A Look At The Baby Berkshires

By Aaron Levitt | March 09, 2012 AAA

There's no denying that Warren Buffett is an amazing investor. Using traditionally value investing principals, Buffett, along with partner Charlie Munger, have turned failing textile manufacturer Berkshire Hathaway (NYSE:BRK.A) into an investment powerhouse. Since taking over in 1965, Buffett has grown Berkshire's book value by 20% annually. Investors buying $10,000 worth of Berkshire stock in the late 80's would be worth almost $3 million today.
However, the Oracle of Omaha isn't getting any younger. Currently at age 81, many analysts and market pundits have been questioning Buffett's recent moves and succession-planning secrecy. To that end, analysts are concerned with Berkshire's future and are beginning to wonder if the stock can match its previous high returns. Luckily for investors, there are plenty of other managers who follow Buffett's example. These firms run a mix of businesses similar to Berkshire and could be great long-term portfolio additions. Here are the picks.

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It's All About Float
One of the keys to Buffett's success has been the company's enormous float. While it may own furniture stores and candy businesses, Berkshire Hathaway's main business is insurance underwriting. As part of that business, insurance companies hold money to pay claims in the future. This is called a float. However, while the insurance firm is waiting to pay future claims, those funds can be put to work in stocks and long-term investments. For Berkshire, that number comes in at nearly $67 billion. Following a similar insurance-float model is Markel (NYSE:MKL). The firm markets and underwrites specialty insurance products and programs; this includes things like dentist offices, yoga studios and before- and after-school programs. Like Berkshire, Markel is overly cautious and sets aside more money than it needs to pay claims. And in doing so, Markel has amassed a wide portfolio of stock and other businesses. Top portfolio holdings include stakes in Exxon (NYSE:XOM) and Wal-Mart (NYSE:WMT). Also like Berkshire, Markel has a private equity arm, in which the insurer has taking a long term approach ownership. (For related reading, see The History Of Insurance.)

Over the five years, Markel has been able to grow its book value annually by 9% and shares of the firm can be had for 1.2 times book. While the insurer did see decreased earnings in 2011, mostly due to the floods in Thailand, Markel represents a great holding as it focuses more on long-term business growth. Also focused on long-term float growth is Loews Corporation (NYSE:L). The insurer has used this extra cash to buy large stakes in driller Diamond Offshore (NYSE:DO) and pipeline firm Boardwalk Pipeline (NYSE:BWP). Either stock makes a good play using float to a company's advantage.

A Pure Asset Player
For those investors looking for more "oomph" and less of the boring insurance business, Canadian asset manager Brookfield (NYSE:BAM) might be more their speed. The firm currently has over $150 billion in assets, spanning property, renewable power, infrastructure and private equity sectors. The company has also been quite successful in spinning off these endeavors to investors. Recent successful spin-offs include Brookfield Infrastructure Partners (NYSE:BIP) and Brookfield Properties (NYSE:BPO). The asset manager recently reported earnings and managed to deliver a 14% total return to shareholders during 2011. In addition, the company also managed to increase its dividend by 8% and currently yields 1.8%. Shares of Brookfield can be had for a cheap P/E of 10.8.


A Baby Berkshire
Finally, getting the nod from Warren Buffett himself is Leucadia National (NYSE:LUK). The company holds a diverse mix of businesses, including timber land, wineries, energy assets and real estate. Leucadia has also directly partnered with Berkshire across several business lines, including a commercial mortgage renamed Berkcadia. Overall, Leucadia has managed to grow its book value by 20% annually since 1979. The company recently reported very weak earnings for 2011, but Leucadia's focus on decade-long returns still make shares a great value.


The Bottom Line
Using value investing principals, Warren Buffet has turned Berkshire Hathaway into a model of success and has made his shareholders very rich. However, many other Berkshire-like firms out there are virtually unknown to investors. The preceding picks along with Biglari Holdings (NYSE:BH) are great plays for patient long-term investors.


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At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

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