The Digest #117

Published on May 17, 2022

“New York was totally alien to me. I had never seen or experienced anything like it. The whole experience was quite overwhelming. There are all sorts of freedoms here, but in a way that heightened my sense of guilt. When I first arrived I hardly spoke any English, and that increased my sense of loneliness and isolation.”

— Li Lu

Berkshire Buys 3.1% of Markel Corporation

Berkshire Hathaway’s latest 13F filing with the Securities and Exchange Commission reveals that the company owned 420,293 shares of Markel Corporation as of March 31. The 13F information is easier to read on Markel’s latest 10-Q indicates that the company had 13,567,910 shares outstanding as of April 19 which puts Berkshire’s ownership position at 3.1%.

On April 15, I published Does it Make Sense for Berkshire Hathaway to Acquire Markel Corporation? This article was inspired by Berkshire’s announced acquisition for Alleghany Corporation in March. Both Alleghany and Markel are thought of as “mini-Berkshires” so it made sense to consider whether Warren Buffett might have his eyes on Markel as well as Alleghany.

Needless to say, I had no way of knowing that Berkshire had built a 3.1% position in Markel during the first quarter. As of March 31, Berkshire’s position had a market value of $620 million. As of May 16, the market value of the position was $557 million.

Normally, a Berkshire position under $1 billion is a strong indicator that it belongs to the portfolio of Todd Combs or Ted Weschler. Warren Buffett normally initiates larger positions. However, the fact that Mr. Buffett made a deal to acquire Alleghany during the same quarter that Markel appeared in Berkshire’s portfolio is interesting.

It probably took Berkshire some time to build its position. According to Yahoo! Finance, Markel’s average daily volume during the first quarter was under 62,000 shares, so Berkshire’s purchases account for almost seven days of average volume. 

It is interesting to note that Markel shares advanced significantly starting on March 9, as we can see from the chart below:

Source: Yahoo! Finance

The advance starting on March 9 was not due to public knowledge of the Alleghany deal which was not announced until March 21. Markel’s stock rallied from $1,218.31 at the close on March 8 to $1,429 at the close on March 18 which was the final trading day before Berkshire’s deal for Alleghany was announced on March 21. 

According to the Alleghany proxy, Mr. Buffett met with Alleghany CEO Joe Brandon for dinner on March 7. Alleghany’s board deliberated on Berkshire’s offer and informed Mr. Buffett on March 10 that the board was willing to enter into discussions. 

We cannot know when Berkshire began purchasing Markel shares during the first quarter because that level of granularity is not available in the 13F filing. It is entirely speculative on my part, but perhaps what happened is that Mr. Buffett started looking at Markel around the same time he was considering Alleghany as an acquisition candidate and then he subsequently decided to start buying Markel shares. The rally in Markel shares would fit that theory but, again, this is pure speculation on my part!


The Legend of Li Lu: Origins of a Legendary Investor by Kalani Scarrott, April 5, 2022. “One day, about two years after I arrived [in the United States], a friend of mine who knew my issues said, “If you really want to make money you have to listen to this fellow. He truly knows how to make money.” I wasn’t sure what it was all about. I just remember thinking that there was a “buffet” involved. So I assumed that it was some kind of talk with a free lunch! I said it was a good combination – a free lunch plus a talk about how to make money. So I went. To my dismay there was no lunch. There was just a guy with the name “Buffett.” (Allocators Asia) h/t Value Investing World

How Private Equity Took Over Air Ambulances by Chris Stanton, April 20, 2022. The lack of price transparency in medicine is a well known. Patients often have no idea what costs they are incurring until receiving a bill weeks later. Private equity firms are often unfairly vilified, but in this case the escalation of costs since 2009 is undeniable. “As private equity tightened its stranglehold on the industry, it jacked up the already-high prices. Between 2008 and 2017, the median price charged by providers for helicopter air ambulances nearly tripled, jumping from $12,500 to $35,900 per flight, according to a study by the Health Care Cost Institute.” (New York Magazine) h/t The Profile

Digital Distress: Fidelity Spars with DOL Over Crypto: No Asset for Nest Eggs by Roger Lowenstein, May 16, 2022. “DOL has no stake in how Americans invest, or speculate with, taxable assets. It has, however, a vested interested in assuring that the estimated (as of the end of 2021) $8 trillion in 401(k) plans are managed with prudence. Retiree savings are not only a personal but also a societal asset, shielded from taxation for the purpose of securing some minimum comfort for retirees. A meltdown in retirement savings would present a social crisis on a par with the late mortgage debacle. According to the Federal Reserve, in 2019 the median 401(k) held $65,000, presumably, not enough to a “prudent man” to warrant gambling.” (Intrinsic Value)

Buffett Bought Apple Stock After Hearing of Friend’s iPhone Loss by Theron Mohamed, May 12, 2022. Berkshire Hathaway Director David Gottesman told Ted Weschler that he felt like he “lost a piece of my soul” after losing his iPhone in 2016. Mr. Weschler, one of Berkshire’s investment managers, had already built a $1 billion position in Apple and told Warren Buffett about the conversation. Supposedly this conversation led to Mr. Buffett’s much larger purchases of Apple stock. While such anecdotes might have bolstered the investment case, Mr. Buffett obviously was already well acquainted with Apple’s financials before he made the decision to buy the stock. (Markets Insider)

Berkshire’s biggest shareholders could undermine Buffett’s legacy by Lawrence A. Cunningham, May 14, 2022. “Buffett could once count on his flock to tend to his company after he leaves the scene. That is far from certain now.  Buffett is certainly working on how to adjust his plans for Berkshire after he is gone. For example, he might consider bequeathing a controlling stake to one or more of his three children, who could continue to defeat these newfangled asset managers.  In the name of preserving this unique and valuable institution, I’d vote for that.” (Market Watch) 

Musk Holds All The Cards by Hindenburg Research, May 9, 2022. On Monday May 9, Hindenburg Research published an article predicting that the Twitter deal would be repriced below $54.20. Elon Musk responded to this report by tweeting “Interesting. Don’t forget to look on the bright side of life sometimes!”. On May 13, he put the deal on hold citing concerns about spam accounts on the platform which was one of the points Hindenburg cited just days earlier! It remains to be seen whether the deal is going to be repriced at a lower level ($34.20? $44.20?) or called off entirely. In a potentially negative sign, on May 16, Elon Musk responded to Parag Agrawal’s explanation of the spam account problem with a poop emoji. Market participants clearly no longer expect the deal to occur at $54.20. As of 2 pm on May 16, Twitter shares are trading at $37.60, implying a 44% return if the deal actually closes at $54.20.

Ukraine War Drives Interest in China-Taiwan Risk Insurance by Richard Vanderford, May 9, 2022. Political risk insurance is a niche market that protects companies in the event of war. The risk of destruction or expropriation of assets has received increased attention since Russia invaded Ukraine in February. The cost of this insurance for Taiwan is actually lower than I would have guessed: “Insurance for political risk typically runs between 30 and 300 basis points, or hundredths of a percentage point, a year, according to WTW. For example, insuring $100 million at 100 basis points would cost $1 million annually. China-related risk could be bought as cheaply as 30 basis points before 2015, a figure that has now about doubled.” (WSJ)

Reversion to the mean: the real long COVID by John Luttig, May 16, 2022. “Look at anything that grew massively in the past 2 years with a cautious eye: crypto gold rushes, venture capital expansion, diligence-free fundraises. I’m not saying these trends are not durable – a subset of pandemic-era shifts certainly will be. But mean-reversion will be a strong gravitational force across categories over the coming years. Investors, founders, and employees must relentlessly seek signal within the noise generated over the past two years to assess what changes are durable vs. transitory.” (Luttig’s Learnings)

Cable’s Last Laugh by Ben Thompson, May 10, 2022. This is an interesting analysis of the cable industry. I particularly liked the story of how cable systems were first created and the industry’s subsequent development before the article gets into the modern competitive landscape of streaming and bundling. “Cable companies today, though, are yet another category down from their pandemic highs, thanks to fear that the broadband growth story is mostly over; fiber offers better performance, 5G opens the door to wireless in the home, and anyone who doesn’t have broadband now is probably never going to get it. I think, though, this underrates the strategic positioning of cable companies, and ignores the industry’s demonstrated ability to adapt to new strategic environments.” (Stratechery)

The Mind Scribble: Solving the Blank Page Problem by Lawrence Yeo, May 2022. Anyone who has had writer’s block should read this article which presents a creative idea to sidestep the dreaded blank page. “Writers’ block can be attributable to a number of things, but its greatest culprit is the belief that there’s nothing to write about in the first place. When you couple this fear with the reality of a blank page, a unique form of paralysis can ensue. So in order to introduce sensation back into the mind, you’ll have to prod it with something to dispel the numbness. And one reliable way to do this is to give yourself a thread to pull on, which you can slowly unravel as you continue writing about it.” (More to That)


Marc Andreessen on Software, Immortality, and Bitcoin, May 16, 2022. In this podcast, Russ Roberts starts by asking Marc Andreessen about his 2011 article, Why Software is Eating the World. They then delve into a variety of other topics related to the current technology landscape. “What’s the single best thing happening in technology right now? According to entrepreneur and venture capitalist Marc Andreessen, it’s the ability to live in rural Wisconsin but still earn a Silicon Valley salary. Andreessen also explains to EconTalk host Russ Roberts why software is still eating the world, why he’s an optimist, and why he’s still bullish on Bitcoin and the blockchain.” (EconTalk) 

Master Your Mind with Arnold Van Den Berg, May 9, 2022. “William Green speaks with Arnold Van Den Berg, who has run a renowned investment firm, Century Management, for almost half a century. Arnold, a Holocaust survivor who never went to college and taught himself to invest, explains how he overcame extreme adversity to become a successful money manager. Drawing on this experience, he shares powerful, practical lessons about how to master your mind and create a truly abundant life.” (Richer, Wiser, Happier)

Berkshire Hathaway Meeting, Activision Arbitrage, and TwitterMay 9, 2022. In this long episode, Geoff Gannon and Andrew Kuhn discuss their impressions of the Berkshire Hathaway annual meeting, Warren Buffett’s Activision arbitrage, and Elon Musk’s offer for Twitter, among a number of other topics. (Focused Compounding)

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The Digest #117
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