Thursday, April 2, 2009

Tom Gayner of Markel Insurance (MKL)

Thomas S. Gayner, the Chief Investment Officer of Markel, will be interviewed on the blog - Manual of Ideas - on Monday, April 6th. Gayner manages the investment portfolio at Markel and has a strong long term track record of outperformance, and follows a value investing approach.

I wrote an article on Markel for Investopedia back in late 2008.

Here is an excerpt from the interview:


You have stated that the businesses you seek should have

(1) a demonstrated record of profitability and good returns on total capital,
(2) high measures of talent and integrity in management,
(3) favorable reinvestment dynamics over time, and
(4) a purchase price that is fair or better.

Perfection, however, is rarely attainable in the stock market. Have you had to compromise on these criteria, and if so, could you illuminate for us how you decide on acceptable versus unacceptable trade-offs?


Tom Gayner: While you say that perfection is rarely obtainable in the stock market, I would go so far as to say that it is never obtainable in the stock market. Perfection doesn't exist in this world. All of my choices involve various degrees of compromise and trade offs. As an accountant, I can tell you that my wife and children are sick of hearing me use the phrase "opportunity cost".

Every decision is also another decision (at least) and every non-decision is also a series of other decisions.
The challenge is to get the balance roughly right between the choices that actually exist. All of the 4 points I lay out are north stars that guide me. I admit though, that I have never personally been to the North Pole.

The one area where I will not compromise is in the area of integrity. I may not make every judgment correctly when I'm trying to make sure I'm dealing with people of integrity but I will never knowingly entrust money to people when I am concerned about their integrity. Even if you get everything else right, the integrity factor can kill you. My father used to tell me that, "you can't do a good deal with a bad person." And he was right.

The other factors can be thought of as shades of gray and nuances. We look for as much of the good as we can find and weigh that against what we have to pay for it, our expectation of how durable the business will be, and what our other alternatives are. I don't have a formula or algorithm to get that precisely right, I just spend all my time thinking, reading, and adapting as best as I can.

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