Tom Gayner: Lessons That Every Investor Needs to Learn (Audio)

KEYPOINTS

• 01

  Do things for customers, not to them.

  Tom Gayner, CEO of Markel, traces this to his Quaker roots: all people are equal, so you charge everyone the same price. R.H. Macy, a Nantucket Quaker, came to New York selling dry goods at fixed prices. Because his prices were the same for everyone, he could print them in newspapers, which gave Macy's a head start of 100-plus years. Gayner saw the same principle in CarMax's no-haggle used cars. Cycle time matters too. A grocer you visit weekly has every incentive to be fair. A car dealer you see every seven years historically didn't, which is exactly why fixed-price car buying was such an opportunity.

• 02

  Always ask what you're not doing.

  Munger and Buffett say mistakes of omission dwarf mistakes of commission, yet nobody keeps a spreadsheet of them. Gayner's children grew sick of hearing at dinner, 'If we do that, what are we not going to do?' At Markel, if a colleague notes that holding one stock means not buying another, that's a legitimate discussion. The alternative isn't 'X or Y'; it's X versus everything that isn't X. He borrows one CEO's line that his firm isn't a 'no' company but a 'not yet' company.

• 03

  Judge process, not short-term results.

  Gayner cites Annie Duke's term 'resulting': winning a hand doesn't mean you played it well. Buffett's favourable coin flip only works when you flip it a thousand times, so size your bets to survive. With people, err on the side of staying too long, give a longer leash, and go positive and go first. Occasionally someone will take advantage of you once — 'if you deal with them over and over again, that's your mistake, not theirs.' He's been married 42 years and has 'never really looked at the marriage license.'

• 04

  He nearly quit investing in the dot-com bubble.

  After strong results from 1990 to about 1996, Gayner had two and a half years of the worst underperformance of his career. He's an accountant, and he struggled to see how unprofitable companies could command such prices. He thought about dental school. At a two-week Northwestern course, a professor ran a Gap discounted-cash-flow model assuming 20–50% growth for years and wouldn't budge. Gayner walked out to watch a Cubs game in the lounge. Minutes later another attendee walked out too — John Fox, now a friend of 25 years and a long-term Markel shareholder.

• 05

  Stay positioned so circumstances never decide for you.

  Put Warren Buffett in a spot with only bad options, Gayner says, and he won't make a great decision either. So everything at Markel, and in his personal life, is designed around low leverage and good options. He's a 'satisficer, not an optimizer': move from satisfactory outcome to satisfactory outcome and stay in the game, because any number multiplied by zero is zero. A friend's line: value investors get the last laugh but miss a lot of laughs in the interim.

• 06

  Leverage reveals character.

  Shelby Davis's advice for buying whole companies: if you want to avoid a business run by a crook, buy one that doesn't use leverage. Crooks don't steal their own money. On the other side, when Disney issued 100-year debt at about 5⅝%, Gayner saw it as fixed-cost equity — 'use all the debt they will give you.' His bankers said nobody knew Markel. He jokingly proposed buying Eskimo Pie, then worth about $20 million, and renaming Markel so it could sell 'Eskimo Pie bonds.'

• 07

  Interest rates are a curfew.

  His first mortgage in the early 1980s was at 14–15%: a 6 p.m. curfew, and every spare penny went to paying it down. As rates fell, the curfew got later. Zero rates meant no curfew — and, as a comedian joked about ATMs after midnight, nothing good happens then. Every idea got funded with no sense of opportunity cost. He offers Dollar Shave Club as one example: he doesn't think it ever made much money, yet Unilever felt threatened enough to buy it for a big sum.

• 08

  Rarely sell, and do more of what works.

  The tie goes to the holding you already own. Unrealized gains are effectively a loan from the government, so a replacement must be compelling enough to justify reinvesting only 60–80 cents on the dollar. He bought his first Berkshire share in 1990 and his first Markel shares at the 1986 IPO, and has kept buying both at higher prices. That takes setting aside your ego and accepting what the universe hands you.