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Hi Gang,

Since I had a request for Markel notes, I'm sharing my highlights here. BAM, a company that is frequently mentioned here, was discussed. In addition, I assume it's logical that there's a pretty big overlap in people holding both Berkshire and Markel stock.

This is the 28th brunch they've had in Omaha. At the first one 6 people showed up, all friends of Tom Gayner. This year they had about 1,300 at the brunch. Here are the highlights.

Tom Gayner is clearly the leader of this business. He’s really engaged with what’s going and seems turbo-charged.

1. Markel is a lot more dynamic than we give them credit for. They are always thinking ahead and being proactive. This is not a company that lives in the past and I think Tom and Steven Markel are the main drivers of this.

2. Technology was a big part of the conversation. The term is so pervasive that Gayner refused to use it. He said, lets just call it business. Technology is super important for every business of course but insurers were late to the game. I think things have changed at Markel, they got religion long ago on this (remember the One Markel initiative?). Their acquisitions certainly helped them embrace and become leaders in technology, as it relates to insurance.

3. The momentum in Ventures is strong. Acquiring these businesses is making Tom better at his job. He’s learning a lot and I got the impression that the momentum is really starting to kick in. It appears they have the cash flow and confidence now to do bigger deals. It wasn’t said directly, but that’s how it came across to me.

4. You really see the importance of diversity and specialization in their model. This seems to be their driving force. To produce diversified revenue streams and to operate in specialized areas which produce wonderful returns. That's a logical extension of what they did in insurance for so long. Now it's how they approach venture investments.

5. Price to book value, as the best metric to value performance is declining in importance. That metric used to capture 95% of the increase in intrinsic value. It captures less now (maybe 80%) but it’s relevance is fading.

6. 2017 was a very big year for them on the acquisition front. They paid of all these deals in cash and paid record insurance claims. They also have less shares outstanding than they did a year ago. That’s a testament to their diversified revenue streams. These deals increased their revenues by 25%.

7. In addition to buying great businesses Markel focuses a lot on the people. You can tell, that it’s very important for them to acquire businesses from people they admire and respect. This is certainly a nod to Berkshire’s way of doing friendly acquisitions.

8. Decentralization of business units is something they are wresting with right now. Berkshire lets them run independently. Danaher is another model that is great, with similar returns but they are very hands on. They are on the different ends of the spectrum. We think entrepreneurs need room to make mistakes and decisions. As soon as you have more than a single owner you need systems and some oversight. So this is something we think about and you may well get different answers from different leaders are Markel. My sense is that they favor the Danaher model.

9. Tom was asked about which companies have the strongest moats or competitive advantages. He responded by saying that Buffett usually mentioned Coke and the Washington Post as two companies with formidable competitive advantages. Gayner believes neither really has much of a moat today. He also mentioned how he believes Facebook’s moat is certainly weaker than it was six months ago. Musk is an interesting guy. He makes me (Gayner) look even more boring. A dynamic fast changer is the moat today. You need to be learning, changing, and growing. I offer no assurances, but we will do our best. The Markel Style is our guiding light. We always are looking for a better way. Certainly a nod here to the importance of leadership.

10. On how to evaluate ventures companies Gayner said. Look at ventures in aggregate. Add back amortization. Keep depreciation. Add back interest b/c 66% of that debt is owned by other Markel companies. We don’t share specifics b/c we don’t want to share that with our competitors.

11. Someone asked about Brookfield Asset Management. This was a long answer. The second generation owners of MKL business were getting ready to retire. They were going to sell the business for $4 million, making each of them millionaires. They came to an agreement and it was time for due diligence. MKL had a pension for all positions but it wasn’t funded at all, so business wasn’t really worth anything. The deal fell through. So they decided to offer up the business to the 3rd generation of Markels. There were 12 of them but only 3 were interested, but they didn’t have any money. The three that stepped up to buy the business were (Kirchner, Steve and Tony Markel). No one would lend them money and they didn’t have much. Finally, they found a firm in Toronto to lend them money. That company went on to get bought by Brascan, which is now Brookfield. We bought Brookfield stock for the last 20 years. Bruce Flatt was in Omaha this weekend and we’re big fans of his. They intend to keep investing in Brookfield for a long time to come.



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