"Alleghany's objective is to create stockholder value through the ownership and management of a small group of operating businesses and investments, anchored by a core position in property and casualty insurance. Alleghany is managed by a select company staff which seeks out attractive investment opportunities, delegates responsibilities to competent and motivated managers, defines risk parameters, sets management goals for its operating businesses, ensures that managers are provided with incentives to meet these goals, and monitors their progress.

The operating businesses function in an entrepreneurial climate as quasi-autonomous enterprises.

Conservatism dominates Alleghany's management philosophy. Alleghany's philosophy shuns investment fads and fashions in favor of acquiring relatively few interests in basic financial and industrial enterprises that offer the potential to deliver long-term value to the investor."

An interesting fact is that these guys at Alleghany were in Burlington Northern Santa Fe long before Buffett & Co. They have since divested their shares in Burlington and now hold over $825 million in cash in which they can use for future investments.  Also they have NO debt and have managed to weather the last couple years quite well. They like Buffett use book value as their yard stick and not the actual price of the stock. The stock  ($Y) trades at a discount to its current book value of $306.71.  

 

2009 Results for Alleghany can be found here

 

Markel Corp. (MKL) which is a property and casualty insurance holding company that specializes in specialty insurance products such as wind and earthquake exposed commercial properties, high valued motorcycles, personal  watercrafts, even horse related risks is  becoming more and more like Berkshire Hathaway (BRKA,BRKB) as time passes on. Yesterday Markel announced that it acquired Baltimore-based Ellicott Dredge Enterprises LLC which is a 124-year-old maker of Dredges. Markel first stepped into the private equity arena almost 5 years ago buying a major stake in a bakery manufacturer. This is a practice that Warren Buffett has been doing for over 40 years and is quite successful at it. By buying into private concerns Markel is able to get 80-100% of these smaller companies unlike their passive investments in larger holdings such as General Electric (GE), Wal-Mart (WMT), and Carmax (KMX). As you see by the list below these are simple businesses to understand. It seems Tom Gayner who runs the investment arm of Markel adheres to the same practices as Buffett, which is buying businesses that are simple and that have good management already intact.  You will notice that their are no high-tech, fashionable companies in this group. 

 

Sardar Biglari acting CEO of Steak n Shake has wasted no time in turning the company into a holding company much like Warren Buffett did with Berkshire Hathaway. Biglari is using Steak n Shakes $SNS free cash flow to buy a 9.9% steak in Fremont Michigan Insuracorp $FMMH.  Fremont Michigan InsuraCorp, Inc. is a holding company owning all of the outstanding shares of Fremont Insurance Company. Fremont Insurance Company is a Michigan licensed property and casualty insurer operating exclusively in the State of Michigan and writing principally personal lines, commercial lines, farm and marine insurance policies through independent agents. They were founded in 1876 and have served Michigan policyholders for over 131 years. They market policies through approximately 175 independent insurance agencies. Fremont Insurance Company has a financial strength rating of “B++” (Good) by A.M. Best.   Biglari had mentioned before he would like to get into the insurance arena if the right opportunity came along. Why an insurance business? The insurance business should add another stream of income and more free cash flow to acquire other businesses as they arise. Fremont has over 10 million in cash with no debt. Current book value is $23.63 per share. This looks like a good candidate for Biglari and company however I do not see Biglari being a passive investor in this investment. Could this be just an initial stake, soon to be a subsidiary of Biglari's Steak n Shake holding company? Time will tell. Take note that this is much like Buffett started out over 50 years ago and we no how that turned out.

Buffett gave us subtle hints almost 3 years ago when he stated he wanted to "bag an elephant", who new the elephant was a "Iron Horse" (a pseudonym for steam engine). Buffett has said in the past he was looking for a large deal, something that would move the needle- the needle being Berkshires enormous stock portfolio. Well Warren Buffett just bought Burlington Northern Santa Fe, that is the whole company. BNSF will now be under the Berkshire Hathaway umbrella with companies such as Geico, Dairy Queen, See's Candies, and Shaw Carpets (see the whole list here). This is by far the largest deal Buffett has ever done which totals a whopping 44 billion. Before this, Berkshire's biggest acquisition was the $16 billion stock purchase of reinsurance giant  General Re , announced in 1998.  Buffett, who has been building up his rail holdings for several years was in the headlines back in early 2007 when it was announced that he had taken positions in several of the major rail carriers. But why did he zero in on Burlington Northern. Here are some of the pieces to the puzzle:  1) it's a business (railroads) that easy to understand  2) it's has a high return on equity which is currently 15% for the trailing 12 months (last year it was 19%)  3) it's a  business with a moat (has high barrier to entry) not just anyone can start a railroad company  4) it's had consistent earnings   5) it's very efficient way of moving goods  6) it's a play on coal and other commodities  7) it's throwing off lots of free cash flow   8) it has high-quality management (its track record speaks for itself) Many people wondered why he had suddenly fallen in love with the sector. The simple answer is globalisation. With booming demand for commodities from the Far East and a hunger for cheap foreign goods in the West, the rail companies linking consumer and producer look appealing for the long haul. Buffett has said he realized a few years late that railroads were an appealing investment. As diesel prices rise, shipping by rail instead of truck becomes more attractive, and it would be extremely difficult for a competitor to build a new railroad. Continuing upward pressure of fuel costs make rail transport increasingly more competitive with the trucking fleet and shall prompt more wholesale purchasing within our own continent. The dominant trend is the demand for raw materials and machinery to fuel the construction booms in China and India. US rail firms transport grains and building and construction products for export; US exports to China. "I basically believe this country will prosper and more people will be moving more goods 10, 20, 30 years from now and the rails will benefit," Buffett told CNBC. It's also a bet on the future of another country -- China. China craves the coal and other raw materials that the U.S. produces. Those commodities fuel the great economic engine that is China, which is the factory to the world. U.S. coal and goods are shipped via rail to Pacific ports and then shipped to China. With his round-out purchase of Burlington Northern, Buffett thinks China will continue to be strong.

I have written about Sardar Biglari a few times since the start of the year. It appears more on Wall Street are taking notice of this fund manager. This article is from the Wall Street Journals news wire... Steak N Shake 'Already Flowing with Cash'. Biglari runs a partnership much like the one Warren Buffett ran earlier in his career. Biglari who started buying Steak N Shake shares a couple years ago is currently the largest shareholder. He is also the acting CEO. He is what you would call a share holder activist. Share holder activists are usually investors who usually take a large stake in a company and push for a turnaround, this is usually when the stock has performed poorly. Not always is this good for the small shareholder but in the case with biglari, his interests are in line with shareholders. As the article states Steak N Shake is already producing free cash flow. Trailing 12 months free cash flow is 35.9 million (see chart below). Biglari has stated before that he could use the cash to buy back shares which decreases the shares outstanding which would help boost the bottom line. He can also take the excess cash and put it to use in better performing businesses, much like buffett has done over the last half century.  Management Direction "New management, during the fourth quarter of fiscal year 2008, enacted a change in strategic direction under which we began to operate in a manner designed to generate cash.  Our long-term objective is to maximize intrinsic business value per share of the Company.  (Intrinsic value is computed by taking all future cash flows into and out of the business and then discounting the resultant number at an appropriate interest rate.)  Thus, our financial goal is to maximize free cash flow and return on invested capital.  We regard capital allocation as immensely important to creating shareholder value.  Steak n Shake is transforming into a holding company.  Its basic premise is to reinvest cash generated from its operating subsidiaries into any investments with the objective of achieving high risk-adjusted returns.  Pursuant to a resolution of the Company’s Board of Directors on June 17, 2009, all investment and other capital allocation decisions are made for the Company by Sardar Biglari, Chairman and Chief Executive Officer. "  Steak N Shake might sell burgers, fries and shakes, however one day they could very well be selling insurance. Biglari is also the largest shareholder of Western Sizzlin (WEST) which he plans on rolling into Steak N Shake which should take place in the coming months. Free Cash Flow $Mil 2006 2007 2008 TTM Cash from Operations 69.6 43.4 24.4 42.0 Cap Ex (80.8) (68.6) (31.4) (6.1) Free Cash Flow (11.3) (25.2) (7.0) 35.9

Thor Industries $THO is the world's largest manufacturer of recreation vehicles and a major builder of commercial buses. I first mentioned Thor back in January 2009 when it was trading at $13.50 per share. The stock was used as an example of a company that the seasoned value investor Walter Schloss might pick if he were still picking stocks on a professional basis. Schoss had a very impressive track record during his years managing money. He was also a part of Ben Graham's alumni. The stock has had an impressive run this year. I believe the stock price has gotten a little ahead of itself. They just announced today that they were making a special one time payout of 50 cents per share on their dividend. This is in addition to their quarterly payout of 7 cents per share. This is probably why the stock price ran up today. 10 months ago this stock traded at around 1X book value, where as now it trades for 2.3 book. Management still holds a big stake in this company at 39%, which is a plus, and aligns them with shareholders. The company still has a nice cash cushion of over 328 million with NO debt and free cash flow. All good looking figures for any value investor on the lookout for a new business to allocate money in. In fact Warren Buffett bought a similar business Forest River back in 2005, it to had NO debt. It would not suprize me if Buffett or another company would come in and buy this company outright. While I still feel that this is a very well managed company and things are looking up, the margin of safety is not where it was 10 months ago.  *Author does not currently have position in $THO

Without getting into the current Healthcare Reform issues. Here are two managed-care companies  Humana Inc. and Molina Healthcare that are now selling for what they currently have in cash.  Humana has nearly doubled off its march low while Molina is only up about 30 percent. Both have  current ratio's above the 1.5 ratio, which is a measure of a company's ability to pay back short- term debt with its short term assets. A ratio of under 1 shows that they might be hard pressed to pay off any monies owed if it were due at that point. Molina is currently trading at 1x book value while  Humana has a book value ratio of 1.28. Molina has increased its book value almost 5.5x since 2002  while Humana has increased theirs 3x which is a key measure that  Warren Buffett looks for.  Both seem to be consistent free cash flow generators another key measure that most value  investors look for. Income investors might want to look elsewhere due to the fact that neither  company pays a dividend. Company Symbol Cash/share Price as of  9/28/2009 Book value/share Current ratio P/E ratio Market cap Humana HUM $36.57 $38.03   $29.82 1.62 7.5 6.3b Molina Healthcare MOH $21.59 $20.97 $20.94 1.88 9.4 537m *The Molina family along with other insiders hold 51% of the stock. Currently 20% of the float is being shorted. *Value Investor Bruce Berkowitz of The Fairholme Fund owns 9.5 million shares of Humana which represents a top ten holding for the fund.