I've Died and Gone to Jockey Heaven

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During the bull market, the main way to get an investment hotshot working for you was by paying "2 and 20" -- hedge fund slang for 2% of assets under management and 20% of the profits. For a while, those fees almost seemed justified. Heck, after reading John Paulson's year-end letter, I got a little envious of the folks with access to such superinvestors, even if they were paying out the nose for the privilege.

Well, after surveying the landscape of jockeys available to the little guy -- us plebes with less than $1 million in liquid net assets -- I have to say that there are some pretty stellar options available today.

Aside from mutual fund managers like Bruce Berkowitz (whose praises we Fools regularly sing) and John Hussman (an unsung hero of 2008), you've also got access to the mini-Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) cadre: investment managers sitting at the helm of insurance outfits. The latter are becoming increasingly attractive as premiums to book value erode.

I recently covered Markel's (NYSE: MKL) year-end results. The firm reported a 16% decline in per-share book value in 2008, which brought the five-year compound growth rate down to 10%. This is well below Markel's long-term average, but the firm has cultivated enough trust with investors that the stock still trades at a modest premium of 1.2 times book.

Unlike Markel, Greenlight Capital Re (Nasdaq: GLRE) sports a long/short investing strategy run more or less in parallel with David Einhorn's Greenlight Capital hedge fund. This didn't totally save the reinsurer from 2008's carnage, but with a portfolio heavily invested in equities, the 19% decline in book value could have been much, much worse. Despite Einhorn's long-term record of success, and Greenlight Re's auspicious beginnings as a profitable reinsurer, today these shares trade roughly around book value.

Finally, consider Fairfax Financial (NYSE: FFH) and Odyssey Re (NYSE: ORH), both of which share Prem Watsa as an investment advisor. On the investment side, these firms knocked the cover off the ball in 2008, with per-share book value gains of 21% and 23%, respectively. So why are they trading at or below book today?

Unlike the firms mentioned earlier, neither of the Watsa vehicles produced a profitable underwriting result in 2008. If you're writing business at a loss, that eats into the free lunch provided by insurance float. Given the investment performance, I'm tempted to give these folks a pass for 2008, but we'll need to see better underwriting in the future if these firms ever want to command a lofty book value premium.