Markel's Investment Philosophy - from 2006 Annual Report

To review the catechism of our four part equity investment philosophy, we seek to invest: 1) in common equity of profitable businesses with good returns on capital, 2) with honest and talented management teams, 3) with reinvestment opportunities and capital discipline, 4) at fair prices. The north star provided by this time-tested discipline creates a guide to constant learning and improvement.

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It is important to engrain this discipline in good years because we will need to remember it and stick to it during bad years. At some time in the future, we will have less than wonderful news to report from a single year’s worth of investing activities. All good investors suffer years of underperformance. In those times, it is easy to lose your moorings and drift into different styles and methods of investing since whatever discipline or approach you were using didn’t work out so well over the most recent twelve-month period.

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If your basic discipline is sound, drifting away from it is a big mistake. This mistake is common among both amateur and professional investors. Most people simply cannot take the psychological pain of underperforming for very long. The inherent uncertainty in investing and thinking about the unknowable future, causes people to embrace the practices of what others are doing currently. Human nature seeks comfort in crowds rather than the relative isolation of remaining independent in thoughts and actions.