The ONE Remarkable Stock -- Markel

Surprised? Don't be. Historically, many of the market's best-performers have been obscure companies with names you've never heard. Even $160 billion Berkshire Hathaway is hardly a household name.

So what exactly makes Markel stand out?

Markel differentiates itself from larger property and casualty insurers by concentrating on more than 90 specialty lines of insurance, generally accepting risks that the large companies are unwilling to cover.

Its key competitive advantages are the expertise and experience of its specialist underwriters and the relationships it has built with brokers and specific trade and other groups covered. The diversity of product lines means that no one line is responsible for too much premium, which limits its exposure relative to many of its competitors.

Although the company does face price competition in many of its lines, it is considerably less than that found in standard insurance.

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What is "float" and how can it work for you?

The secret sauce of any well-run insurance company is its ability to effectively use what's called "float" to produce passive investment profits. In the insurance business, float refers to the cash pool created by money that has been collected from customers but not yet paid out as claims.

Through Markel Gayner Asset Management, headed by Chief Investment Officer Tom Gayner, the company has produced stellar returns on the equity portion of its investment portfolio.

The 20-year compounded annual growth rate for the company's investments ending with December 31, 2008 is an incredible 27%. According to the SEC 13-F filing for the period ending June 30, 2009, the top ten holdings include:

• $172 million in Berkshire Hathaway [NYSE: BRK-A, BRK-B]
• $78 million in CarMax [NYSE: KMX]
• $72 million in Diageo [NYSE: DEO]
• $70 million in Fairfax Financial [NYSE: FFH]
• $53 million in Brookfield Asset Management [NYSE: BAM]
• $43 million in General Electric [NYSE: GE] 
• $41 million in Wal-Mart [NYSE: WMT]
• $35 million in United Parcel Service [NYSE: UPS]
• $35 million in Disney [NYSE: DIS]
• $31 million in Marriott International [NYSE: MAR]

Gayner and his staff stick with what they know best, so the portfolio has a very high concentration in insurance companies.

The best leadership money can buy

As important, Markel has a management team that should get investors excited. It holds approximately 6% of the outstanding shares, and bonuses are based on the trailing five-year performance, with no bonus being paid below an ambitious threshold -- clearly aligning its interests with those of the shareholders.

Management is conservative and has cultivated a culture that focuses on underwriting discipline and improving long-term shareholder value rather than on growth at all costs. It's a testament to its discipline that the company had no need to resort to the capital markets to shore up the balance sheet to offset losses from last year's hurricanes.

I strongly believe that Markel is a superior long-term investment that is set to compound absolute shareholder value at rates that will significantly outperform the S&P 500 index for years to come.

As an added bonus, the shares are currently trading at a significant discount to my stringent estimation of intrinsic value. Which brings me to...