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GuruFocus Reader Q&A with Guru Investor Tom Gayner

Holly LaFon

211 followers
This month, we are excited that investment guru Tom Gayner has agreed to take questions from GuruFocus readers. Tom is president and chief investment officer of Markel Corporation (MKL). Markel Corp. is an international property and casualty insurance holding company with a $328 book value. Tom invests the company’s $2 billion float.

To ask Tom your own investing question, post it in the comments section below. We will send all of the questions to him and post his responses shortly.

Tom’s Philosophy and Return History

In his role, he oversees the investment of the $2 billion float of the insurance company. He achieved a 10-year cumulative return of 101.6 percent compared to the S&P’s return of 16.4 percent.

As a dedicated value investor, Tom views a stock as part of a business, whose worth he determines by the present value of future cash flows. He also goes by what he calls his four north stars: 1) record of profitability and good returns on total capital, 2) talent and integrity in management, 3) favorable reinvestment dynamics, 4) a fair or better purchase price.

He believes that investors rarely obtain perfection in the stock market, but that his buy/sell decisions or non-decisions often involve compromise and tradeoffs.

Guided by this philosophy, Tom was able to steer Markel through the severe financial crisis of 2008 and lead it to a much better position in a few short years. In spite of a 34 percent loss that year, Markel’s 2008 shareholder letter said, “While [disappointing, disastrous] could be used to sum of Markel’s 2008 results, we believe another word should also be added in the mix, ‘opportunity.’”

The next year, he made a return of 25.7 percent, just shy of the S&P500’s 26.5 percent return. In 2010, he made a 20.8 percent return, beating the S&P 500’s 15.1 percent return by 5.7 points.

Tom’s top holding is CarMax Inc. (KMX). He has held the stock for at least four years and owns 5,204,332 shares as of June 30, 2011. Over the past five years, it has advanced 27.26 percent.

His top 10 holdings are:

  • CarMax (KMX)

  • Berkshire Hathaway B

  • Fairfax Financial Ltd.

  • Brookfield Asset Management

  • Diageo PLC ADS

  • Exxon Mobil Corp.

  • Walt Disney

  • WalMart Stores

  • United Parcel Service Inc.


Tom invests over 34 percent of Markel’s portfolio in financials, 24.2 percent in consumer services, and divides the rest among various asset classes. In the second quarter, his portfolio contained 85 stocks, and he bought only three new ones:

  • Oracle Corp. (ORCL)

  • Lennar Corp Cl A (LEN)

  • Brookfield Residential Properties Inc. (BRP)


You can learn more about Tom’s portfolio here or read the following GuruFocus articles on him:

Markel Corp. – Conservative Value

Markel’s Tom Gayner with Strong Warning on Bond Bubble

2010 Markel Corp Annual Meeting Notes

To ask Tom your own investing question, post it in the comments section below. We will send all of the questions to him and post his responses shortly.


Rating: 3.1/5 (45 votes)

Comments

ramands123
Ramands123 - 2 years ago


Hi Tom,

Could you please shed some light on your thoughts about US Banking Industry as investment ? Would be great if you could talk about Bank Of America and Citigroup?

Thanks
ramands123
Ramands123 - 2 years ago
It seems all Broofield affitiates (BAM,BIP,BPO) are run by excellent managemnet with focus on high quality assets.

With respect to various Brookfield afliates, what would recomend individual investor with small capital to invest in ? Does it make more sense to go with smaller caps like BIP or BPO as opposed to BAM.

Thanks

Morrissett
Morrissett - 2 years ago
What an awesome opportunity! I'm going to let it fly...

1) From my understanding MKL only invests shareholder equity into stocks while BRK invests its float and shareholder equity into stocks. Could you discuss this difference (or tell me that I'm totally incorrect)?

2) You've talked a lot about why you buy an stock, can you discuss your sell strategy?

3) Other than a fair and non-turbulent exit strategy for owners, what does Markel Ventures offer its newly acquired businesses?

4) Can you discuss your share repurchase strategy?

5) You became Good Haven's first managed account after you helped fund the company. Do you see outsourcing capital management as a bigger part of MKL's future? Or was this a PR type of investment? How much was invested with Good Haven?

6) Would you ever consider buying an insurance business purely for runoff purposes or would this go against building Markel's franchise value?

7) What percentage of your investable net worth is in MKL shares?

8) Can you discuss the different mental models of buying into a private business versus funding a newly formed private business?

9) Will you talk about the results of your investment into First Market Bank and how MKL made out following the merger with Union Bank? I've never seen detail results for what was initially a private investment.

Thanks GuruFocus and Mr Gayner. This is a great concept!

ramands123
Ramands123 - 2 years ago
How does one understand quality of an

insurance company ? Are there some metric's or indicator's that investor should focus on?

Morrissett
Morrissett - 2 years ago
10) Do you have any plans for greater disclosure of Markel Venture's financials? For example an annual supplemental release.

Morrissett
Morrissett - 2 years ago
11) You sit on the board of Colfax (CFX) but Markel does not have a position in the company. Can you discuss this relationship? Found my answer to this Q

12) Can you talk about how your career got started with Markel?

13) Do you have any 'under the radar' reading suggestions for investors? (Something outside of the well worn classics of investing)

14) Can you talk about how Markel encourages employees to own stock with low interest loans? How are these loans administered/monitored/regulated?[b][/b]
mlp
Mlp - 2 years ago


Thanks for this opportunity. I have two questions related to your portfolio holdings, and two on more topical issues.



1) You hold Illinois Tool Work (ITW), which operates in an area that is related to but distinct from that of Grainger (GWW). Until about 2009 their values were roughly parallel, but GWW has surged since that time (gaining approximately 100%), and continues to climb upward. In your view, is there reason to believe this will continue and that GWW’s present value reflects a new baseline (as opposed to the $100-range that history would suggest)? On the other hand, does ITW’s growth represent a more sustainable trend in your opinion, and a level to which GWW will return? Should they be analyzed independent from one another?

2) With regard to Anheuser Busch Inbev, in your opinion, is there any advantage to holding AHBIF instead of or in addition to BUD?

3) A commentator recently raised an interesting point about Apple (AAPL): it has yet to make a significant splash in the corporate and government sectors. Because of this, he believed it was a bargain at $420+. It recently dropped into the $390’s. In your view, is AAPL attractive at the current price, or could it still be heading toward a bottom that would make it even more appealing? If it indeed enters the corporate and government realms, would it necessarily be at the expense of a company like IBM (or Microsoft, Oracle, etc.)?

What extent and/or manner of government intervention would represent your “line in the sand” in terms of making an investment decision (e.g., the possibility of a government takeover of certain large banks)? Is the wiser investment simply with a bank/financial institution in the U.S.?



luishernadez
Luishernadez premium member - 2 years ago
Dear Tom,

1. What is your view on Markel's intrinsic value? What is your estimate on the long-term book value per share growth rate?

2. What is the goal and objective of the invested capital by Markel Ventures, in terms of long term rate of return? What is the best company(s) in this division?

3. What is your view on CarMax? Intrinsic value, growth rate, ROIC, Mgmt., long term success, etc.

4. I own both Brookfield and Fairfax and I consider them to be great companies with great management with a very bright future and an expansive intrinsic value at above average rates of return. Could you please comment about your views on these companies?

5. What are the best investments that Markel did during the crisis (2008-2010)?

Thanks,

Luis Hernandez

Thanks,

Luis Hernandez

mjsobota
Mjsobota - 2 years ago
Dear Mr. Gaynor,

In September it was annouced that Markel will invest $25 million in Colfax in connection with its acquisition of Charter International. I know you are a board member of Colfax, however could you please comment on the long-term prospects for Colfax.
6figure
6figure - 2 years ago
Hello Mr. Gayner.

Is MKL's portfolio ''Hedged" in any way? Do you believe in Hedging as a viable investment tool?

Thank you! (MKL shareholder)

ramands123
Ramands123 - 2 years ago


Could add some color

on UBSH ? Any specific though process behind picking UBSH out of Banking sector?
ramands123
Ramands123 - 2 years ago
Could you talk about role of cash in investment portoflio? How do you descide how much cash to position ?

Is your personal investment process any different than MKL investment portoflio? ( I think Warren Buffet has elluded that he still manages his personal portoflio like he used to do in 60's. Buy and hold till price reaches interensic value? Different then Berkshire's portfolio where holding period is forever )

ramands123
Ramands123 - 2 years ago
Can you define what would be a solid moat in insurance business ?
Morrissett
Morrissett - 2 years ago
What is your largest investing mistake during your tenure at Markel? (Omission and commission)

You've discussed how valuing companies has become a level playing field and doesn't offer the huge advantages that it once did. Has investing become far more qualitative versus quantitative? And how does that effect you research process? What are you doing differently that you wouldn't have been obligated to do in decades past?
basil2000
Basil2000 - 2 years ago
Dear Mr. Gayner,

thank you for the opportunity. As a shareholder, I am interested in your thoughts about the insurance business and where we stand today: Do you see already a change in the pricing-environment/light at the end of the tunnel? Where do we stand in terms of the insurance circle? Is the competition primarily distorted by the ongoing low interest-rates or are there also other important factors to consider? What would be a trigger for change in pricing or: what has to happen to Markels competitors to change their mind about pricing?

Thanks a lot,

Richard Havelka
ramands123
Ramands123 - 2 years ago


Suggestion for Gurufocus interviewer. In interview with Prem Watsa 90 % of questions selected were about macro stuff.

Can we please select substantial amount of questions that will be bottoms up and helpfull to small investors.
ramands123
Ramands123 - 2 years ago


What would be one investment (other than MKL :) , that you would like to recommend investors with 3-5 years of holding period?
ramands123
Ramands123 - 2 years ago


Which sector's do you most value in ?

How would you differntiate value versus a value trap ? Can you please overlay with an example?
ramands123
Ramands123 - 2 years ago
Which sectors do you currently see most value in?

How would you differentiate value versus a value trap? Can you please overlay with an example?

CarstenPrause
CarstenPrause - 2 years ago


Dear Tom - Do you have any thoughts on the investment managers that Warren Buffett has hired? Have you ever played with the idea of applying for that job with Berkshire? I am sure you would have been a top contender...

Also, which sectors do you believe have the best 3-5 years investment prospects? If you would like to link that to some of the holdings you currently have, you are welcome to do so.

You are a terrific investor and I love reading about the investment moves that you are making at Markel.

Thanks,

Carsten

ramands123
Ramands123 - 2 years ago


Could you please recommend a reading book for investors for understanding insurance business?
ramands123
Ramands123 - 2 years ago
Recently lot of investors inlcuing Wilbur Ross and Mohnish Pabrai have highlighted value in Japanese stocks ? How do you see that as an investment market

hpmst3
Hpmst3 - 2 years ago
Hello,

How do you think the business moat of an asset manager compares to the business moats of other companies which you own?

What do you think are some of the positive aspects and negative aspects of owning an asset manager?

Do you think that Janus Capital Group is a value trap?


Thanks,

Hugh
akhund2008
Akhund2008 - 2 years ago
Reg "four north stars" what is precisely the meaning of favorable reinvestment dynamics - an illustration would help!

And how does one establish a fair or better price ?

Thanks
hpmst3
Hpmst3 - 2 years ago
Hello,

What do you think are some of the pros and cons of owning Diageo versus owning one of their competitors?

Which of Diageo's competitors would you want to own? Why would you want to own them?

Which of Diageo's competitors would you not want to own? Why would you not want to own them?


Thanks,

Hugh
jtucker1087
Jtucker1087 - 2 years ago
Tom,

Thanks so much for taking the time to answer our questions. Markel's 20+ year history of reinvesting its earnings and growing book value per share is extremely impressive.

Warren Buffett explains that with regard to insurance companies' underwriting behavior, companies often tend to underwrite aggressively in times when the stock market performs well. Combined ratios creep higher and ultimately certain insurance companies fail when their investments go south at the same time that they have to pay out greater premiums due to their riskier underwriting practices.

Where do you think we are now in that insurance cycle? Where do you see combined ratios going and what opportunities are there for investment in this difficult interest rate environment?

Thanks again. I'll be following Markel closely.

-Jordan
hpmst3
Hpmst3 - 2 years ago
Hello,

Warren Buffett has stated that his biggest investment mistake was buying Berkshire. He also has stated that his biggest mistake of omission was not continuing to build a bigger position in Wal-Mart once the price increased.

What do you think was your biggest investment mistake?

What do you think was your biggest investment mistake of omission?

Thanks,

Hugh

Morrissett
Morrissett - 2 years ago
Does MKL invest into the Markel Eagle funds or just have ownership interest?

mlangefeld
Mlangefeld - 2 years ago


Tom,

Which 3 insurance companies, besides Markel and Berkshire Hathaway, do you think are best positioned over the next decade?

Thanks,

Alex
hpmst3
Hpmst3 - 2 years ago
Hello,

I have read that you own Investors Title Company (ITIC).

What do you think are some of the pros and cons of owning a company in the title insurance industry?

What do you think are some of the positive aspects and negative aspects of owning Investors Title Company (ITIC)?

Thanks,

Hugh

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