Larry and Keith GoodHaven
Keith Turner & Larry Pitkowsky  — GoodHaven Capital Management

“Back to the Future”

Prior experience at Bruce Berkowitz’s Fairholme fund (MUTF:FAIRX)


Above average returns

Batting average crown – not the home run derby

Consistent behavior irrespective of short term performance

Expect the Unexpected –they tend to keep cash around 20% or so

Need to have the liquidity to take advantage of distressed situations

Learn to love dead money—nobody wants to touch a stock

Seek a level playing field –mainly with management.  Look for significant ownership by management.

Avoid losses!  Avoid permanent loss of capital

Concentrated- don’t believe in diversification

Diversification is an excuse for ignorance, bc you don’t understand what you own well enough.

PRICE MATTERS!!  Price is what you pay, value is what you get.

What interests us

Decent business

Good owners/managers

Mispriced lottery tickets

Movies we’ve seen before

Try not to be overly concerned with Macro concerns.  Don’t try to predict, react

Past leads to present

Buying insurance companies- just like they did in 1999

Markel is very much like Berkshire Hathawaway.  Keep an eye on them.  Tom Gayner and Steve Markel are great guys

Insurance is a necessary expense, not going away.

Get money up front, float.

It’s a commodity business- capital allocation and underwriting skills are critical.

Some insurers will benefit when interest rates rise

Tough past few years for insurance companies

Many catastrophes

Poor insurance pricing

Ultra low IR’s

Financial crisis/volatile markets

Stock picks:  White Mountains Insurance Group, Ltd. (NYSE:WTM) and Alleghany Corporation(NYSE:Y)

Y bought transatlantic

Recent huge buybacks at WTM- 40% reductions in shares outstanding over past 5 years

ROE of 10-15% on a normalized basis

WTM:  Underwriting comes first, maintain a disciplined balance sheet, ….. Sold Esuranc.  Buying back stock and reduced shares by 37% over 5 years.  2.4 year bond duration. 76% FI, 10% ST, 9% Equities, 2% Converts.  Normalized EPS power between $65 – $85 and growing.  Price increases seem to be taking root.  Markel Corporation (NYSE:MKL) indicated increasing confidence in higher prices.

Y- Weston Hicks, CEO — well thought of

stock has lagged both investment and book value growth

Transatlantic acquisition should be very accretive for Y

Opportunity to reposition the $13B investment portfolio of transatlantic

Y’s book value per share $350.34.  Profitable underwriter for many years.  Consistent redundancies over the last number of years.  Book value up 7% over 5 years but the stock is up only 4%.  Transatlantic portfolio 91% fixed income, cash at 3%, 4% in equities.  Normalized EPS is $35 – $60 per share.

Bought a private industrial company on Friday.

Risks:  transatlantic reserves inadequate

Large catastrophe

Further issues at capitol or pacific

Rapid inflation leads to large casualty losses

Poor investment choices

Rapid rise in IR’s before re-positioning

IR’s are too low,

Historical anomaly

Societally distorting

Financially destabilizing

Horrible if you bet wrong

Special discount for our  followers, October 4th, 2012  New York City value Investing congress: Save $2,200 Code: N12VW1 Expiration: 6/5/12  VIC Landing Page