Friday, April 3, 2009

Manual of Ideas - Exclusive Interview with Tom Gayner

This Monday, April 6th, the Manual of Ideas will publish an exclusive interview with Thomas S. Gayner, Chief Investment Officer of Markel Corporation (NYSE: MKL). The interview will cover Tom's views on a wide range of topics, including 
  • his investment approach,
  • his outlook for international investing,
  • the single biggest mistake that keeps investors from reaching their goals,
  • the conflicts created by the extreme separation of ownership and control,
  • whether he is a bull or bear right now,
  • and many other subjects of interest to equity investors.
The interview will be available at midnight, April 6th at

Here is a brief excerpt:

MOI:  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.