurance $617,305,000 32.63%
Financial - Non Insurance $397,624,000 21.02%
Healthcare $28,527,000 1.51%
Industrial Goods $29,589,000 1.56%
Services $388,705,000 20.54%
Technology $15,179,000 0.80%
All Other $40,711,000 2.15%
T O T A L $1,892,060,000 100.00%

Value investing needs to be careful to give proper weight to the risk inherrent in a company's investments, regardless of the present value of future cash generated by the company's operations. I am not sure how to do the math on this. Any comments?

Regards
snash02