The Evolution of a Value Investor | Tom Gayner | Talks at Google

I'm not a surgeon. I don't think that's what God wanted me to do to make things better, but he did give me a certain sense of judgment, temperament, patience, and discipline that allows me to be good at helping shepherd resources. We all have a role to play. and this is my friend, our guest today is Thomas Gainer, Chief Investment Officer of Marel Corp, he sits on the boards of several organizations and a recent Wall Street Journal article quotes that every

investor

can learn something from him instead of try to imitate the inimitable Brilliance. From Mr. Buffett perhaps more

investor

s should emulate Mr.

Gainor's common sense and patience by quoting a recent chapter from a book about him. Markle's success has made Gainer rich, but he lives in a simple house and drives a Toyota Prius. I like to earn 50m per gallon because I'm cheap, he says and if we didn't need oil, I think the world would be a better and more peaceful place if we lived modestly, you can also donate more money to charities, but I don't want to exaggerate, this is not a Mother Teresa likes existence, she says friends, I'm personally delighted to have you 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, join me in welcoming. our special guest today, Mr.

Thomas Gainer, thank you very much, thank you very much for inviting me uh I know it's kind of a custom and a cliché to say that I'm very honored to be here and it's true. I'm also a little intimidated because I guess they know they're smarter than me. There must be a rule around here that the dumbest guy has to wear a coat, so it is what it is and I'll try it. compete to the best of my ability, but I feel very honored to be here and very impressed. I mean, what you do is known on a global scale and Marel is a small company compared to you, we have a good track record over a long period of time, but I recognize the group that I am here in front of today, so I feel very honored and privileged to be here.

Sarah called me and attended one of the meetings we do. in Omaha, where we met with most of our investors at Marel, and he called and asked if I could come and give this talk and of course I said yes, so I agreed to give a talk, but what really What I like to do is talk to people who aren't in them, so I'm going to share some comments and some investing discussions, but then I hope they start asking some questions and then we can have an interactive conversation. discussion because I don't know what's on your mind so the only way I can really do it and address the issues and the things that you want to talk about or hear them directly from you so um the title when when sarb and I was talking about what What we should call this talk would be the

evolution

of a

value

investor and I thought that was a good way to try to describe things because when I look around the group, the group today I think, besides the fact that you are all smarter than me , they are all younger than me, so they have some time to evolve and learn and some time to do it on their own, I have done that too and maybe I can accelerate their learning. curves a little bit into that process and

talks

a little bit about my own story of how I evolved and the things that have changed over time for me as an investor, so the way my technical training begins is that of an accountant.

I'm a certified public accountant uh professionally my father was an accountant and that's what my degree was in um and I always tell that to people when they're trying to figure out what they want to do among the things that would be a reasonable choice for what you're studying. it 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 first thing you should do? My answer is that you should learn German, because that is the language that people would communicate and work in Germany, so if you want to go to Germany and be successful. of any kind, I think it would be very difficult to do that without having a working knowledge of German, similarly in business and by business, let's translate that, in addition to investing, the language of business is accounting, to understand what is happening, uh, you don't.

You don't have to be a certified public accountant, but I think it's very important to have a rudimentary understanding of what accounting is and how it works and what the words and numbers mean when they're in the context of financial statements and business and accounting language. the accounting. That's how I started and similar to, I think a lot of people start down the path of trying to become investors. I had a very strong quantitative bias when selecting investments and one of the ways I would describe that and I think uh Well, one of the tendencies that we all have, especially when we're starting out, for various reasons, is to have quantitative metrics where you can actually trust and one of the reasons why that would be the case is you know when you're starting out and you haven't done this much, you really like to have some confidence coming from something external that you're on the right path and if you can, keep going. some well-established and tested path of disciplines of things you've already worked on, boy, that seems like a pretty good basis for making a decision and thinking about what's going to happen in the future and there's absolutely nothing wrong with that.

I encourage you that that's really the best way to get started, but I think it's just a partial step on the journey to becoming an accomplished investor and that, that worked spectacularly well for Ben Graham in the 1930s, who is the grandfather of all investments and the professor who really taught Waren Buffett the disciplines. to invest, but that was a period when we were just coming out of the depression and there were many securities that were mathematically and quantitatively cheap, so it was a great technique, a great discipline, it had not been practical, but that pond was It's a little overexploited today, although it's important to know the technical skills, know the accounting, know things like network capital and think about price-to-earnings ratios and price-to-book ratios and have these quantitative data sets. metrics that would tell you that something is cheap and that it's good as far as it goes, but they don't tell you enough, there's more to it and I call the notion of doing that kind of work, which is the first step and you really should do it. uh that's the idea of ​​detecting

value

so it's a picture of the moment U stops when you look 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 buy it right now and you think you'll get there and that's great if it works but that's a picture of where I've evolved and the path I've been on for a long time and the reason I got on that path is because I found that that notion of spotting value and thinking that the value gaps would close right after I showed up to buy some stocks didn't work, so it's not like I found that technique and learned it and it worked and produced great wealth. , but it didn't, so you have to take the next step and try to discover something else, so I went from detecting value to detecting value creation, value creators instead of value observers, so instead of a snapshot. of an image, how about a movie?, what will this movie look like?, how will this real thing develop over time?

So instead of saying I firmly believe something is worth it, I now ask myself what it will be worth next year and the year after that and the year after that and the decade after that and have a sense of whether something is increasing in value over time over time. a proper pace, well, that's what I'm really hungry for and that's what I'm really trying to find and detect, and I think this has applications not only for investing but also for leadership, interpersonal relationship management that you'd have both socially and professionally, so it's an integrated thought as to how my life plays out, so with that kind of thinking in mind I came up with a four point vision of what specifically I'm looking for and how I specifically think about things I could invest in, so the first What I'm looking to invest in is a profitable business with good returns on capital, doesn't use too much leverage and again, every single one of those words came about because I made a mistake in sometime along the line. it didn't work and as a consequence it was a hard and scorching lesson when I lost some of my own money and serup said in his introduction I'm cheap and I really hate losing money.

The very hard and tough lessons that are learned are of the type that that is what sinks and burns the deepest, so the profitable business with good returns on capital we now live in a part of the world where there are many dreams, many things venture capital where people describe things that are going to happen one day and many of them come true, especially around here. This is a vibrant community and this place is a testament that sometimes there are people who have an idea about something that has never been done before and we are going to do it and it will be spectacular and that happens sometimes and it is wonderful when it happens, but it doesn't I know how to do it, so I'm not a venture capitalist, it's a legitimate discipline, but that's not what I'm good at, so I like to see a his, you know, in Virginia, we joke about one time, one time If you do something twice, it becomes a tradition, so you have to keep doing it unless there is some reason not to.

So Virginia might have a different sense of history than she might have here and think about things that happened in the past rather than the future. That's why I like to see a proven track record of profitability, now the other reason I like to see that, besides my own limits and not having the skills to see the future as well as others do, is that if you think about for What a business is designed to do, and it's to serve others, the most important thing The successful business you'll ever find is one where customers are happy to do business with you, uh, because that means their lives are getting better, you know. you are creating some value for the customer, not for the business, but for the customer because of that.

A company is in business and the brand of the business that does it well is a profit because if you have a business that doesn't make a profit, that means one of two things is the case: The business is doing something that the world just doesn't do. . I don't really care people don't need it people don't want it for whatever reason uh it's not getting recognition or demand in the market so that the company can do all the things it needs to do and I still have some margin left. profit, so I'm not interested in that, because to invest and invest successfully, a company needs to be able to make profits to pay dividends, to pay its employees, to grow and I invest over time, so I want to see a profit there.

The second reason a business may not be profitable is that they are not very good at it, so I don't know how much interest there is in sports around here but you. I know I'm a Washington Redskins fan and I hate to admit it because they're not very successful, but neither are the Oakland Raiders, you know, they're really close here, so those two teams are kind of a decade-long competition so The worst team in the NFL is going to be and I can't believe they do that, which is a little surprising, but think of it as a business that, if you had a business that was consistently at or near the end of things, You wouldn't think it's a very good business and as a consequence how can it be a very good investment if I really want to donate some of my hard earned capital to that business and I think I'm going to get more years later I want that business be successful, so I look for businesses that are profitable and get good returns on capital and I and I added the part about leverage because again because of mistakes. uh, in the financial crisis of 2008 2009, uh, I had some tough losses, uh, and again, I think you learn more from things that don't go well than when things go well, and I looked at some businesses that I didn't really appreciate. . leverage was inherent to what they were doing, so if you have financial leverage, you may have a very good business, you may be taking care of your customers, you may be serving them well, they may be happy to do business with you, but you may have to. refinance your debt and have capital replenished at a time when the markets just don't want to give it to you and if you're in that situation I basically mean it's like being a card player and you have some really good cards in your hand but someone comes and He rips the cards out of your hand before you can finish playing the hand and I've seen that happen first hand.

They took chunks of my meat, uh, figuratively, not literally, I still have my chunks of meat, uh, but I've seen it, as a consequence of becoming very sensitive to leverage and not having much leverage, there's also another factor of leverage andthat's the character, and I'll move on to my second lens in a little bit. And I can remember when Markal first started down the path of buying non-insurance businesses and expanding what we did, there was an older gentleman who gave me some spectacularly good advice and He told me: if you are looking to buy businesses. don't buy businesses where they use a lot of debt and I asked myself why and he said, well, you know, if you want to make sure that 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, but if you were a bad person, if you were a bit of a criminal or had a bit of Larsen in your heart, it's unlikely that you would use 100% Equity Finance because when it's equity financing, which means it's your own money, when it's debt, you're running your business with other people's money.

He says criminals don't steal their own money, they steal other people's money, so when you see a business that somehow depends on a ton of debt to operate and be successful, that adds a layer of worry or diligence that you have to do, what you have to think about, which you don't have to do if you're looking at a business that just doesn't work. use a lot of debt so it's a margin of safety that's a word that uh and a phrase that Ben Graham used quite a bit when thinking about investing uh that um looking at companies that don't use a lot of debt uh that that really protects their downside and it protects from bad things that happen.

The second lens through which I look at everything is management and the management teams that run the business. I'm not running these businesses that we invest in as shareholders and buy shares or that we buy that we are majority owners or 100% owners of. I mean, there are people who run these businesses and those people will make those businesses the success or failure that they are doomed to be and when I'm looking at the people. I'm looking for two attributes, one is: I want integrity of character and ability, two things, character and and, ability, because one without the other has no value if you have people who have high integrity, they are good. people with character, but they don't have a lot of talent, well, they may be good people, you may like them, they may be good friends, good neighbors, good coaches of your children's soccer team, things of that nature, but in the context of businesses can't get it. the work done as a result of that is of no use because the business has to be profitable to continue to persist and grow and last for long periods of time, so, um, you know you have to see that talent there.

The character is nice, but it is not enough in itself if you have people who are talented, intelligent, very skilled at what they do but still have a character or integrity flaw of some kind, well, they can do it well, but you as their external partner, silent and non-controlling, that's not it, that won't end well, and again, this talk is. I will answer your questions in just a few minutes. I'm sure you know, it's not just about choosing stocks, it's about relationships. So if you were choosing a spouse or a partner in an affair, something like that, seeing both characteristics in place in large enough quantities that you have confidence that you're dealing with people of character, integrity and talent, that's important. uh, something to look for, in fact, I can't think of anything that's more important, so the third bit and I'll go through four bits, four lenses and then we'll start opening the room for questions, the third thing that's what to look for.

To think about when investing in anything is what the reinvestment dynamics of a business are and that's a bit of a complicated way of saying things, but what I mean is, uh, Sarah, as a graduate of the University of Pennsylvania, we were chatting about this before, so Ben Franklin. He was the founder of the pen and he's kind of a revered figure of the pen Quakers and Ben Franklin said that money makes more money and money that makes money makes more money, so he intuitively understood the power of compound interest Einstein said that compound interest was the most powerful force in the universe Einstein went on to say that those who understand compound interest earn it and those who don't understand it pay it so what is the reinvestment dynamic of a company?

What is the characteristic of capitalization and one of the ways? You can think about that, think about the restaurant business, um, a spectacular, lovely Festar Gourmet restaurant. Those usually tend to be owned by the people who are there every day. They are not chains of the best restaurants in the world. From a foodie perspective, typically the owner is the chef or he's right in the front of the house and he's there all the time so that restaurant business can be very successful, but typically that's not a model that's set up to be able to replicate. . over and over and over and over again it can provide a very nice life for the owner and his family and employ his family and great service to the world great food great prices all that kind of stuff, but it's not replicable So, you see that there are some businesses that are like that, that are boutiques in some way or fashion.

It is a limiting factor to really be able to apply capital and see it grow. There are other businesses and you know it's in In the news these days people may wonder if their time has passed and I won't get into that debate, but clearly this would be an example of how someone was able to discover a restaurant model that was replicable and that could be done. over and over again, but go back in time 50 years and to the beginning of McDonald's um and then another McDonald's and another McDonald's and another McDonald's one after another, that's a perfect example of where that dynamic reinvestment comes into play, so when I'm looking at something I'm thinking about how big this can be, how scalable it is, how replicable it is, because in order for you to really be able to apply a lot of capital to it, it has to be something that you can keep reinvesting in and, if you do think about things in a spectrum, uh, I encourage you to always think about things in more than one dimension and things on the spectrum in general, speaking, are not binary, they are not yes or no, they are not black and white, they are they are Shades of Gray in all the senses, so a perfect business is one that gets very good returns on its capital and can take that capital that it generates and then reinvest it and continue to compound at the same type of rate year after year. year after year that is the north star, which would be absolute perfection.

The worst type of business is one that doesn't earn very good returns on capital and yet seems to need a lot of money all the time. Again and again, this could be old data because the world seems to change, but I used to joke that airlines fit into that category, so you know all these airlines and airlines always came and went, and people always seemed to want to do businesses, but they never got good returns on capital. These days what they are asking is whether they will continue to do so or not. I don't know, but that's the spectrum of business, so I try to get as close to this end of the spectrum as possible now in the In the real world, this doesn't really exist very often or very frequently and often, It has a very high price when you see it, but how close can you get to it?

Because the second best business in the world is the one that obtains a very good return on capital. They don't reinvest it, but management knows that they are intellectually honest, that they have to do something else with the money and what their options are. Well, they can make acquisitions. They can pay dividends. They can buy their own shares, but. They're thoughtful and they know it, and Berkshire really is the best example of a company that had that in place, where they had the genius at the top who knew that the original business, which was a textile business, you know, whatever money they had It was better to invest that somewhere else and that's what Buffett has done for 50 years: reinvest the cash flows of the various businesses that come into Berkshire elsewhere so that that is the Maestro effect. that he's had at Berkshire, so that's a legitimate way to deal with the notion that you can't reinvest in the business that you have, but you can reflect on what you do with that money when it comes and then the fourth and final lens.

It's pricing and that's really where a lot of people start investing because there are books you can read. There are spreadsheets you can make. There are well-trodden paths that you can find that talk about what is a reasonable price-to-earnings ratio or what is a reasonable price. to book Ratio or what is a reasonable dividend, all these qualified quantitative factors and they are all good, but like I said, they are not enough, they go into the thinking, they go into the thinking process of whether this is a good investment or not, but The mistake I see is that there are two types of mistakes you can make when you are making your valuation, one is that you know you pay too much for something, so you make this judgment. about what something is worth or you make a mistake in those calculations and you pay more than something is worth and that's a frustrating mistake, but you've invested some money and it doesn't really generate much of a return. or less than a refund or maybe even lose money compared to what you paid for it that's not the worst thing that can happen to you it's a mistake that you can recover from the type of mistakes that are more difficult and that actually cost you more, Although it is a hidden cost and it is an implicit cost, it is that you thought about the value of something and you thought about what you wanted to pay for it and this was something that actually got complicated and you never bought it because it never met its valuation test, but it continued to accumulate over time, that example.

U, it's easy not to talk about that, um and I think if there's one thing that I've been thinking about a lot recently it's that you know how Human beings tend to have very vivid memories of the things that we did and the things that happened to us and especially those that happened to us recently. We tend not to have vivid memories and we don't think carefully about things that didn't happen to us. or that we didn't and we can, we can dismiss 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'll have like this. where you thought about something or you thought something might have been a good idea or you thought it might have been a good deal or you thought it might have been a good stock at a certain time but for some reason the price or whatever you did didn't. you bought at that time and then you were never able to buy it.

Those are the things that really hurt and you know that the money you didn't earn will end up being a much bigger subtraction from your theoretical and net worth. that the things that you bought that maybe didn't work out as well as you hoped they would, so those are the four points and the four lenses of how I think about investing and how I've learned to think. differently than the way I thought when I started as an accountant, very quantitatively driven and very disciplined in sticking to certain metrics that I thought were valuation markers and I started thinking more qualitatively and if there was one.

Of those four, that's the one I would think about the most, would be the third point, reinvestment, what will happen over time in this business, will it get better, will it get worse, if the conditions behind it improve or deteriorate, and it's a difficult task. . world is hard, it's very hard to find things that you have confidence in, uh, that, to your best judgment, continue to accumulate value over time, but when you do, don't be a dime and I'm as strict as they come, but no be stingy when you find deals like that so I want to stop and start answering some questions and I know sir you did so you mentioned evaluating management think about character and integrity.

The first question is how is that specifically evaluated? And for us, who know, we can interact with the management of the companies and we just look at the prices and things like that, how can we solve it well again? It's me, I'm looking around the room and I see that I'm older than you guys, but I'm married and I've been married for a long time just by raising my hand, a lot of people here are married, right? a group of you, um, how did you decide who you were going to marry, who you dated, and what's the point of dating.

It's not really watching a movie or going to a restaurant or going to a ball game or skating or whatever they did, it's really spending. spending time with someone to see if their Val values ​​overlap enough with yours that you can get along for a long period of time, that's the whole point of dating and with management teams and people who run companies In fact, what I'm doing. This is analogous to the idea of ​​dating, it's trying to find people to run these businesses where our values, at least in the world of Commerce, overlap enough that I'm happy that they have the responsibility and authority to run that business as they see it.

Fits in now, you mentioned a limitation that you suggest that I can, you know, get an appointment and see people who run businesses and talk and interact with managers and to some extent that's true, but at the same time I really spend a lot moretime reading about people and using the exact same resources as you. I also have access, so I read the annual reports, I read the proxy statements, I read magazine articles and I try to think and just look at whether I have a gut feeling and make some judgment and discernment about whether these people are acting. in a way that is reasonable and makes sense to me and your calibration will be somewhat different than mine, you are just different.

I mean, all of us are going to set those things that we believe are important and where we believe that Behavioral boundaries should be different because we are all different, but you have them and I encourage you to think about things in that dimension because one of the things you will find is that you will make a judgment, your judgment will not be the same. perfect but by virtue of the times you mess up and make a mistake you will learn something that you will say or I don't like it so much um and that will be a marker for you the next time you see it, it will raise your awareness and it will help you make better decisions, by looking at them at you guys, when I started in the investment business, I had a wonderful mentor named Ned Reynolds and this was a gentleman who was probably 70 years old and I was new to the investment business and he was a very interesting character and he is not who was previously my mentor, he was just kind, he was nice and he helped people. and one day I was standing next to it on a hot summer day in Richmond Virginia and not much was happening, just the market was open and in those days you didn't have CNBC with the ticker tape, but I actually had a ticker tape physical in a brokerage office, so it created this kind of hum and hum of this tape and he was standing there and he had his arms crossed like that and he wasn't really conversing with me.

He was standing next to me not making eye contact, but I had been in business for three months at that point and he said, Tom, the secret to success in investing is to last the first 30 years and it's a powerful statement because what He said it's everything that you see in the world of finance you will see again and every excess that you see happen and all kinds of excess not only of overvaluation but of undervaluation so similar to the period 089 when we had a real financial crisis um, I suspect that and I hope it is a once in a generation event.

I don't think we'll go through that again very soon because all of us who experienced it firsthand have tried it and we don't want to do it again, so, and anyone who hasn't had that happen to, thinks they can't, but you have to live it There is an old joke that says that each generation is the one that thinks that. They invented sex, they didn't, but everyone has that feeling about them as they go down this path and once you've been around for a while, you see things and you recognize things and you make those judgments about the character. and the values ​​and the way people behave in a way that works for you, that's just a process of trial and error with emphasis on error and you and eventually you get to that and you don't need in the If we're talking about picking stocks or buying stocks or buying investments, you don't have to have a personal relationship with the CEO to be able to make a reasonable judgment about whether you think the company is doing well or not, there's a good document. trace and a good set of evidence available for you to think and make judgments about.

My question is: How do you feel about investing in rapidly changing companies and industries, compared to a brand name company like Coca-Cola? harder, it's not, it's not right or wrong, it's better or worse, it's just harder, so for example, one of the things that's underrated is that um, sarb and I were talking about this yesterday, so on his desk in his study he had a book on gram and security analysis, which is the equivalent of the Bible for security, and everyone has to study gram and DOD if they are going to be in this business and I noticed that on the cover It said sixth edition and 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 that on the 50th anniversary of the class or something like that they came out with a reprint of the first edition. and just to smile I bought it uh and I said sorry, I said you might want to get that first edition because the difference between the first and the fourth is a completely different book, so in the first edition, which is really the one I would recommend.

You read it and it may sound old when they talk about railroads and all that kind of ancient business, but the concepts I'm talking about is that Ben Graham was as much a classicist as he was a financier and talking about, you know, the Greek and Roman civilizations, the Greek myths and all that kind of stuff that actually has to do with human nature and values ​​and all this, sorry for the long answer to make a point, but people jump on Ben. Graham and think about all the qualitative statements that he made and when someone says a gram and DOD style investor it's usually someone who is... that has come to mean someone who is tearing up a balance sheet and is a value watcher and finds a difference in the price, but the offer Graham in the first edition said that growth, what is your point about rapid technological change and things that are changing, and you are implying change for the better, but you must admit that sometimes things can also and change for the worse, um, growth is extremely important, it's difficult to calculate and it's difficult to value.

Ben Gram continued in the U book he wrote, which is a little more accessible and not as technically detailed. like Security Nows, but the intelligent investor who intended to write only for anyone who would read it should be able to read that book, and in one of the later editions of The Intelligent Investor, Ben Graham noted that he had made more money at Geico in the stock of Geico than in every other investment they made combined because Geico was the growth company, that's the one that got the third point right about reinvestment dynamics and if you go ahead and do a little research and sort of research that decision on how it came to be connected with Geico and how he got that big back block of Geico stock.

He trusted his partner Jerry Newman to make the final deal with the family, the estate and the family to buy. that action because he himself did not manage to cross the finish line, he had to struggle with that because it was not the classic type of investment that he was used to, but it ended up being, he says, if it were not like that. For Geico, you would never know my name, so that idea of ​​growth, rapid technological change, changing the world, all those kinds of things where you have a, I mean, this is a classic example of something that didn't exist not long ago. . ago and is now one of the top dominant companies in the world.

I mean, all you need to do is get it right once in your entire life and it will change your investing career forever, but it's hard, it's hard to do, thanks Tom. For your visit here, sorry, one thing that Claran mentions is that he is in the investment business, that he has the right structure, the right type of clans, and one thing that Markel has structured correctly is similar to the permanent source of capital of Birkshire, would you mind? I share your story of how you came to Marel, of your previous career, what was the transition like?

As? It sure sounds like a dream job to most, so thank you. I appreciate the question and I think you know a lot of the reason you're here today is because you have a personal interest in investing, so I'll connect that notion of structure at the end of the answer to what might be applicable to you as individuals and investors. individual. I said I started in accounting and my dad was a CPA and we were in a small town and he had a tax practice and he owned a liquor store and he had a farm and he did real estate, so I thought that's what they did. the accountants. uh, but then I went to work for Price Order House Coopers and it was a little more structured and not as entrepreneurial as I remembered my dad doing and as an accountant, I always joked that I was more interested in dollars than numbers, and there's a profound difference between the two so by accident I had always been interested in the stock market and investing, something my father and I talked about when I was a kid, so I found a broker in Richmond, Virginia, where I was, and who was also a former accountant and he worked for a firm called DAV Major Virginia Company and he had 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 I recommended him, he became my broker, we hit it off, and then after a relatively short period of time he extended me a job offer and said, you know, it sounds like you know what you're doing here, how are you doing? would you like to come? here and we will work with me and we will be analysts and brokers and we will investigate.

I said well that sounds fun so I went there and I was there and that was in 1984 and from '84 until 1990 I was in Davenport. Um and I had those two roles right 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 I was just trying to get rid of it the best I could. I remember reading that article and thinking, “wow, every word made sense.” So I walked in on the guy I was working for at the time, a different guy than my partner, but I said, “Hey Joe, have you ever heard of this guy Warren?” Bouet and he said he was Buffett, idiot and he kicked me out of his office and all that and I saw Berkshire halfway and I was so stupid that when I looked at the price and it was $380 a share or something like that, I said no stock could possibly be worth that kind of money, so I didn't buy it much to my eternal regret, but life has a way of teaching you these painful lessons and things work out, so in 1986 Marel went public and it turned out to be based in Richmond, Virginia, and there. was and they had an insurance business that made underwriting profits and Steve Marel, who was the chief financial officer of the company, was interested in investing the long-term underwriting profits in equity securities owned by the business, so it turned me on. the light.

I missed the first part of Berkshire, but at least they were giving me a second chance: now there is a company that has the same structure, the same architecture, not the same achievements, but at least the same theory of having an insurance company like base engine and using the profitability of the insurance company to provide capital to make other investments over time, so aha, I bought some shares of Marquel and from 1986 to 1990 I was covering Marel from Davenport. In 1990, Marel made a deal that more than doubled the size of the Steve Marel had been managing investments by himself and he thought he would like to have a partner.

He told me something about going out with him and I said, well, that sounds like fun. That was 25 years ago, so I've been there ever since. I walked in the door and saw that he gave me $2 million to manage and the total pot at that time was about $50 million, that was all there was today, the total balance is 20, about a billion dollars and I'm sorry , we mentioned the four and a half B, that is the capital investment we have. I'm actually the chief investment officer, so I'm responsible for the fixed income side, so I'm responsible for the whole thing, which is about $20 billion and has largely grown organically with a couple of acquisitions along the way so it's been a good ride that's how I got there and you're right one of the beautiful things about being at Marel is that it's been a profitable insurance company all along.

I mean, there have been some years where they didn't make a profit, which is normal, and years of serious catastrophes, we will lose a little money on the insurance side, but not a lot, but most of the time the insurance company has been profitable and it has been Put money in the account and then we can apply those four lenses, those four disciplines that I talked about when selecting equities and we have been accumulating value that way and really like that, for example, the day I showed up and the stock was $8 and now it's $800 if you do the math roughly, about half of that comes from the cumulative profitability of insurance operations and the other half comes from investing that money. , so now it is a mutual support agreement.

Connecting that to you individually, the big advantage that you have individually is that you are investing your money, it is your money and you don't have a border of directors looking at you or other people, I mean, other people could criticize what you are doing. or 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 that you have an income from this and you're spending it, you have excess cash flow and that excess of cash flow that you can invest personally and you can invest it for your own time Horizon your own purposes for as long as you want and that's EXA, it's exactly the same structure that I live in, so I don't haveThey ask clients who can take their money at inopportune times and if you look at the studies that talk about them, you will know that the average return of mutual funds over a long period of time is X, the average return of investors in mutual funds It's a fraction of that, why?

It's because when you have a market like that and it goes up, people put money in and when it goes down like that, they take money out, so whatever the base rates of return are by their behavior, they make them worse and fortunately in our company, we are structured in such a way that We try to take that notion off the table, we are almost always investing, whether the market is doing this or this or that, we are just insisting on it and capitalizing and you can do the same thing as an individual if you live on less than what you you win and I think of you, you know that one of the great wise men of all time is Charlie Munger and if you think about his example you know that we We all know who Charlie Munger is, he is now 92 years old and we think about his whole life and he started out so smart Like anyone you've ever met.

You know he was a lawyer. I think he had seven children, if memory serves, they were all gone. going to a private school means a lot of overhead, so I suspect that, given a very nice personal lifestyle, Charlie Munger was not a multimillionaire when he was 30, 25 or 35, but on the whole, Charlie Munger always, somehow u another, he lived on less than what he earned, so he was creating cash flow that he could invest and, um, intrinsically and speaking of John Wooden and having an internal versus external scorecard, Charlie Merer didn't care what What other people thought of him, not yet, so he doesn't care. now and uh, so as a consequence, you know, just think about this from a definitional point of view, if you live on less than what you're earning, you're rich, period, paragraph, I'm not saying that in a relative term. to what other people may or may not be doing compared to your needs compared to what you are capable of doing you are rich because there is a margin there you have more than you need by virtue of the decisions you have made in making that type of decisions Well, if you keep doing that and you are as smart as Charlie M, or at least you are smart enough to know that he is a wise person and you should try to be as much like him as possible.

The gap each year of investing in positive cash flow that generates a positive return over time starts to add up and if you graph it on a piece, not on a log, not on a log graph, but on a normal graph, you know it will be a hockey stick somewhere along the way, so live. with less than what you earn, invest it reasonably and live a long time and it is a formula that cannot stop working and you are very kind and I will just tell you one more personal story so that you remember it as when I was a child, it was one of the things that I got hooked on this notion of compound interest and compound returns, and I can remember this vividly even today, so there was a commercial and it was about savings and loans, you know, which is hardly not the case.

It almost doesn't exist anymore and it was this image where you could only see this shot from here down so you could only see this hand and then there was this hand and it had $50 bills and it was pointing, you know. If you put $50 a month in your savings account and it shows this, you know it's creating a pile with people putting these $50 bills in it and it says you know after 7 years or whatever you'll be able to take out $50 a month. forever and the pile you were removing it from was bigger than the pile you had started with.

I mean, I might have been seven or eight years old, but a light bulb went off in my head about the notion of compound interest and what compound means in a gut visceral sense that I want, I want to figure out something about it that seems pretty cool, so, like individual structurally, as long as you can live on less than what you earn, you have every advantage of what Burer had what Marquel has, I mean, there is no better structure, uh, where the odds of success are higher now again, this company is a testament that there are certain times when something happens that just comes out of nowhere and I call that Catching lightning in a jar, you know, that's what Google did and that's what they do in this part of the world of regular way, but catching lightning in a jar, catching lightning in a jar, is really difficult to do and it's very difficult to repeat. making that process consistent year after year after year after year, which is a big part of the challenge.

I suspect when you get back to work your task is how to catch more lightning bolts and jolts, it's hard, it's hard to do, oh hello. My question relates to companies that stay private much longer than they used to be, like for example Uber is worth around $40 billion or $50 billion in market cap and is still private and like Airbnb is worth more than 10 billion. private too, are you worried about missing out on this as a huge compounding period of time? Well, as an example, I saw that number the other day that roughly said that the market value in the last private fundraising round for Uber also fueled $50 billion.

X the market capitalization at that particular time was $51 billion, so the net market value of both institutions is more or less let's call it the same. I'm not sure which would be a better investment. I'm really not. So the notion that those two are reported to equal the FedEx number is a more difficult and more documentable number because if you want to withdraw 5 billion worth of value from FedEx right now, you could do it on the floor of the Stock Exchange. New York, Uber Valuation is within the context of private markets and what people say it's worth and what people are funding, but if you had $5 billion in Uber, that's not as liquid as what it would be. 5 billion dollars at FedEx, so let's have some nuances. judgment about the fact that they are on top of each other and I kind of missed your question to the effect that okay, the fact that an Uber can come up and go to 50 billion without us as a public having any chance .

Does that mean there won't be other things that we, as public participants, don't have? I mean, there will be other things, so we don't get Uber just as Public Market participants, but there are other things. And by the way, it is not necessary to take an Uber that comes out of nowhere and in a period of less than a decade it is believed to have that type of valuation. FedEx, on the other hand, I think that started in the '60s or '7s, so it's been 40 or 50 years in business, any time you decided to buy FedEx, if you had held on, you probably would have made a reasonably good return. and you have composed it over a long time. period of time and move forward with the world growing as it is and packages moving, I mean I know there are alternative delivery systems, Uber is one of those drones and it's one of the ones they created, but I'd still be willing to bet you a beer. that in 10 years fat a will still be dramatically important, profitable and making good money, and again, it's not right or wrong, it's just about knowing who you are and how you do things and the things that resonate with you. you, I am very happy and happy, delighted and excited to combine my money with reasonable rights with something like FedEx and not regret the fact, nor have anguish or agitate about the fact that I could not invest in something newer, okay, now You know.

I know how to do it I know how to do this I don't know how to do that so whatever you do remember to make a good uh the question is about do you learn from the biggest investments that you didn't make um how? you carry out that process and how do you decide there is no learning to do even if you didn't make an investment or U, how do you recognize big trades, trust me when you didn't buy Burkshire at $384 a share? like you haven't thought about that every day for the rest of your life and I have to thank my partner Steve Marel for the fact that when I joined Marel it was $5,750 and then I did it but it was because Steve twisted my arm to say idiot go ahead and buy it so you know Jerry Newman helped Ben Graham get over the problem with Geico which just wasn't the way he was wired at the time you know it's going to happen to you and when it does you'll know that lesson every day for the rest of your life.

Did? Do you keep track of companies you are not investing in but that were close to your investment decision? Something like a gray. area or something you didn't make an investment in and you revisit it after a year after 5 years, that's how it works, yeah, not as formally as you might think, but I don't think you should be formal about it. 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, you know what's going on and I'll actually tell you something. Here's a change I made when I started in the investment business at the Wall Street Journal every day and they still do it 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 in the business every day I looked at the new low list first. I think what's on sale, what can we get here and I didn't really even look at the new max list. because I thought you know if I have something and it was hitting a new high, I knew not to. I didn't need it to be on a list to tell me that I knew because I've already had 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, it might be a good reason. and and and if I don't have it and I see that it's making a new high I'm more inclined to look at that and say what does the market know that I don't know, is it a really good company and what are they doing to make it such that the year that comes and the next that and five years later and 10 years later they would be more likely to reach new highs than new lows.

It's a very crude distinction, but I found it to be tremendously effective in pushing me further toward better quality companies and better investments. that that compounds 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's a technique that I used to help find good businesses and wonderful businesses instead of mediocre business. Does Google do it according to its investment criteria? So I mean we are all quite exposed to it. Many of us get stock vesting rights, we are very interested to hear your opinion and tell me your question again.

How does Google do it according to its investment criteria? Well, be honest, I have some Google and I don't have much and it's one of those things that I feel like I've missed and I feel stupid about it because you know I use it, I mean I'm on Google 20 times a day and how could I? having missed this and what was the most challenging for me and continues to be the most challenging for me is: do you know how compensation works at the higher levels and what this company is? intends to achieve for their shareholders at the same time they're trying to achieve these things in the world 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, it just doesn't match my skills either and I'm trying to get better, that's one of those things I'm trying to learn and That's one of the fun things about investing, are things that you don't know, that you should learn something about, so it's not boring, it's not like, you know, I learned something when I was in school and now I'm done, it's nice.

Life Challenge and Google is something that, like I say, I have a few and a friend of mine has an expression that they call it when they buy a little bit of something and I do this, they're buying a library card, so One of the reasons why I buy something is to think more deeply about it and read the reports and just be more aware of something and I always find that it's like you and sorry for what we're talking about. sports and you were talking about, you know American sports and all that, and I hadn't thought about this until now, trying to try to connect with the culture of sports, if you're not, if you didn't grow up playing.

Those sports, well, I know right away that if I was going to go to India and live there and there was cricket, which was a national sport that consumed everyone, but I didn't know anything about it, what I would do is bet money on a game of cricket and the way I'm wired because if I put $20 down on something, I want to know who the players are, who's better and you know what their records were and all that kind of stuff, so I do it. that sometimes I buy positions in stocks to think about it the same way I bet $20 on a ball game just to have a little interest when you know when the Oakland Raiders are playing the Tennessee Titans.

I don't care who wins but if I throw a party and drink a few beers and bet $20 on one side or the other just to have someone to root for and work on it a little bit in analogy with to ber ha R and warbaffet. Do you think that as maau Mel grows do you feel like the size would be like a barrier or obstacle to their investment, for example, the lasting acquisition of Bing that they have and they have a lot of fixed income right now, so if they are going to increase their investment in stocks to the level they had before.

There will be a big investment you will need to make, so do you think size will eventually become an issue, not a problem, but a factor? I will try as hard as possible to make it an issue. We, yes, over time, our goal is to have those kinds of problems because that means that things will have gone very, very well, and that is a very high class problem, having to try to figure out how to invest the capital flows What are they. They're coming through the door, so we start with a little bit, it's grown to more and we'll try to grow it to more, so we're faced with trying to manage that problem, so with that, you know, thank you.

Thank you very much for coming here, it has been a pleasure listening to you and we hope to visit us again soon. Thank you so much.