Lecture by Thomas Gainer

I am not a surgeon I don't think that's what God wanted me to do to make things better but he did give me some sense of judgment temperament patience and discipline that enables me to be good at helping shepher resources everybody has a role to play and this is mine friends Our Guest for today is Thomas Gainer the chief investment officer at marel Corp he serves on the boards of several organizations and a recent Wall Street Journal article quoted every investor can learn something from him instead of trying to mimic the inimitable Brilliance of Mr Buffett maybe more investors should emulate the common sense and patience of Mr gainor quoting from a recent chapter in a book about him markle's success has made Gainer rich but he lives in a simple townhouse and drives a Toyota Prius I like getting 50 m per gallon because I'm cheap he says and if we did not need oil I think the world would be a better and more peaceful place by living modestly he can also give more money to charity but I don't want to exaggerate this is not a Mother Teresa like existence he says friends I'm personally delighted to be have him here we share a common hero in John Wooden and Tom's letters speak to the spirit of Coach wooden's definition of success so without further Ado ladies and Gentlemen please join me in welcoming our special guest for today Mr Thomas Gainer thank you well thank you very much for having me uh I know it's sort of a custom and a and a cliche to say you I'm really honored to be here and and I am that's true I'm also a bit intimidated because I I guess uh you know you're all smarter than I am it's must be a rule around here that the dumbest guy has to wear a coat so uh it is it is what it is and I I'll try to uh compete as best as I can uh but I am uh very much honored to be here and very uh impressed I mean what what you do is known on the world scale and marel is a is a tiny little company compared to you we have a a nice record over over a long period of time uh but I recognize the the group that I'm here in front of today so I'm uh very honored and privileged to be here um Sarah called me he attended uh one of the Gatherings we do out in out in Omaha uh where we meet with most of our investers in marel um and he he called and asked if I would come and give this talk and of course I said yes uh so um I I agreed to give a talk but what I really like to do is talk with people not at them so uh I'm going to share a few comments and um some discussion about investing but then very much I hope that you'll start to ask some questions uh and then we can have an interactive discussion because I uh I don't know what's on your mind so the only way that I really can do that and address the issues and things you want to talk about or to to hear them directly from you so um the title when when sarb and I were talking about uh what we should call this talk would be the evolution of a value investor and I thought that was a a good way to try to describe things because as I look around the group the group today I think in addition to the fact that you're all smarter than I am you're all younger than I am um and so you have some evolving and learning and some passing through time to do on your own uh that I've done as well and perhaps I can accelerate your learning curve a bit u in that process and speak a little bit about my own story of how I evolved and the things that have changed over time uh for for me as an investor so the way it begins my my Technical Training is that of an accountant I'm a I'm a CPA uh professionally my father was an accountant and that was what my my degree was in um and I I always uh tell people when they're sort of trying to figure out what it is they want to do among the things that would be a reasonable choice for what you're what you're studying would be accounting and people ask me why W County and I said well if you were going to go to Germany and you wanted to be a successful person in German in Germany what would be the very first thing that you should do and my answer is you should learn German uh because that is the language that people were going to communicate in and work in in Germany so if you want to go to Germany and be a success of any sort I think it would be very hard to do that without having a working knowledge of German well similarly in business and by business let's translate that uh further to investing the language of business is accounting so to understand what's going on uh you don't need to be a CPA but I think it's very important to have a rudimentary knowledge of what accounting is and how it works and what uh words and numbers mean when they're in the context of financial statements and business and the the language of accounting so that's how I started and um similar to I think many people as they begin to go down the path of trying to become an investor I I had a very strong quantitative bias in selecting Investments and one of the ways I would describe that and I think uh um one of the tendencies that we all have especially when we're starting out for a variety of reasons is to have quantitative metrics that you really can rely on and one of the reasons that that that would be the case is you know when you're starting out and you haven't done this a whole lot you really like to have some confidence supplied by something external that you're on the right path and if you can do U some wellestablished well-tried path of disciplines of things that have worked boy that seems like a pretty good basis to make a decision and to think about what's going to happen in the future and there is absolutely nothing in the world wrong with that I encourage that that's that's really the best way to start but I think that is only a partial step along the Journey of becoming an accomplished uh investor and that that that um that worked spectacularly well for for Ben Graham in the 1930s who's the the grandfather of all investing and the uh the professor who really taught waren Buffett uh the disciplines of investing but that was a period of time when we were just coming out of the depression and there were a lot of Securities that were mathematically and quantitatively cheap so it was a it was a great technique a great discipline it had not been practic but that that pond has gotten a little overfished uh so so today while it's important to know the technical skills to know the accounting to know things like U the the networking capital and to think about price earnings ratios and price tobook value ratios and have these series of quantitative metrics that would tell you that something is cheap that's good as far as it goes but it doesn't tell you enough there are more things and I call the notion of doing that sort of work which is the first step and you really should do it uh that's the idea of spotting value so you it's it's it's a picture the time U stands still when you're looking at a picture of something that you think is worth this and it's selling for this so there's a price Gap there and you want to buy it at this and you think it'll get to that and that that's great if it works but that's a that's a picture what I have evolved to and the path that I've been on for a long time and and the reason I got on that path is because I found that uh that notion of spotting value and thinking that value gaps would close right after I showed up to buy some stock it didn't work so it's not as if I found that uh technique and I learned that and it worked and produced great wealth it didn't so you got to take the next step and try to figure something else out so I moved from spotting value to spotting the creation of value value creators as opposed to Value spotters so instead of a snapshot instead of a picture how about a movie what's this movie going to look like how's this real going to unfurl over time so instead of saying that I firmly believe that something is worth this I'm now asking myself well what will it be worth next year and the year after that and the year after that and the decade after that and to have some sense of something that is increasing in value over time at an appropriate rate well that's what I'm really huny for and that's what I'm I'm really trying to trying to find and spot um and I think this um has applications not just for investing but for leadership for management for Rel relationships that you would have on a social as well as a professional uh basis so it's it's an integrated thought as to to how my life is unfurling U so with that sort of thought in mind I came up with a with a fourpoint view of what it is that I'm specifically looking for and how I specifically think about things that I might invest in so the first thing that that I look to invest in is a profitable business with good Returns on Capital it doesn't use too much leverage to to it and again each and every one of those words uh came about because I made a mistake somewhere along the line things did not work and as a consequence it was a hard searing lesson when I lost some of my own money and I serup said in his introduction I'm cheap and I really hate losing money um so hard hard lessons uh are learned are the kind that that's that sink in and and sear most deeply so the profitable business with good Returns on Capital now uh we live in a part you live in a part of the world here where there are a lot of Dreams a lot of venture capital things where people will describe things that are going to happen someday and a lot of that does come true especially around here uh this is a a Vibrant Community and this this place stands as a tesate to sometimes there's people who have an idea about something that has never been done before and we're going to do it and it'll be spectacular and that does happen sometimes and it's it's marvelous when it does but I don't know how to do that so I'm not a venture capitalist it's a legitimate uh discipline but that's not what I am good at so I like to see a his you know in Virginia uh we joke about uh once one once you do something twice it becomes a tradition so then you have to keep doing it unless uh there some reason not to do it so Virginia might have a different sort of sense about history than than what might be the case here and thinking about things that were in the past as opposed to the Future so I like to see a demonstrated record of profitability now the other reason that I like to see that in addition to just my own limits and not having the skills to see into the future as well as some others do is that if you think about what a business is designed to do um and and it is to serve others so the most successful business you will ever find is one that the customers are glad they're doing business with you uh because that means their lives are getting better there's some value that is being created for the customer not for the business but for the customer because of that company being in business and the mark of the business doing that well is a profit because if you have a business that is not making a profit that means one of two things is the case a the business is either is doing something that the world just doesn't really care about people don't need it people don't want it for whatever reason uh it's not it's not getting the the the recognition or demand in the in the marketplace such that the business is able to do all the things it needs to do and still have a margin of profit left over so that's of no interest to me uh because in order to invest and in invest successfully a business needs to be able to have profits to pay dividends to pay its employees to to to grow and and invest over time so I want to see a profit there the second reason that a business might not be profitable is that they're not very good at it so uh I don't know how much anybody is interested in sports around here uh but you know I'm a Washington Redskins fan and I hate to admit that because they're not very successful but uh neither are the Oakland Raiders you know which are very close uh here so those two teams are sort of uh decade long competition for what the worst team in the in the NFL is going to be and and I can't believe that they make that they do uh which is kind of surprising but but think about that as a business that uh if you had a business that was consistently at or near the bottom of of of things you would not think that that is a very good business and as a consequence how can that be a very good investment if I really want to uh give some of my hard-earned Capital to that business and think I'm going to get more of it years later uh I want that business to be successful so uh that that's why I look for businesses that uh are profitable and earning good Returns on Capital and I and I add the part about leverage because again from mistakes uh in the 2008 2009 financial crisis uh I had some tough losses uh and again I think you learn more from things that don't go well than when things do go well um and I looked at some businesses that I did not really appreciate how much leverage was inherent in what they were doing so if you have financial leverage you might have a very good business you might be taking care of your customers you might be serving them well they might be happy uh to do business with you but you might have to refinance your debt and have Capital uh resupplied to you at a time when the markets just don't want to give it to you and if you're in that situation basically I mean that's like being a card player and you got you got some really good cards in your hand but somebody just comes and rips the cards out of your hand before you can finish playing the hand and I've seen that happened firsthand I've had gobs of Flesh taken from me uh figuratively not literally I still got my gobs of Flesh uh but uh I've seen that so as a consequence of become very sensitive about leverage and not having too too much uh leverage uh there's also another factor of Leverage and that is character and I'll segue into my second lens in a bit is and I can remember when when markal first started down the path of buying uh non-insurance businesses and expanding the what we did there was one elderly gentleman who gave me a spectacularly good piece of advice and he said if you're looking to buy businesses don't buy businesses where they use a lot of debt and I wondered why and he said well you know if you want to make sure you're dealing with high quality high integrity people generally speaking high quality high integrity people don't use a lot of debt or not so much that but if if you were a bad person if you were uh sort of a little bit of a crook or had a little bit of Larsen in your heart it's unlikely that you would use 100% Equity Finance because when it's Equity finance that means it's your own money when it's debt you're running your business on other people's money he says Crooks don't steal their own money they steal other people's money so when you see a business that that sort of relies on a bunch of debt to to operate and be successful um that adds a layer of concern or diligence that you have to do that you have to think about uh that you don't have to if you're look at a business that just doesn't use very much debt so it's a margin of safety that's a word that uh and a phrase that Ben Graham used quite a bit in thinking about investing uh that um by by looking at companies that don't use much debt uh that that just really protects your downside and protects you from bad things happening the second lens that I look at anything through is the management and the management teams that are running the business I'm not running these businesses that either we invest in as shareholders and buy stock in or that that we buy that we're uh majority owners of or or 100% owners of I mean there are people who are running these businesses and those people will make those businesses the success or failure that they're U doomed to be and when I'm looking at people I'm looking for two attributes one is I want um character integrity and ability two things character and and and um um the ability cuz one without the other is worthless if you have people who have um high integrity they're good character people but they're not very talented well they may be nice people you may like them they may be good friends good neighbors good coaches of your of your kids soccer team things of that nature but in the context of business they can't get the job done so as a consequence that doesn't do any good because the business does have to be profitable to continue to persist and grow and last over over long periods of time so uh um you know you got to see that Talent there U so the character is nice but it is not sufficient in and of itself if you have people who are talented who are whip smart who are very skilled at what they do but yet have a character or an Integrity flaw of some sort well they may do well but you as their outside Silent non-controlling Partner are not that will not end well um and again this talk is I'll get to your questions in just a just a few minutes sure will um you know that's not just about picking stocks that's about relationships so if you were picking a spouse or a partner in adventure anything like that uh to see both of those features in place in large enough quantities that you have confidence that you're dealing with people of character and integrity and talent that's an that's an important uh thing to look for in fact I can't think of anything that's that's more important so the third bit and I'll go through four bits four lenses and then and then we'll start opening the floor for questions the third thing that I think about when investing in anything is what are the reinvestment Dynamics of a business and that's a a somewhat complicated way of of saying things but what I mean is and uh Sarah as a graduate of the University of Pennsylvania we were chatting about this earlier so Ben Franklin was the founder of pen and he's sort of the revered figure of the of the pen Quakers and Ben Franklin said money makes more money and the money money makes makes more money um so he he intu ly understood the power of compound interest Einstein said it was the most powerful force in the universe compound interest Einstein further went on to say that those who understand compound interest earn it and those who do not understand it pay it so what is the reinvestment dynamic of a business what's the compounding feature and one of the ways you can think about that is think about the restaurant business um in a spectacular festar Gourmet lovely restaurant typically those tend to be owned by the people who are there every day uh they're not chains of the best restaurants in in the world from sort of a gourmet perspective usually the owner is the chef or right there at the front of the house and he's there all the time so that business that restaurant can be very successful but typically that is not a model that is set up to be able to replicate it again and again and again and again and again it may provide a very nice living for the the owner and their family and employ their their family and and great service to the to the world great food great prices all that sort of stuff but it's not replicable so there are some businesses that you'll see that are that are like that that are boutiques in in some form or fashion it's a limiting factor to really be able to apply capital and see it grow there are other businesses and uh you know it's in the news these days that people may wonder whether their time has passed and I won't uh enter into that debate but clearly this would be an example of of where somebody was able to figure out a restaurant model that was replicable and able to be done over and over and over again but go back in time 50 years and and at the start of McDonald's um and then another McDonald's and another McDonald's and another McDonald's one right after the other that's a perfect example of where that reinvestment Dynamic kicks in so when I'm looking at something I'm thinking how how big can this be how scalable is it how replicable is it because in order for you to really apply a bunch of capital to it it has to be something that you can keep reinvesting in and if if you think about things in a spectrum uh and I would encourage you to always think about things in more than one dimension and the Spectrum things generally speaking are not binary they're not yes or no they're not white or black they're they're Shades of Gray all the way along the line um so a perfect business is one that earns very good Returns on its capital and can take that Capital that it makes and then reinvest that and keep compounding at the same sort of rate year after year after year that's the north star that would be the absolute perfection the worst kind of business is one that doesn't earn very good Returns on Capital and yet seems to need gobs of it all the time and again this might be old data because the world seems to change but I used to joke that Airlines fit that fit that category so you know all these Airlines and the airlines were always coming and going uh and people always seem to want to get into business but they never really made good Returns on Capital these days they are whether they will continue to do so or not I don't I don't know but that's that's kind of the spectrum of business so I just try to get as close to this end of the spectrum as possible now in the real world this does not really exist very often or very frequently and oftentimes it's very richly priced when you see it but how close can you get to it because the second best business in the world is one that earns a very good Returns on Capital it can't reinvest it but the management knows that they're intellectually honest that they they they have to do something else with the money and what are their choices well they can make Acquisitions they can pay dividends they can buy in their own stock but they're they're thoughtful and they know that and Berkshire really is the best example of a company that that had that in place where you had the genius at the top who knew that the original business which was a textile business um you know whatever money that made it was best to invest that somewhere else and that's what uh Buffett has done for for 50 years is to reinvest the cash flows of the various businesses that that come into that feed into Berkshire in other places so that that is the Maestro like effect that he has had at Berkshire so that's a legitimate way of handling the notion that you can't reinvest in the business that you have uh but you can be thoughtful about what you do with that money when it comes in and then the fourth and final lens is price valuation and that's really where a lot of people start in investing because there are books you can read There are spreadsheets that you can do there are well trod paths you can find that talk about what's a reasonable price earnings ratio or what's a reasonable price to book Ratio or what's a reasonable dividend you all of these qual quantitative factors and those are all good but as I said they're they're not enough uh they go into the thinking they go into the thought process of whether uh this is a good investment or not but the mistake that I that I see there's there's two types of mistake you could make when you're doing your valuation uh work one is that you uh you know you you you pay too much for something so you make this judgment about what something is is worth or uh you make an error in those calculations and you pay more than something is worth and that that's a that's a frustrating error but you've laid out some money and it doesn't really earn much of a return or less of a return or maybe even loses money compared to what you paid out for it that's not the worst thing that's ever going to happen to you that is a that's a an error that you can recover from the kind of errors that that harder and that really cost you more although it's a hidden cost and it's an implicit cost is that you thought about what something was worth and you thought about what you wanted to pay for it and this was something that actually did compound and you never bought it because it never met your test of valuation but it just kept on compounding over time that example U it's easy not to talk about it um and and I think if there's there's one thing that uh uh I've been thinking about a lot recently is you know as human beings we tend to have very Vivid memories of things that we did and things that happened to us and especially that happened to us recently we tend to not have vivid memories and not do well about thinking about the things that didn't happen to us or that we didn't do and we we can we can brush away those experiences relatively easily because we don't have firsthand experience with it so we probably all have stories about something and the older you get the more stories you will have like this where you thought about something or you thought something might have been a good idea or you thought that might have been a good business or you thought that might have been a good stock at a certain point in time but for whatever reason pricing or whatever you didn't buy it at that time and and then you never got around to buying it uh those are the things that really hurt and know that money that you didn't make will will end up being a far bigger subtraction from your theoretical and net worth than than the things that you did buy that perhaps did not work as as well as you as you hope they would um so those are the four points and the four lenses of how I think about uh investing and and how I've learned to think differently than the way I thought when I was first starting out as an accountant as very quantitatively driven as very uh disciplined about sticking to certain metrics that I thought were markers of of uh valuation um and I started to think more qualitatively and if there was one of those four that's the one that I would think about the most it would be the third point the reinvestment what will happen over time to this business will it get better will it get worse is are the conditions behind it improving or deteriorating and it's a tough world it's tough it is very tough to find things that you have confidence in uh that would continue in in your best judgment to continue to compound in value over time but when you do don't be a penny pinch and I'm as tight as they come uh but don't be a penny pincher when you find uh businesses like that so so that I I want to stop and and start taking some questions and I know sir you did so you mentioned uh evaluating management you think about character and integrity uh first question is how do you actually specifically evaluate that and for us that are you know can actually interact with the management of companies and we just look at prices and stuff like that how do how do we actually go about figuring that out well again um I'm I I'm looking around the room and I'm seeing that I'm older than you guys but I'm married and I've been married a long time just by show of hands some many people here are married all right a bunch of you um how did you decide who you were going to marry you dated and what's the point of dating it's not really to see a movie or go to a restaurant or a ball game or roller skating or whatever you did it's really to spend time with somebody to see if their Val values overlap enough with yours that you'll be able to get along for a long period of time that's the whole point of dating and with management teams and people running businesses in effect what what I'm doing is is analogous to the idea of dating is to try to find people running these businesses where our values at least in the worlds of Commerce overlap enough that I'm happy for them to have the responsibility and the authority to run that business as they see fit now you you mentioned a limitation that you suggest that I'm able to you know get an appointment and see people who run business and and talk and interact with the managers and to some degree that's true but at the same time uh I really spend a lot more time reading about people and using the exact same resources that you would have access to as well so I read the annual reports I read the proxy statements I read magazine articles and I try to think and just sort of look whether and and get a a gut feel and make some um judgment and discernment about whether these people are acting in a way that's reasonable and and makes sense to me and your calibration is going to be somewhat different than mine you're just different I mean all of us are going to set those things that we think are important uh and and where we think the bounds of Behavior Uh should be differently because we're all different but you have them um and I encourage you to think about things in that Dimension because one of the things you'll find is you'll make a judgment your judgment will not be perfect but by virtue of the times you get it wrong and you make an error you you'll learn something you'll say o I don't like that so much um and that'll be a marker to you that the next time you see it uh you'll be sensitized to it and it'll help you make better judgments um in in in looking at uh at you guys um when I first started in the investment business I had a very wonderful Mentor named Ned Reynolds and this was a gentleman who was probably 70 years old and I was brand new in the investment business and he was a very interesting character and U it's not like he was formerly my mentor he was just he was nice he was kind and he was just helpful to people and one day I happened to be standing next to him on a hot summer day in Richmond Virginia and uh not much going on we just sort of Market was open and uh in those days you didn't have the CNBC with the ticker tape but you actually had a physical ticker tape in a brokerage office so it would create this sort of hum and drone of this tape going by and he was standing there and he had his arms folded like this and he really wasn't engaged in conversation with me he was standing by my side was not making eye contact but I had been in the business all of three months at this point and he said Tom the secret to success in investing is lasting the first 30 years and uh it's a powerful statement because what he said is everything you see in the world of Finance you will see again and every excess that you that you see happen and and every sort of excess of not just overvaluation but undervaluation so like the 089 period when we had a real financial crisis um I suspect and I hope that that's a once a generation kind of event I don't think we'll go through that again real soon because all of us who lived through it in a firsthand way have had a taste of that and we don't want to do it again so uh and and anybody who hasn't had that happen to them they they think it can't but you just sort of have to have to live through it there's an old joke that says every generation is the one that thinks that they invented sex not so but everybody has that sense about them as they go through this path and and once you've sort of been around for a while you you sort of see things and you recognize things and and making those judgments about uh the character and the values and the way people behave in a way that uh works for you that's just a a process of of trial and error with the emphasis on error and you and and you get to it eventually and you don't need in the in the you if we're talking about selecting stocks or buying stocks or buying Investments you don't need to have a personal relationship with the CEO in order to make a reasonable judgment about whether you think that company is being run well or not there's a good paper trail and a good set of of of evidence out there for you to to think about and and draw judgments about um my question is how do you feel about investing in companies and rapidly changing Industries so versus like a brand name company like Coca-Cola it's harder uh it's not it's not right or wrong or better or worse it's just harder uh so for instance one of the things that's underappreciated is that um and sarb and I were talking about this yesterday so on his desk in his study he had a book of the the gram and do security analysis which is the equivalent of the Bible for for security ANS everybody has to study gram and DOD if you're going to be in this business and I noticed on the cover it said six th Edition and uh I said well I don't know what the sixth edition is like when I was in school and I was studying it it was the fourth edition and I can remember on the 50th anniversary of the class or something they came out with a reprint of the first edition and just for grins I I bought it uh and I said to sorry I said you might want to get a hold of that first edition because the difference between the first and fourth it's an entirely different book so in the first edition which is really the one that I would recommend that you read and it it might sound antique when they're talking about railroads and all those kinds of old businesses but the concepts I mean Ben Graham was a was a classicist as as much as he was a finance guy and he was talking about uh you know Greek and Roman uh civilizations and Greek myths and all all that sort of stuff which are really about uh human nature um and and values and so all this uh sorry for the long answer to make a point but people jump on Ben Graham and they think about all his qualitative statements that he made and when when somebody says a gram and DOD style investor typically that is someone who is uh that has come to mean someone who's tearing apart a balance sheet and is a value Spotter and finding a difference in in the price but bid Graham in the first edition said that growth which is your point about rapid technological change and things that are changing and you're you're implying changing for the better but you have to admit that also sometimes things can and do change for the worse um growth is extremely important it's just hard to calculate and it's hard to value that Ben gram further went on in the in the U book that he wrote that's just a little more approachable and not so much uh uh technically detailed as security Nows but the intelligent investor which he meant to write just for anybody who wanted to pick up should be able to to read that book and and in one of the uh later editions of the intelligent investor Ben Graham made the point that he made more more money in Geico in the stock of Geico than in every other investment he made combined because Geico was the Growth Company that's the one that got that third point about the reinvestment dynamic right and if you further went on and did some research and and sort of researched that decision about how he got to be connected with Geico and how he got a hold of that big back uh block of Geico stock um he relied on his partner Jerry Newman to to make the final deal with the family the good and family to buy that stock cuz he he did not get that over the Finish Line himself he had he had he struggled with that because it wasn't the classic sort of investment that he was used to uh but it ended up being he says if it wasn't for Geico you would never know my name so um that idea of of growth of Rapid technological change of changing the world of of all those sorts of things where you have a I mean this is a classic example of something that did not exist not that long ago and and now it's one of the leading dominant companies in the world I mean all you need to do is get that right once in your whole life and it'll change your investing career forever but it's hard it's hard to do that thank you Tom for your visit here sorry uh so one thing set claran mentions is uh being in the investment business having the right structure um the right kind of Clans and one thing that Markel has it uh rightly structured is similar to birkshire permanent source of capital would you mind sharing your story of how you came about uh at marel um from your prior career how was the transition how did um sure seems like a dream job for most indeed so thank you I appreciate the question and I I think you know a lot of the reason you're here today is because you have personal interest in investing so I'll actually connect that notion of structure uh at the end of the answer to to what might be applicable to you as individuals and individual investors so um just a a short snippet as I said I started out in accounting and and my father was a CPA and he we were in a small town and he uh had a tax practice and he owned a liquor store and had a farm and did real estate deals so I thought that's what accountants did uh but then I went to work for Price order house Coopers and it was a little more structured and not quite as entrepreneurial as what I remembered my my my father doing and as an accountant I always joked I was more interested in dollars than numbers and there's a profound difference between the two so uh I I I just by accident I had always been interested in the stock market and investing something my dad and I talked about when I was a kid um so I found a broker in Richmond Virginia where I was who was also an ex account accountant and he worked for a a firm called DAV important Company of Virginia and he had uh two hats that he wore he was an analyst so he covered companies and wrote research reports for the firm but he also had individual clients um and I got referred to him he became my broker we got along um and then after a relatively short period of time he extended a job offer to me said you know you're look like you know what you're doing here how'd you like to come over here and and work with me and we'll uh we'll be analysts and be Brokers and do investig I said well that sounds like fun so I went there and I was and that was 1984 and from 84 through 1990 I was at Davenport um and had those those two roles well in 1984 that's when I read an article in Fortune Magazine about Berkshire haway and about Buffett and just to tell you how stupid and naive I was at the time and just trying to shake it off as best I can I remember reading that article and thinking to myself wow every word just dripped common sense um so I went into the guy I was working for at the time different different guy than my partner but I said uh Hey Joe have you ever heard of this guy Warren bouet and he said it's Buffett you idiot and threw me out of his office and whatnot and I I saw Berkshire halfway um and I was so stupid that when I looked at the price and it was $380 a share or something like that I I said no stock could possibly be worth that kind of money so I didn't buy it to my Everlasting regret but life has a way of teaching you these painful lessons and things working out so in 1986 marel went public and it happened to be headquartered in Richmond Virginia and there was and they had an insurance business that uh made underwriting profits and Steve marel who was the chief financial guy at the company was interested in investing the underwriting profits longer term in equity Securities in ownership of business so light went off for me that that I mean I missed the first part of Berkshire but at least I was being given a second chance that now here's a company that has the same structure the same architecture not the same accomplishments but at least the same theory of having an insurance company as the base engine and using the profitability of the insurance company to provide Capital to to make other Investments over time so aha so I bought some Marquel stock and from 1986 through 1990 I was covering marel from Davenport in 1990 marel did a deal which more than doubled the size of the company Steve marel had been managing Investments by himself and thought he might like a partner said something to me about coming out there with him and I said well that sounds like fun that was 25 years ago so I've been there ever since and the day I walked in the door see he gave me $2 million to manage uh and the total pot at the time was roughly $50 million that was all there was uh today uh the total balance sheet is uh 20 some billion dollar and we Sorry mentioned the four and a half B that's the equity investment that we have I'm actually the chief investment officer so I'm responsible for the fixed income side so the responsible for the whole thing which is 20 some billion dollars and that has been grown largely organically with a couple of Acquisitions along the way so it's it's been a good ride that's how I got there and you're correct one of the beautiful things about being at marel is it has been a profitable insurance company all the way along I mean there have been some years where they didn't make profits which is normal and years of heavy duty catastrophes we're going to lose a little bit of money on the insurance side but not much um but more often than not the insurance company has been profitable and has been putting money into the account and then we can apply those four lenses those four disciplines that I spoke of in selecting Equity Securities uh and been compounding value that way and really so so for instance the day I showed up and the stock was 8 bucks and now it's 800 if you do the math in in Broad brush rough terms roughly half of that has come from cumulative profitability of the insurance operations and half of it has come from investing that money so it's a you know it's it's a mutually supportive sort of deal now connecting that to you individually the great Advantage you have individually is that you're investing your money it's your money and you don't have a border of directors looking at you or uh other people I mean other people might criticize what you're doing or second guess what you're doing but they have no authority over it's your money it's your decision that you get and if you live within your means you know you have an income of this and you're spending this you have excess cash flow and that excess cash flow you get to invest personally and you get to invest it for your own time Horizon your own purposes for as long as you want um and that that's EXA that's that's the exact same structure that I get to live in so I don't have to um solicit clients that may take their money away at inopportune times and if you look at the studies which talk about you know sort of the average return of mutual funds over a long period of times is X the average return of investors in mutual fund is a fraction of that well why it's because when you have a market that's like this and it's going up people put money in and when it's down like this they take money out so whatever the in whatever the base rates of return are by their behavior they make them worse and fortunately in our company we're structured such that we try to take that notion off the table we're we're pretty much always investing whether the Market's doing this or this or this we're just steady pounding away at it and compounding and you can do the same thing as as an individual if you're if you're living on less than what you make and I think about you know one of the great wise people of all time is Charlie Munger and if you think about his example you know we all know who Charlie Munger is now he's 92 years old and think about sort of his whole life and he started out as smart as anybody you'll ever know know um he was an attorney I think he had seven children if memory served they all went to private school that's a lot of overhead so I suspect given a very pleasant personal lifestyle Charlie Munger was not a billionaire when he was 30 years old or 25 or 35 but cumulatively Charlie Munger always somehow or another lived on less than what he earned so he was creating cash flow that he was able to invest and um intrinsically and talking about John Wooden and having an internal versus an external uh scorecard Charlie merer didn't care what other people thought of him still doesn't didn't then doesn't now and and uh so as a consequence you know just just think about this from a definition point of view if you are living on less than what you are making you are rich period paragraph I'm not saying that in a relative term to what other people might be making or not making compared to your needs compared to what you're able to do you are rich Rich because there's a margin there you have more than what you need by virtue of choices that you've made making those kind of choices well if you keep doing that and you're as smart as Charlie M or at least you're you're you're smart enough to know that he is a wise person and you should try to be as much like him as possible that Gap every year of positive cash flow investing making a positive return over time begins to compound and and if you graph it on a piece not log not a log graph but a regular uh graph you know it'll hockey stick somewhere along the way so live on less of what you make invest it reasonably and live a long time and and and it's a it's a formula that can't not work and and you're kind enough and I'll just tell you one more personal story so I remember as a kid the one of the things that sort of got me hooked on this notion of compound interest and compound returns and I can I can remember this vividly even today so there was commercial and it was about Savings and Loans you know which hardly don't hardly even exist anymore and it was this uh picture where you you only got to see this shot from from here down so you would only see this hand and and so there was this hand and it had $50 bills and it was pointing out uh you know if you put $50 a month into your savings account and it showed this this you know pile being created with people putting these $50 bills on it was growing and said you know after 7 years or whatever you'll be able to take out $50 a month forever and the pile you were taking it away from was bigger than the pile that you had started with I mean I might have been seven or eight years old but that a light bulb went off for me about just the notion of of compound interest and what compounding meant in a in a in a gut visceral sense that I want to I want to figure something out about that that seems that seems pretty cool so uh as an individual structurally as long as you can live on less than what you make you have every advantage of what burer had what Marquel has would I mean there is no better structure uh where the odds of success are higher now again this company stands as Testament to there are certain times when something happens that just is out of the blue and I call that catching lightning in a jar you know that's what Google did and that's what gets done around this part of the world on a regular basis but catching lightning on a jar catching lightning jar that's really hard to do and it is really hard to repeat and and to make that process consistent over year after year after year after year which is much of the challenge I suspect when you go back to work that you're tasked with is how to catch some more lightning and jars it's hard it's hard to do oh hi so my question relates to uh companies that are staying private uh for a long longer than it used to be like for example Uber is worth like 40 billion or $50 billion in market cap and it's still private and like Airbnb is are worth more than 10 billion is private as well so are you worried about missing this like huge compounding um time period Well um as an example and I saw that number the other day that said roughly it's that the market value in the private last round of fundraising for Uber $50 billion also fed X the market cap at that particular Point time was $51 billion so the net uh market value of both those institutions is roughly let's call it the same um I'm not sure which one would be a better investment I I really am not um so the notion that those two are reported to be the same the FedEx number is is a is a harder more documentable number because if you want to pull out5 billion of value from FedEx right now you could do it on the floor of the New York Stock Exchange the Uber valuation is within the context of private markets and what people are saying it's worth and what people are funding but if you owned $5 billion reportedly of uber that is not as liquid as as what $5 billion worth of FedEx would be so let's H have some Nuance judgment about the fact that those are um on top of one another and I missed your question a little bit in the sense that okay so the fact that an Uber can come into being and get to 50 billion without us as the public ever having a chance at it um does that mean that there won't be other things that we as public uh participants do have no I mean there'll be other things so so we didn't get Uber as as just Public Market participants but there are other things and by the way you don't need to catch uh an Uber which comes from nowhere and within a period of what less than a decade it is thought to have that sort of valuation uh FedEx by contrast I think that started what in the 60s or 7s so that's been 40 or 50 years in business well anywhere along the line that you decided to buy FedEx if you'd hung in there with it you've probably earned a reasonably good return and you've compounded it uh over over a long period of time and going forward with the world growing as it is and packages moving around uh I mean I know there are alternative Delivery Systems Uber being one of them drones being one of them they created but I I would be willing to bet you a beer anyway that uh that 10 years from now fat a is still a pretty dramatically important and profitable and good earning uh sort of thing and and again it's not right or wrong it's just in knowing who you are and and how you do things and things that resonate with you I am very content and happy delighted thrilled to compound my money at reasonable rights with something like FedEx and not bemoan the fact or have angst or be stirred up about the fact that I didn't get to invest in newer it's okay you know I know how to do I know how to do this I don't know how to do that so do what you do remember to make the a good [Laughter] one uh the question is about uh you learning from the greatest Investments you did not make um how do you go about that process and how do you decide that there is no learning to be made even if you didn't make an investment or U how do you recognize the important trades believe me when when you didn't buy Burkshire at $384 a share like I didn't you think about that every day for the rest of your life and I have my partner Steve marel to thank for the fact that by the time I joined marel it was $5,750 and then I did but it was because Steve twisted my arm to say you idiot go ahead and buy it so kind of like uh you know Jerry Newman helped Ben Graham get over the hump with Geico which just wasn't the way he was wired at the time um you know you it'll happen to you and when it does you will you will know that lesson every day for the rest of your life do you did you do you keep a track of companies that you're not investing in but they were close to your investment decision something like a gray area or something where you did not make an investment and do you revisit them after an year after 5 years is that how it works uh yes not as formally as what you might uh think but I don't think you need to be formal about that I think if you're paying attention if you're involved in the financial markets and you're reading every day and you're thinking and you're exposed um you know what what's going on and in fact I'll tell you one here so here's one change that I made when I started out in the investment business in the Wall Street Journal every day and they still do this every day they have a list of stocks that are making a new high and they have a list of stocks that are making a new low and when I started out in the business every day I looked first at the new low list I think what's on sale what's what can we get a deal on here and I really didn't even look at the new high list because I figured you know if I own something and it was making a new high I knew that I didn't I didn't need it to be on a list to tell me that I knew it because I'd already already owned it these days I look at the new high list first and then the new low list because if there's something on the new high list there might be a reason might be a good reason and and and if I don't own it and I see it making a new high I'm more inclined to look at that and say what does the market know that I don't know and is this a really good company and is what they're doing likely to make it such that next year and the year after that and five years after that and 10 years after that they'd be more likely to be making new highs than than new lows it's a very gross distinction but I found it to be tremendously effective in pushing me more towards better quality companies and better Investments that that uh compound over time and as Charlie Munger said you know time is the friend of a wonderful business and the enemy of a mediocre one um and that is one technique that I used to help find good businesses and wonderful businesses rather than mediocre businesses how does Google do according to your investing Criterion so I mean all of us are pretty exposed to it we a lot of us get stock vesting so interested to hear your opinion and and tell me your question again how does Google do according to your investing criteria um well be candid I own some Google and I don't own a lot and it's one of those things that I feel is I've missed and I and I feel St stupid about that because you know I use it I mean I'm on Google 20 times a day and and how could I have missed this and and the thing that uh was the most challenging for me and Remains the most challenging to me is U you know how the how the compensation at senior levels works and what uh this company intends to accomplish for its shareholders at the same time that they're trying to accomplish these things in the world and and I don't know the answer to that and I'm not I'm not skilled at Discerning that I'm not a good investor in this part of the world I mean I'm just it doesn't match up to my to my skill set as well and I'm trying to get better that's one of those things that I'm trying to learn and that's one of the fun things about investing is things you don't know you should learn something about so it's not boring it's not like uh you know I learned something when I was in school and now I'm done uh it's it's it's a nice life Challenge and and Google is something that um as I say I own some of and a friend of mine has an expression they call it when they buy a little bit of something and I do this they're they're buying a library card so it one of the reasons I buy some of something is to make myself think more deeply about it and read the reports and just uh be more aware of something and I always find it's like a if you and and sorry about I we're talking about sports and you were talking about you know American Sports and whatnot and I hadn't thought of this until just now uh trying to trying to sort of connect with the the culture of sports if you're not if you didn't grow up playing those Sports well I know immediately if I was going to go to India and live there and there was cricket that was this national sport that everybody was consumed by but I didn't know a thing about it what I would do is bet money on a cricket match and and just kind of the way I'm wired because if I put $20 down on something well I want to know who the players are who's better and you know what their records were and all that all that kind of stuff so I do that sometimes I will buy uh positions in stock to make myself think about it in the same way that I'll bet $20 on a ball game just so I have some rooting interest when the you know when the Oakland Raiders play the the Tennessee Titans I don't care who wins that but if I'm having a party and drink a few beers and I'll bet $20 on one side or the other just so that I'll have somebody to root for and and do a little work on it in analogy to to ber ha R and war baffet is do you think like as maau Mel grows you feel like the size would be like a a barrier or obstacle for your investment for example the lasting Bing acquisition you guys have and you have a lot of fixed income right now so if you're going to uh increase your uh Equity investment to the level you had before then there will be a lot of a you know uh investment you need to make so do you think the size eventually become like a a problem not problem but like a factor consideration I will try as hard as I possibly know how to to make that a problem for us yes over time that that's our goal to have those kind of problems because that means things will have gone very very well uh and that's a very high class problem to have to try to figure out how to invest uh the flows of capital that are that are coming in the door so we started out with a little bit it has grown to more and we will try to make it grow to uh to more so we're faced with trying to handle that problem so with that uh you know thank you so much for coming here it's been a pleasure to listen to you and we hope to have you visit again soon thank you very much

I am not a surgeon I don&#39;t think that&#39;s what God wanted me to do to make things better but he did give me some sense of judgment temperament patience and discipline that enables me to be good at helping shepher resources everybody has a role to play and this is mine friends Our Guest for today is Thomas Gainer the chief investment officer at marel Corp he serves on the boards of several organizations and a recent Wall Street Journal article quoted every investor can learn something from him instead of trying to mimic the inimitable Brilliance of Mr Buffett maybe more investors should emulate the common sense and patience of Mr gainor quoting from a recent chapter in a book about him markle&#39;s success has made Gainer rich but he lives in a simple townhouse and drives a Toyota Prius I like getting 50 m per gallon because I&#39;m cheap he says and if we did not need oil I think the world would be a better and more peaceful place by living modestly he can also give more money to charity but I don&#39;t want to exaggerate this is not a Mother Teresa like existence he says friends I&#39;m personally delighted to be have him here we share a common hero in John Wooden and Tom&#39;s letters speak to the spirit of Coach wooden&#39;s definition of success so without further Ado ladies and Gentlemen please join me in welcoming our special guest for today Mr Thomas Gainer thank you well thank you very much for having me uh I know it&#39;s sort of a custom and a and a cliche to say you I&#39;m really honored to be here and and I am that&#39;s true I&#39;m also a bit intimidated because I I guess uh you know you&#39;re all smarter than I am it&#39;s must be a rule around here that the dumbest guy has to wear a coat so uh it is it is what it is and I I&#39;ll try to uh compete as best as I can uh but I am uh very much honored to be here and very uh impressed I mean what what you do is known on the world scale and marel is a is a tiny little company compared to you we have a a nice record over over a long period of time uh but I recognize the the group that I&#39;m here in front of today so I&#39;m uh very honored and privileged to be here um Sarah called me he attended uh one of the Gatherings we do out in out in Omaha uh where we meet with most of our investers in marel um and he he called and asked if I would come and give this talk and of course I said yes uh so um I I agreed to give a talk but what I really like to do is talk with people not at them so uh I&#39;m going to share a few comments and um some discussion about investing but then very much I hope that you&#39;ll start to ask some questions uh and then we can have an interactive discussion because I uh I don&#39;t know what&#39;s on your mind so the only way that I really can do that and address the issues and things you want to talk about or to to hear them directly from you so um the title when when sarb and I were talking about uh what we should call this talk would be the evolution of a value investor and I thought that was a a good way to try to describe things because as I look around the group the group today I think in addition to the fact that you&#39;re all smarter than I am you&#39;re all younger than I am um and so you have some evolving and learning and some passing through time to do on your own uh that I&#39;ve done as well and perhaps I can accelerate your learning curve a bit u in that process and speak a little bit about my own story of how I evolved and the things that have changed over time uh for for me as an investor so the way it begins my my Technical Training is that of an accountant I&#39;m a I&#39;m a CPA uh professionally my father was an accountant and that was what my my degree was in um and I I always uh tell people when they&#39;re sort of trying to figure out what it is they want to do among the things that would be a reasonable choice for what you&#39;re what you&#39;re studying would be accounting and people ask me why W County and I said well if you were going to go to Germany and you wanted to be a successful person in German in Germany what would be the very first thing that you should do and my answer is you should learn German uh because that is the language that people were going to communicate in and work in in Germany so if you want to go to Germany and be a success of any sort I think it would be very hard to do that without having a working knowledge of German well similarly in business and by business let&#39;s translate that uh further to investing the language of business is accounting so to understand what&#39;s going on uh you don&#39;t need to be a CPA but I think it&#39;s very important to have a rudimentary knowledge of what accounting is and how it works and what uh words and numbers mean when they&#39;re in the context of financial statements and business and the the language of accounting so that&#39;s how I started and um similar to I think many people as they begin to go down the path of trying to become an investor I I had a very strong quantitative bias in selecting Investments and one of the ways I would describe that and I think uh um one of the tendencies that we all have especially when we&#39;re starting out for a variety of reasons is to have quantitative metrics that you really can rely on and one of the reasons that that that would be the case is you know when you&#39;re starting out and you haven&#39;t done this a whole lot you really like to have some confidence supplied by something external that you&#39;re on the right path and if you can do U some wellestablished well-tried path of disciplines of things that have worked boy that seems like a pretty good basis to make a decision and to think about what&#39;s going to happen in the future and there is absolutely nothing in the world wrong with that I encourage that that&#39;s that&#39;s really the best way to start but I think that is only a partial step along the Journey of becoming an accomplished uh investor and that that that um that worked spectacularly well for for Ben Graham in the 1930s who&#39;s the the grandfather of all investing and the uh the professor who really taught waren Buffett uh the disciplines of investing but that was a period of time when we were just coming out of the depression and there were a lot of Securities that were mathematically and quantitatively cheap so it was a it was a great technique a great discipline it had not been practic but that that pond has gotten a little overfished uh so so today while it&#39;s important to know the technical skills to know the accounting to know things like U the the networking capital and to think about price earnings ratios and price tobook value ratios and have these series of quantitative metrics that would tell you that something is cheap that&#39;s good as far as it goes but it doesn&#39;t tell you enough there are more things and I call the notion of doing that sort of work which is the first step and you really should do it uh that&#39;s the idea of spotting value so you it&#39;s it&#39;s it&#39;s a picture the time U stands still when you&#39;re looking at a picture of something that you think is worth this and it&#39;s selling for this so there&#39;s a price Gap there and you want to buy it at this and you think it&#39;ll get to that and that that&#39;s great if it works but that&#39;s a that&#39;s a picture what I have evolved to and the path that I&#39;ve been on for a long time and and the reason I got on that path is because I found that uh that notion of spotting value and thinking that value gaps would close right after I showed up to buy some stock it didn&#39;t work so it&#39;s not as if I found that uh technique and I learned that and it worked and produced great wealth it didn&#39;t so you got to take the next step and try to figure something else out so I moved from spotting value to spotting the creation of value value creators as opposed to Value spotters so instead of a snapshot instead of a picture how about a movie what&#39;s this movie going to look like how&#39;s this real going to unfurl over time so instead of saying that I firmly believe that something is worth this I&#39;m now asking myself well what will it be worth next year and the year after that and the year after that and the decade after that and to have some sense of something that is increasing in value over time at an appropriate rate well that&#39;s what I&#39;m really huny for and that&#39;s what I&#39;m I&#39;m really trying to trying to find and spot um and I think this um has applications not just for investing but for leadership for management for Rel relationships that you would have on a social as well as a professional uh basis so it&#39;s it&#39;s an integrated thought as to to how my life is unfurling U so with that sort of thought in mind I came up with a with a fourpoint view of what it is that I&#39;m specifically looking for and how I specifically think about things that I might invest in so the first thing that that I look to invest in is a profitable business with good Returns on Capital it doesn&#39;t use too much leverage to to it and again each and every one of those words uh came about because I made a mistake somewhere along the line things did not work and as a consequence it was a hard searing lesson when I lost some of my own money and I serup said in his introduction I&#39;m cheap and I really hate losing money um so hard hard lessons uh are learned are the kind that that&#39;s that sink in and and sear most deeply so the profitable business with good Returns on Capital now uh we live in a part you live in a part of the world here where there are a lot of Dreams a lot of venture capital things where people will describe things that are going to happen someday and a lot of that does come true especially around here uh this is a a Vibrant Community and this this place stands as a tesate to sometimes there&#39;s people who have an idea about something that has never been done before and we&#39;re going to do it and it&#39;ll be spectacular and that does happen sometimes and it&#39;s it&#39;s marvelous when it does but I don&#39;t know how to do that so I&#39;m not a venture capitalist it&#39;s a legitimate uh discipline but that&#39;s not what I am good at so I like to see a his you know in Virginia uh we joke about uh once one once you do something twice it becomes a tradition so then you have to keep doing it unless uh there some reason not to do it so Virginia might have a different sort of sense about history than than what might be the case here and thinking about things that were in the past as opposed to the Future so I like to see a demonstrated record of profitability now the other reason that I like to see that in addition to just my own limits and not having the skills to see into the future as well as some others do is that if you think about what a business is designed to do um and and it is to serve others so the most successful business you will ever find is one that the customers are glad they&#39;re doing business with you uh because that means their lives are getting better there&#39;s some value that is being created for the customer not for the business but for the customer because of that company being in business and the mark of the business doing that well is a profit because if you have a business that is not making a profit that means one of two things is the case a the business is either is doing something that the world just doesn&#39;t really care about people don&#39;t need it people don&#39;t want it for whatever reason uh it&#39;s not it&#39;s not getting the the the recognition or demand in the in the marketplace such that the business is able to do all the things it needs to do and still have a margin of profit left over so that&#39;s of no interest to me uh because in order to invest and in invest successfully a business needs to be able to have profits to pay dividends to pay its employees to to to grow and and invest over time so I want to see a profit there the second reason that a business might not be profitable is that they&#39;re not very good at it so uh I don&#39;t know how much anybody is interested in sports around here uh but you know I&#39;m a Washington Redskins fan and I hate to admit that because they&#39;re not very successful but uh neither are the Oakland Raiders you know which are very close uh here so those two teams are sort of uh decade long competition for what the worst team in the in the NFL is going to be and and I can&#39;t believe that they make that they do uh which is kind of surprising but but think about that as a business that uh if you had a business that was consistently at or near the bottom of of of things you would not think that that is a very good business and as a consequence how can that be a very good investment if I really want to uh give some of my hard-earned Capital to that business and think I&#39;m going to get more of it years later uh I want that business to be successful so uh that that&#39;s why I look for businesses that uh are profitable and earning good Returns on Capital and I and I add the part about leverage because again from mistakes uh in the 2008 2009 financial crisis uh I had some tough losses uh and again I think you learn more from things that don&#39;t go well than when things do go well um and I looked at some businesses that I did not really appreciate how much leverage was inherent in what they were doing so if you have financial leverage you might have a very good business you might be taking care of your customers you might be serving them well they might be happy uh to do business with you but you might have to refinance your debt and have Capital uh resupplied to you at a time when the markets just don&#39;t want to give it to you and if you&#39;re in that situation basically I mean that&#39;s like being a card player and you got you got some really good cards in your hand but somebody just comes and rips the cards out of your hand before you can finish playing the hand and I&#39;ve seen that happened firsthand I&#39;ve had gobs of Flesh taken from me uh figuratively not literally I still got my gobs of Flesh uh but uh I&#39;ve seen that so as a consequence of become very sensitive about leverage and not having too too much uh leverage uh there&#39;s also another factor of Leverage and that is character and I&#39;ll segue into my second lens in a bit is and I can remember when when markal first started down the path of buying uh non-insurance businesses and expanding the what we did there was one elderly gentleman who gave me a spectacularly good piece of advice and he said if you&#39;re looking to buy businesses don&#39;t buy businesses where they use a lot of debt and I wondered why and he said well you know if you want to make sure you&#39;re dealing with high quality high integrity people generally speaking high quality high integrity people don&#39;t use a lot of debt or not so much that but if if you were a bad person if you were uh sort of a little bit of a crook or had a little bit of Larsen in your heart it&#39;s unlikely that you would use 100% Equity Finance because when it&#39;s Equity finance that means it&#39;s your own money when it&#39;s debt you&#39;re running your business on other people&#39;s money he says Crooks don&#39;t steal their own money they steal other people&#39;s money so when you see a business that that sort of relies on a bunch of debt to to operate and be successful um that adds a layer of concern or diligence that you have to do that you have to think about uh that you don&#39;t have to if you&#39;re look at a business that just doesn&#39;t use very much debt so it&#39;s a margin of safety that&#39;s a word that uh and a phrase that Ben Graham used quite a bit in thinking about investing uh that um by by looking at companies that don&#39;t use much debt uh that that just really protects your downside and protects you from bad things happening the second lens that I look at anything through is the management and the management teams that are running the business I&#39;m not running these businesses that either we invest in as shareholders and buy stock in or that that we buy that we&#39;re uh majority owners of or or 100% owners of I mean there are people who are running these businesses and those people will make those businesses the success or failure that they&#39;re U doomed to be and when I&#39;m looking at people I&#39;m looking for two attributes one is I want um character integrity and ability two things character and and and um um the ability cuz one without the other is worthless if you have people who have um high integrity they&#39;re good character people but they&#39;re not very talented well they may be nice people you may like them they may be good friends good neighbors good coaches of your of your kids soccer team things of that nature but in the context of business they can&#39;t get the job done so as a consequence that doesn&#39;t do any good because the business does have to be profitable to continue to persist and grow and last over over long periods of time so uh um you know you got to see that Talent there U so the character is nice but it is not sufficient in and of itself if you have people who are talented who are whip smart who are very skilled at what they do but yet have a character or an Integrity flaw of some sort well they may do well but you as their outside Silent non-controlling Partner are not that will not end well um and again this talk is I&#39;ll get to your questions in just a just a few minutes sure will um you know that&#39;s not just about picking stocks that&#39;s about relationships so if you were picking a spouse or a partner in adventure anything like that uh to see both of those features in place in large enough quantities that you have confidence that you&#39;re dealing with people of character and integrity and talent that&#39;s an that&#39;s an important uh thing to look for in fact I can&#39;t think of anything that&#39;s that&#39;s more important so the third bit and I&#39;ll go through four bits four lenses and then and then we&#39;ll start opening the floor for questions the third thing that I think about when investing in anything is what are the reinvestment Dynamics of a business and that&#39;s a a somewhat complicated way of of saying things but what I mean is and uh Sarah as a graduate of the University of Pennsylvania we were chatting about this earlier so Ben Franklin was the founder of pen and he&#39;s sort of the revered figure of the of the pen Quakers and Ben Franklin said money makes more money and the money money makes makes more money um so he he intu ly understood the power of compound interest Einstein said it was the most powerful force in the universe compound interest Einstein further went on to say that those who understand compound interest earn it and those who do not understand it pay it so what is the reinvestment dynamic of a business what&#39;s the compounding feature and one of the ways you can think about that is think about the restaurant business um in a spectacular festar Gourmet lovely restaurant typically those tend to be owned by the people who are there every day uh they&#39;re not chains of the best restaurants in in the world from sort of a gourmet perspective usually the owner is the chef or right there at the front of the house and he&#39;s there all the time so that business that restaurant can be very successful but typically that is not a model that is set up to be able to replicate it again and again and again and again and again it may provide a very nice living for the the owner and their family and employ their their family and and great service to the to the world great food great prices all that sort of stuff but it&#39;s not replicable so there are some businesses that you&#39;ll see that are that are like that that are boutiques in in some form or fashion it&#39;s a limiting factor to really be able to apply capital and see it grow there are other businesses and uh you know it&#39;s in the news these days that people may wonder whether their time has passed and I won&#39;t uh enter into that debate but clearly this would be an example of of where somebody was able to figure out a restaurant model that was replicable and able to be done over and over and over again but go back in time 50 years and and at the start of McDonald&#39;s um and then another McDonald&#39;s and another McDonald&#39;s and another McDonald&#39;s one right after the other that&#39;s a perfect example of where that reinvestment Dynamic kicks in so when I&#39;m looking at something I&#39;m thinking how how big can this be how scalable is it how replicable is it because in order for you to really apply a bunch of capital to it it has to be something that you can keep reinvesting in and if if you think about things in a spectrum uh and I would encourage you to always think about things in more than one dimension and the Spectrum things generally speaking are not binary they&#39;re not yes or no they&#39;re not white or black they&#39;re they&#39;re Shades of Gray all the way along the line um so a perfect business is one that earns very good Returns on its capital and can take that Capital that it makes and then reinvest that and keep compounding at the same sort of rate year after year after year that&#39;s the north star that would be the absolute perfection the worst kind of business is one that doesn&#39;t earn very good Returns on Capital and yet seems to need gobs of it all the time and again this might be old data because the world seems to change but I used to joke that Airlines fit that fit that category so you know all these Airlines and the airlines were always coming and going uh and people always seem to want to get into business but they never really made good Returns on Capital these days they are whether they will continue to do so or not I don&#39;t I don&#39;t know but that&#39;s that&#39;s kind of the spectrum of business so I just try to get as close to this end of the spectrum as possible now in the real world this does not really exist very often or very frequently and oftentimes it&#39;s very richly priced when you see it but how close can you get to it because the second best business in the world is one that earns a very good Returns on Capital it can&#39;t reinvest it but the management knows that they&#39;re intellectually honest that they they they have to do something else with the money and what are their choices well they can make Acquisitions they can pay dividends they can buy in their own stock but they&#39;re they&#39;re thoughtful and they know that and Berkshire really is the best example of a company that that had that in place where you had the genius at the top who knew that the original business which was a textile business um you know whatever money that made it was best to invest that somewhere else and that&#39;s what uh Buffett has done for for 50 years is to reinvest the cash flows of the various businesses that that come into that feed into Berkshire in other places so that that is the Maestro like effect that he has had at Berkshire so that&#39;s a legitimate way of handling the notion that you can&#39;t reinvest in the business that you have uh but you can be thoughtful about what you do with that money when it comes in and then the fourth and final lens is price valuation and that&#39;s really where a lot of people start in investing because there are books you can read There are spreadsheets that you can do there are well trod paths you can find that talk about what&#39;s a reasonable price earnings ratio or what&#39;s a reasonable price to book Ratio or what&#39;s a reasonable dividend you all of these qual quantitative factors and those are all good but as I said they&#39;re they&#39;re not enough uh they go into the thinking they go into the thought process of whether uh this is a good investment or not but the mistake that I that I see there&#39;s there&#39;s two types of mistake you could make when you&#39;re doing your valuation uh work one is that you uh you know you you you pay too much for something so you make this judgment about what something is is worth or uh you make an error in those calculations and you pay more than something is worth and that that&#39;s a that&#39;s a frustrating error but you&#39;ve laid out some money and it doesn&#39;t really earn much of a return or less of a return or maybe even loses money compared to what you paid out for it that&#39;s not the worst thing that&#39;s ever going to happen to you that is a that&#39;s a an error that you can recover from the kind of errors that that harder and that really cost you more although it&#39;s a hidden cost and it&#39;s an implicit cost is that you thought about what something was worth and you thought about what you wanted to pay for it and this was something that actually did compound and you never bought it because it never met your test of valuation but it just kept on compounding over time that example U it&#39;s easy not to talk about it um and and I think if there&#39;s there&#39;s one thing that uh uh I&#39;ve been thinking about a lot recently is you know as human beings we tend to have very Vivid memories of things that we did and things that happened to us and especially that happened to us recently we tend to not have vivid memories and not do well about thinking about the things that didn&#39;t happen to us or that we didn&#39;t do and we we can we can brush away those experiences relatively easily because we don&#39;t have firsthand experience with it so we probably all have stories about something and the older you get the more stories you will have like this where you thought about something or you thought something might have been a good idea or you thought that might have been a good business or you thought that might have been a good stock at a certain point in time but for whatever reason pricing or whatever you didn&#39;t buy it at that time and and then you never got around to buying it uh those are the things that really hurt and know that money that you didn&#39;t make will will end up being a far bigger subtraction from your theoretical and net worth than than the things that you did buy that perhaps did not work as as well as you as you hope they would um so those are the four points and the four lenses of how I think about uh investing and and how I&#39;ve learned to think differently than the way I thought when I was first starting out as an accountant as very quantitatively driven as very uh disciplined about sticking to certain metrics that I thought were markers of of uh valuation um and I started to think more qualitatively and if there was one of those four that&#39;s the one that I would think about the most it would be the third point the reinvestment what will happen over time to this business will it get better will it get worse is are the conditions behind it improving or deteriorating and it&#39;s a tough world it&#39;s tough it is very tough to find things that you have confidence in uh that would continue in in your best judgment to continue to compound in value over time but when you do don&#39;t be a penny pinch and I&#39;m as tight as they come uh but don&#39;t be a penny pincher when you find uh businesses like that so so that I I want to stop and and start taking some questions and I know sir you did so you mentioned uh evaluating management you think about character and integrity uh first question is how do you actually specifically evaluate that and for us that are you know can actually interact with the management of companies and we just look at prices and stuff like that how do how do we actually go about figuring that out well again um I&#39;m I I&#39;m looking around the room and I&#39;m seeing that I&#39;m older than you guys but I&#39;m married and I&#39;ve been married a long time just by show of hands some many people here are married all right a bunch of you um how did you decide who you were going to marry you dated and what&#39;s the point of dating it&#39;s not really to see a movie or go to a restaurant or a ball game or roller skating or whatever you did it&#39;s really to spend time with somebody to see if their Val values overlap enough with yours that you&#39;ll be able to get along for a long period of time that&#39;s the whole point of dating and with management teams and people running businesses in effect what what I&#39;m doing is is analogous to the idea of dating is to try to find people running these businesses where our values at least in the worlds of Commerce overlap enough that I&#39;m happy for them to have the responsibility and the authority to run that business as they see fit now you you mentioned a limitation that you suggest that I&#39;m able to you know get an appointment and see people who run business and and talk and interact with the managers and to some degree that&#39;s true but at the same time uh I really spend a lot more time reading about people and using the exact same resources that you would have access to as well so I read the annual reports I read the proxy statements I read magazine articles and I try to think and just sort of look whether and and get a a gut feel and make some um judgment and discernment about whether these people are acting in a way that&#39;s reasonable and and makes sense to me and your calibration is going to be somewhat different than mine you&#39;re just different I mean all of us are going to set those things that we think are important uh and and where we think the bounds of Behavior Uh should be differently because we&#39;re all different but you have them um and I encourage you to think about things in that Dimension because one of the things you&#39;ll find is you&#39;ll make a judgment your judgment will not be perfect but by virtue of the times you get it wrong and you make an error you you&#39;ll learn something you&#39;ll say o I don&#39;t like that so much um and that&#39;ll be a marker to you that the next time you see it uh you&#39;ll be sensitized to it and it&#39;ll help you make better judgments um in in in looking at uh at you guys um when I first started in the investment business I had a very wonderful Mentor named Ned Reynolds and this was a gentleman who was probably 70 years old and I was brand new in the investment business and he was a very interesting character and U it&#39;s not like he was formerly my mentor he was just he was nice he was kind and he was just helpful to people and one day I happened to be standing next to him on a hot summer day in Richmond Virginia and uh not much going on we just sort of Market was open and uh in those days you didn&#39;t have the CNBC with the ticker tape but you actually had a physical ticker tape in a brokerage office so it would create this sort of hum and drone of this tape going by and he was standing there and he had his arms folded like this and he really wasn&#39;t engaged in conversation with me he was standing by my side was not making eye contact but I had been in the business all of three months at this point and he said Tom the secret to success in investing is lasting the first 30 years and uh it&#39;s a powerful statement because what he said is everything you see in the world of Finance you will see again and every excess that you that you see happen and and every sort of excess of not just overvaluation but undervaluation so like the 089 period when we had a real financial crisis um I suspect and I hope that that&#39;s a once a generation kind of event I don&#39;t think we&#39;ll go through that again real soon because all of us who lived through it in a firsthand way have had a taste of that and we don&#39;t want to do it again so uh and and anybody who hasn&#39;t had that happen to them they they think it can&#39;t but you just sort of have to have to live through it there&#39;s an old joke that says every generation is the one that thinks that they invented sex not so but everybody has that sense about them as they go through this path and and once you&#39;ve sort of been around for a while you you sort of see things and you recognize things and and making those judgments about uh the character and the values and the way people behave in a way that uh works for you that&#39;s just a a process of of trial and error with the emphasis on error and you and and you get to it eventually and you don&#39;t need in the in the you if we&#39;re talking about selecting stocks or buying stocks or buying Investments you don&#39;t need to have a personal relationship with the CEO in order to make a reasonable judgment about whether you think that company is being run well or not there&#39;s a good paper trail and a good set of of of evidence out there for you to to think about and and draw judgments about um my question is how do you feel about investing in companies and rapidly changing Industries so versus like a brand name company like Coca-Cola it&#39;s harder uh it&#39;s not it&#39;s not right or wrong or better or worse it&#39;s just harder uh so for instance one of the things that&#39;s underappreciated is that um and sarb and I were talking about this yesterday so on his desk in his study he had a book of the the gram and do security analysis which is the equivalent of the Bible for for security ANS everybody has to study gram and DOD if you&#39;re going to be in this business and I noticed on the cover it said six th Edition and uh I said well I don&#39;t know what the sixth edition is like when I was in school and I was studying it it was the fourth edition and I can remember on the 50th anniversary of the class or something they came out with a reprint of the first edition and just for grins I I bought it uh and I said to sorry I said you might want to get a hold of that first edition because the difference between the first and fourth it&#39;s an entirely different book so in the first edition which is really the one that I would recommend that you read and it it might sound antique when they&#39;re talking about railroads and all those kinds of old businesses but the concepts I mean Ben Graham was a was a classicist as as much as he was a finance guy and he was talking about uh you know Greek and Roman uh civilizations and Greek myths and all all that sort of stuff which are really about uh human nature um and and values and so all this uh sorry for the long answer to make a point but people jump on Ben Graham and they think about all his qualitative statements that he made and when when somebody says a gram and DOD style investor typically that is someone who is uh that has come to mean someone who&#39;s tearing apart a balance sheet and is a value Spotter and finding a difference in in the price but bid Graham in the first edition said that growth which is your point about rapid technological change and things that are changing and you&#39;re you&#39;re implying changing for the better but you have to admit that also sometimes things can and do change for the worse um growth is extremely important it&#39;s just hard to calculate and it&#39;s hard to value that Ben gram further went on in the in the U book that he wrote that&#39;s just a little more approachable and not so much uh uh technically detailed as security Nows but the intelligent investor which he meant to write just for anybody who wanted to pick up should be able to to read that book and and in one of the uh later editions of the intelligent investor Ben Graham made the point that he made more more money in Geico in the stock of Geico than in every other investment he made combined because Geico was the Growth Company that&#39;s the one that got that third point about the reinvestment dynamic right and if you further went on and did some research and and sort of researched that decision about how he got to be connected with Geico and how he got a hold of that big back uh block of Geico stock um he relied on his partner Jerry Newman to to make the final deal with the family the good and family to buy that stock cuz he he did not get that over the Finish Line himself he had he had he struggled with that because it wasn&#39;t the classic sort of investment that he was used to uh but it ended up being he says if it wasn&#39;t for Geico you would never know my name so um that idea of of growth of Rapid technological change of changing the world of of all those sorts of things where you have a I mean this is a classic example of something that did not exist not that long ago and and now it&#39;s one of the leading dominant companies in the world I mean all you need to do is get that right once in your whole life and it&#39;ll change your investing career forever but it&#39;s hard it&#39;s hard to do that thank you Tom for your visit here sorry uh so one thing set claran mentions is uh being in the investment business having the right structure um the right kind of Clans and one thing that Markel has it uh rightly structured is similar to birkshire permanent source of capital would you mind sharing your story of how you came about uh at marel um from your prior career how was the transition how did um sure seems like a dream job for most indeed so thank you I appreciate the question and I I think you know a lot of the reason you&#39;re here today is because you have personal interest in investing so I&#39;ll actually connect that notion of structure uh at the end of the answer to to what might be applicable to you as individuals and individual investors so um just a a short snippet as I said I started out in accounting and and my father was a CPA and he we were in a small town and he uh had a tax practice and he owned a liquor store and had a farm and did real estate deals so I thought that&#39;s what accountants did uh but then I went to work for Price order house Coopers and it was a little more structured and not quite as entrepreneurial as what I remembered my my my father doing and as an accountant I always joked I was more interested in dollars than numbers and there&#39;s a profound difference between the two so uh I I I just by accident I had always been interested in the stock market and investing something my dad and I talked about when I was a kid um so I found a broker in Richmond Virginia where I was who was also an ex account accountant and he worked for a a firm called DAV important Company of Virginia and he had uh two hats that he wore he was an analyst so he covered companies and wrote research reports for the firm but he also had individual clients um and I got referred to him he became my broker we got along um and then after a relatively short period of time he extended a job offer to me said you know you&#39;re look like you know what you&#39;re doing here how&#39;d you like to come over here and and work with me and we&#39;ll uh we&#39;ll be analysts and be Brokers and do investig I said well that sounds like fun so I went there and I was and that was 1984 and from 84 through 1990 I was at Davenport um and had those those two roles well in 1984 that&#39;s when I read an article in Fortune Magazine about Berkshire haway and about Buffett and just to tell you how stupid and naive I was at the time and just trying to shake it off as best I can I remember reading that article and thinking to myself wow every word just dripped common sense um so I went into the guy I was working for at the time different different guy than my partner but I said uh Hey Joe have you ever heard of this guy Warren bouet and he said it&#39;s Buffett you idiot and threw me out of his office and whatnot and I I saw Berkshire halfway um and I was so stupid that when I looked at the price and it was $380 a share or something like that I I said no stock could possibly be worth that kind of money so I didn&#39;t buy it to my Everlasting regret but life has a way of teaching you these painful lessons and things working out so in 1986 marel went public and it happened to be headquartered in Richmond Virginia and there was and they had an insurance business that uh made underwriting profits and Steve marel who was the chief financial guy at the company was interested in investing the underwriting profits longer term in equity Securities in ownership of business so light went off for me that that I mean I missed the first part of Berkshire but at least I was being given a second chance that now here&#39;s a company that has the same structure the same architecture not the same accomplishments but at least the same theory of having an insurance company as the base engine and using the profitability of the insurance company to provide Capital to to make other Investments over time so aha so I bought some Marquel stock and from 1986 through 1990 I was covering marel from Davenport in 1990 marel did a deal which more than doubled the size of the company Steve marel had been managing Investments by himself and thought he might like a partner said something to me about coming out there with him and I said well that sounds like fun that was 25 years ago so I&#39;ve been there ever since and the day I walked in the door see he gave me $2 million to manage uh and the total pot at the time was roughly $50 million that was all there was uh today uh the total balance sheet is uh 20 some billion dollar and we Sorry mentioned the four and a half B that&#39;s the equity investment that we have I&#39;m actually the chief investment officer so I&#39;m responsible for the fixed income side so the responsible for the whole thing which is 20 some billion dollars and that has been grown largely organically with a couple of Acquisitions along the way so it&#39;s it&#39;s been a good ride that&#39;s how I got there and you&#39;re correct one of the beautiful things about being at marel is it has been a profitable insurance company all the way along I mean there have been some years where they didn&#39;t make profits which is normal and years of heavy duty catastrophes we&#39;re going to lose a little bit of money on the insurance side but not much um but more often than not the insurance company has been profitable and has been putting money into the account and then we can apply those four lenses those four disciplines that I spoke of in selecting Equity Securities uh and been compounding value that way and really so so for instance the day I showed up and the stock was 8 bucks and now it&#39;s 800 if you do the math in in Broad brush rough terms roughly half of that has come from cumulative profitability of the insurance operations and half of it has come from investing that money so it&#39;s a you know it&#39;s it&#39;s a mutually supportive sort of deal now connecting that to you individually the great Advantage you have individually is that you&#39;re investing your money it&#39;s your money and you don&#39;t have a border of directors looking at you or uh other people I mean other people might criticize what you&#39;re doing or second guess what you&#39;re doing but they have no authority over it&#39;s your money it&#39;s your decision that you get and if you live within your means you know you have an income of this and you&#39;re spending this you have excess cash flow and that excess cash flow you get to invest personally and you get to invest it for your own time Horizon your own purposes for as long as you want um and that that&#39;s EXA that&#39;s that&#39;s the exact same structure that I get to live in so I don&#39;t have to um solicit clients that may take their money away at inopportune times and if you look at the studies which talk about you know sort of the average return of mutual funds over a long period of times is X the average return of investors in mutual fund is a fraction of that well why it&#39;s because when you have a market that&#39;s like this and it&#39;s going up people put money in and when it&#39;s down like this they take money out so whatever the in whatever the base rates of return are by their behavior they make them worse and fortunately in our company we&#39;re structured such that we try to take that notion off the table we&#39;re we&#39;re pretty much always investing whether the Market&#39;s doing this or this or this we&#39;re just steady pounding away at it and compounding and you can do the same thing as as an individual if you&#39;re if you&#39;re living on less than what you make and I think about you know one of the great wise people of all time is Charlie Munger and if you think about his example you know we all know who Charlie Munger is now he&#39;s 92 years old and think about sort of his whole life and he started out as smart as anybody you&#39;ll ever know know um he was an attorney I think he had seven children if memory served they all went to private school that&#39;s a lot of overhead so I suspect given a very pleasant personal lifestyle Charlie Munger was not a billionaire when he was 30 years old or 25 or 35 but cumulatively Charlie Munger always somehow or another lived on less than what he earned so he was creating cash flow that he was able to invest and um intrinsically and talking about John Wooden and having an internal versus an external uh scorecard Charlie merer didn&#39;t care what other people thought of him still doesn&#39;t didn&#39;t then doesn&#39;t now and and uh so as a consequence you know just just think about this from a definition point of view if you are living on less than what you are making you are rich period paragraph I&#39;m not saying that in a relative term to what other people might be making or not making compared to your needs compared to what you&#39;re able to do you are rich Rich because there&#39;s a margin there you have more than what you need by virtue of choices that you&#39;ve made making those kind of choices well if you keep doing that and you&#39;re as smart as Charlie M or at least you&#39;re you&#39;re you&#39;re smart enough to know that he is a wise person and you should try to be as much like him as possible that Gap every year of positive cash flow investing making a positive return over time begins to compound and and if you graph it on a piece not log not a log graph but a regular uh graph you know it&#39;ll hockey stick somewhere along the way so live on less of what you make invest it reasonably and live a long time and and and it&#39;s a it&#39;s a formula that can&#39;t not work and and you&#39;re kind enough and I&#39;ll just tell you one more personal story so I remember as a kid the one of the things that sort of got me hooked on this notion of compound interest and compound returns and I can I can remember this vividly even today so there was commercial and it was about Savings and Loans you know which hardly don&#39;t hardly even exist anymore and it was this uh picture where you you only got to see this shot from from here down so you would only see this hand and and so there was this hand and it had $50 bills and it was pointing out uh you know if you put $50 a month into your savings account and it showed this this you know pile being created with people putting these $50 bills on it was growing and said you know after 7 years or whatever you&#39;ll be able to take out $50 a month forever and the pile you were taking it away from was bigger than the pile that you had started with I mean I might have been seven or eight years old but that a light bulb went off for me about just the notion of of compound interest and what compounding meant in a in a in a gut visceral sense that I want to I want to figure something out about that that seems that seems pretty cool so uh as an individual structurally as long as you can live on less than what you make you have every advantage of what burer had what Marquel has would I mean there is no better structure uh where the odds of success are higher now again this company stands as Testament to there are certain times when something happens that just is out of the blue and I call that catching lightning in a jar you know that&#39;s what Google did and that&#39;s what gets done around this part of the world on a regular basis but catching lightning on a jar catching lightning jar that&#39;s really hard to do and it is really hard to repeat and and to make that process consistent over year after year after year after year which is much of the challenge I suspect when you go back to work that you&#39;re tasked with is how to catch some more lightning and jars it&#39;s hard it&#39;s hard to do oh hi so my question relates to uh companies that are staying private uh for a long longer than it used to be like for example Uber is worth like 40 billion or $50 billion in market cap and it&#39;s still private and like Airbnb is are worth more than 10 billion is private as well so are you worried about missing this like huge compounding um time period Well um as an example and I saw that number the other day that said roughly it&#39;s that the market value in the private last round of fundraising for Uber $50 billion also fed X the market cap at that particular Point time was $51 billion so the net uh market value of both those institutions is roughly let&#39;s call it the same um I&#39;m not sure which one would be a better investment I I really am not um so the notion that those two are reported to be the same the FedEx number is is a is a harder more documentable number because if you want to pull out5 billion of value from FedEx right now you could do it on the floor of the New York Stock Exchange the Uber valuation is within the context of private markets and what people are saying it&#39;s worth and what people are funding but if you owned $5 billion reportedly of uber that is not as liquid as as what $5 billion worth of FedEx would be so let&#39;s H have some Nuance judgment about the fact that those are um on top of one another and I missed your question a little bit in the sense that okay so the fact that an Uber can come into being and get to 50 billion without us as the public ever having a chance at it um does that mean that there won&#39;t be other things that we as public uh participants do have no I mean there&#39;ll be other things so so we didn&#39;t get Uber as as just Public Market participants but there are other things and by the way you don&#39;t need to catch uh an Uber which comes from nowhere and within a period of what less than a decade it is thought to have that sort of valuation uh FedEx by contrast I think that started what in the 60s or 7s so that&#39;s been 40 or 50 years in business well anywhere along the line that you decided to buy FedEx if you&#39;d hung in there with it you&#39;ve probably earned a reasonably good return and you&#39;ve compounded it uh over over a long period of time and going forward with the world growing as it is and packages moving around uh I mean I know there are alternative Delivery Systems Uber being one of them drones being one of them they created but I I would be willing to bet you a beer anyway that uh that 10 years from now fat a is still a pretty dramatically important and profitable and good earning uh sort of thing and and again it&#39;s not right or wrong it&#39;s just in knowing who you are and and how you do things and things that resonate with you I am very content and happy delighted thrilled to compound my money at reasonable rights with something like FedEx and not bemoan the fact or have angst or be stirred up about the fact that I didn&#39;t get to invest in newer it&#39;s okay you know I know how to do I know how to do this I don&#39;t know how to do that so do what you do remember to make the a good [Laughter] one uh the question is about uh you learning from the greatest Investments you did not make um how do you go about that process and how do you decide that there is no learning to be made even if you didn&#39;t make an investment or U how do you recognize the important trades believe me when when you didn&#39;t buy Burkshire at $384 a share like I didn&#39;t you think about that every day for the rest of your life and I have my partner Steve marel to thank for the fact that by the time I joined marel it was $5,750 and then I did but it was because Steve twisted my arm to say you idiot go ahead and buy it so kind of like uh you know Jerry Newman helped Ben Graham get over the hump with Geico which just wasn&#39;t the way he was wired at the time um you know you it&#39;ll happen to you and when it does you will you will know that lesson every day for the rest of your life do you did you do you keep a track of companies that you&#39;re not investing in but they were close to your investment decision something like a gray area or something where you did not make an investment and do you revisit them after an year after 5 years is that how it works uh yes not as formally as what you might uh think but I don&#39;t think you need to be formal about that I think if you&#39;re paying attention if you&#39;re involved in the financial markets and you&#39;re reading every day and you&#39;re thinking and you&#39;re exposed um you know what what&#39;s going on and in fact I&#39;ll tell you one here so here&#39;s one change that I made when I started out in the investment business in the Wall Street Journal every day and they still do this every day they have a list of stocks that are making a new high and they have a list of stocks that are making a new low and when I started out in the business every day I looked first at the new low list I think what&#39;s on sale what&#39;s what can we get a deal on here and I really didn&#39;t even look at the new high list because I figured you know if I own something and it was making a new high I knew that I didn&#39;t I didn&#39;t need it to be on a list to tell me that I knew it because I&#39;d already already owned it these days I look at the new high list first and then the new low list because if there&#39;s something on the new high list there might be a reason might be a good reason and and and if I don&#39;t own it and I see it making a new high I&#39;m more inclined to look at that and say what does the market know that I don&#39;t know and is this a really good company and is what they&#39;re doing likely to make it such that next year and the year after that and five years after that and 10 years after that they&#39;d be more likely to be making new highs than than new lows it&#39;s a very gross distinction but I found it to be tremendously effective in pushing me more towards better quality companies and better Investments that that uh compound over time and as Charlie Munger said you know time is the friend of a wonderful business and the enemy of a mediocre one um and that is one technique that I used to help find good businesses and wonderful businesses rather than mediocre businesses how does Google do according to your investing Criterion so I mean all of us are pretty exposed to it we a lot of us get stock vesting so interested to hear your opinion and and tell me your question again how does Google do according to your investing criteria um well be candid I own some Google and I don&#39;t own a lot and it&#39;s one of those things that I feel is I&#39;ve missed and I and I feel St stupid about that because you know I use it I mean I&#39;m on Google 20 times a day and and how could I have missed this and and the thing that uh was the most challenging for me and Remains the most challenging to me is U you know how the how the compensation at senior levels works and what uh this company intends to accomplish for its shareholders at the same time that they&#39;re trying to accomplish these things in the world and and I don&#39;t know the answer to that and I&#39;m not I&#39;m not skilled at Discerning that I&#39;m not a good investor in this part of the world I mean I&#39;m just it doesn&#39;t match up to my to my skill set as well and I&#39;m trying to get better that&#39;s one of those things that I&#39;m trying to learn and that&#39;s one of the fun things about investing is things you don&#39;t know you should learn something about so it&#39;s not boring it&#39;s not like uh you know I learned something when I was in school and now I&#39;m done uh it&#39;s it&#39;s it&#39;s a nice life Challenge and and Google is something that um as I say I own some of and a friend of mine has an expression they call it when they buy a little bit of something and I do this they&#39;re they&#39;re buying a library card so it one of the reasons I buy some of something is to make myself think more deeply about it and read the reports and just uh be more aware of something and I always find it&#39;s like a if you and and sorry about I we&#39;re talking about sports and you were talking about you know American Sports and whatnot and I hadn&#39;t thought of this until just now uh trying to trying to sort of connect with the the culture of sports if you&#39;re not if you didn&#39;t grow up playing those Sports well I know immediately if I was going to go to India and live there and there was cricket that was this national sport that everybody was consumed by but I didn&#39;t know a thing about it what I would do is bet money on a cricket match and and just kind of the way I&#39;m wired because if I put $20 down on something well I want to know who the players are who&#39;s better and you know what their records were and all that all that kind of stuff so I do that sometimes I will buy uh positions in stock to make myself think about it in the same way that I&#39;ll bet $20 on a ball game just so I have some rooting interest when the you know when the Oakland Raiders play the the Tennessee Titans I don&#39;t care who wins that but if I&#39;m having a party and drink a few beers and I&#39;ll bet $20 on one side or the other just so that I&#39;ll have somebody to root for and and do a little work on it in analogy to to ber ha R and war baffet is do you think like as maau Mel grows you feel like the size would be like a a barrier or obstacle for your investment for example the lasting Bing acquisition you guys have and you have a lot of fixed income right now so if you&#39;re going to uh increase your uh Equity investment to the level you had before then there will be a lot of a you know uh investment you need to make so do you think the size eventually become like a a problem not problem but like a factor consideration I will try as hard as I possibly know how to to make that a problem for us yes over time that that&#39;s our goal to have those kind of problems because that means things will have gone very very well uh and that&#39;s a very high class problem to have to try to figure out how to invest uh the flows of capital that are that are coming in the door so we started out with a little bit it has grown to more and we will try to make it grow to uh to more so we&#39;re faced with trying to handle that problem so with that uh you know thank you so much for coming here it&#39;s been a pleasure to listen to you and we hope to have you visit again soon thank you very much

Transcript for:Lecture by Thomas Gainer

Transcript for:
Lecture by Thomas Gainer