Many analysts will tell you how to find a cheap stock. Or at least cheap as they define it. Most involve crunching numbers, making an educated guess about the future, and determining a price that represents the present value of future cash flows. But there is a better way that doesn't involve math at all. 

Companies that have a strong competitive position, aren't reliant on any one product, and make decisions looking out a decade or more have a distinct advantage over others. And they're essentially always cheap. That's because traditional valuation just doesn't account for excellent performance over long periods of time. Markel (MKL 0.34%) is a great example. Here's why I think the company is an great investment even if the stock market crashes tomorrow.

Berkshire Hathaway CEO, Warren Buffett.

Image source: The Motley Fool.

Insuring the previously uninsurable

Markel operates in three segments. Insurance is its bread and butter. It also invests in equities and buys businesses outright in what it calls Markel Ventures. More on that later. Although the company has several services under the insurance umbrella, it is best-known for writing policies on things that might seem uninsurable to others. After all, how do you calculate the premium for Arabian horses, summer camps, or doctors in rehabilitation? Through experience, Markel has found a way.

The market for these hard-to-place risks hinges more on availability than price. And its experience gives it an advantage allowing it to profitably insure customers that are happy to pay a premium.

It's a great business. But not an especially fast-growing one. To account for that, the profits are invested in other businesses -- both public and private -- in order to generate compounding returns. That strategy might sound familiar.

Business diversification can make growth seem boring

Using insurance premiums to buy stocks -- as well as entire businesses -- is how Warren Buffett grew Berkshire Hathaway (BRK.A 0.36%) (BRK.B 0.21%) into a $633 billion company. Currently, Markel's market capitalization is only $17 billion. That hasn't stopped it from making deals, albeit on a smaller scale.

In the 15 years since its Markel Ventures unit was created -- the segment that buys small businesses -- it has invested about $2.7 billion on acquisitions and then mostly left them alone. The diversification continues inside the portfolio. The acquired businesses are as varied as the maker of bakery equipment to a technology consulting firm. Many are near its headquarters in the suburbs of Richmond, Virginia. 

Outside of Markel Ventures, the company invests in stocks. It's the side of the business co-CEO Tom Gaynor came from. He is widely recognized as one of the more astute and insightful value investors of the past few decades. Not to mention he has been very successful. It's not a perfect measure of his performance, but assets on the company's balance sheet have grown 21,000% since he arrived in 1990. Perhaps not surprisingly, Berkshire Hathaway stock made up nearly one-quarter of Markel's equity holdings at the end of 2020.

The mindset of a long-term investor

Looking back several decades is exactly what Gaynor would encourage. He and the company have always had a long-term mindset. In fact, even its filings with the Securities and Exchange Commission emphasize five year returns for a host of metrics including the stock price.

Over the past half decade, Markel's stock price has returned just 34% compared to 102% for the S&P 500 index. That's not unexpected in a raging bull market. Stretch that out to include a few recessions and the story changes dramatically.

MKL Chart

MKL data by YCharts

The long-term approach -- and performance -- is exactly what shareholders should applaud from a leadership team. It's why I'm confident that the company will continue making investments with an eye toward sustainable growth into the 2030's and beyond.

It would be completely out of character for Gaynor and Markel to risk sustainability for short-term gains. It's why I'm also confident Markel shareholders will be richer in the decades ahead even if there is a market crash on the horizon.