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Friday File Part Two: Annual Review

Annual Review: Insurance and related stocks

By Travis Johnson, Stock Gumshoe, January 19, 2018

Annual Review time! Earlier today I covered the changes that were actually made to the portfolio this week, and now I’m starting at the top of that portfolio with insurance stocks, and staying with that theme to also include a few insurance-related stocks that are smaller positions.

Three of my top five equity positions are insurance-based conglomerates, so I’m going to take those together because I use very similar valuation metrics to assess all of them, and I’ll include the somewhat insurance-related names in this segment as well.

What really matters for Berkshire Hathaway, Markel and Fairfax Financial is the growth of book value per share over time, which is driven largely by investment portfolio performance and by underwriting performance… and what matters most when assessing the current price is the valuation on a price/book basis (and, to some extent, their relative valuation on a price/book basis when compared to other insurers).

Each entry will include my current position, my cost basis (average price paid per share), the current price, and a quick summary of my opinion (in bold) followed by a more detailed discussion. None of these are stocks that I intend to use stop losses with, in most of these cases I’d be much more inclined to buy if the stock falls ~20% than to sell, but I will continue to track the Tradestops stop loss trigger point for these in the Real Money Portfolio.

Berkshire Hathaway (BRK-B) – 11% position, cost basis $86/share. Currently ~$212

Berkshire is a strong hold, perhaps worth a nibble for those who don’t own it but not an aggressive buy until price/book value dips to the 1.3X neighborhood or below. I estimate year-end book value to be in the $140-150 neighborhood following the big jump from the tax cuts and a strong fourth quarter for operations and investments, which would put an easy buy point somewhere between $182-195.

Berkshire Hathaway (BRK-B) is my largest holding again, after the dip in Facebook (FB) shares over the past couple weeks, and is in the process of getting a nice jolt from the tax cuts. Berkshire gets an unusually large benefit from the tax cuts immediately because of their large deferred tax liability — they have huge unrealized gains in the stock portfolio from the shares of Coca Cola, Wells Fargo and other stocks that Warren Buffett has accumulated ...

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