Berkshire Hathaway (BRK.A -0.28%) (BRK.B -0.68%) recently filed its latest 13-F with the SEC, giving investors a look at the stocks that the Warren Buffett-led conglomerate bought during the first quarter. It turns out Buffett and his team started eight new stock positions.
To be fair, we already knew about a couple of them. Two big oil plays, Chevron and Occidental Petroleum, had already been revealed. And others, like Citigroup and Paramount Global, were certainly a surprise to investors.
However, there was one stock in particular that stood out -- specialty insurance company Markel (MKL -1.17%). And this was an interesting investment choice because Markel is often compared to an early-stage Berkshire Hathaway.
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What does Markel do?
At its core, Markel is an insurance company that's been around for 90 years. It primarily operates in reinsurance and specialty-insurance products. Just to name a few examples, Markel offers insurance for fine art and collectibles, horses, events (such as wedding insurance), businesses, and much more.
In full disclosure, when I called my insurance agent to obtain an umbrella policy for my rental properties, I ended up with a policy written by Markel.
In a nutshell, Markel focuses on the types of insurance many mainstream carriers won't touch. And this can be a very profitable type of insurance for companies that are good at it, which Markel certainly is. It had an 89% combined ratio in the first quarter, which means that Markel produced an 11% underwriting profit margin, which most insurance companies would be thrilled to achieve.
In addition, Markel has a venture-capital division, Markel Ventures, which puts the company's capital to work in a variety of early-stage and private businesses. From a luxury handbag maker to a homebuilder to a farming business, Markel's venture portfolio is a diverse assortment of promising businesses.
Finally, Markel invests some of its insurance float in a portfolio of common stocks. (Are the Berkshire comparisons starting to make sense?)
According to the latest available information, Markel owns a stock portfolio worth about $8.4 billion invested in 128 different stocks. Ironically, Markel's largest investment is actually Berkshire Hathaway, which makes up 13.4% of its portfolio.
Markel has even more money invested in Berkshire than the other way around, making Berkshire's recent investment a nice sign of mutual respect between the two companies' management teams. Other top holdings include Brookfield Asset Management (BN 0.40%), Alphabet (GOOGL 0.55%) (GOOG 0.74%), and Amazon (AMZN -1.64%).
To be perfectly clear, Markel is far more of an insurance company than Berkshire is in terms of how reliant its business is on its insurance operations. In fact, insurance made up 65% of Markel's operating revenue in the first quarter.
Why did Berkshire Hathaway just invest in its younger sibling?
While the move caught me by surprise initially when reading about what Buffett bought and sold, after taking a step back, I wasn't too surprised to see Markel added to Berkshire's portfolio. After all, Buffett clearly believes in the business model, but one of his biggest complaints about Berkshire is that the numbers have simply become too large to deliver truly remarkable returns.
Markel, however, is less than 3% of Berkshire's size by market cap. Therefore, it can go after needle-moving investments that wouldn't be significant to a company as large as Berkshire.
