Markel Asset Management (MKL, Financial)'s Thomas Gayner is often compared to the Oracle of Omaha, Warren Buffett (Trades, Portfolio).
The two investors follow a relatively similar investment strategy. Buffett wants to buy high-quality companies with durable competitive advantages at attractive prices.
Meanwhile, Gayner is looking for businesses that can earn high returns on capital, reinvest these returns at similarly high rates and have plenty of scope for future growth. Specifically, one of the critical questions Gayner always asks before initiating a position is, "How big can the company be?" He also wants to know how scalable the business model is and what are the investment opportunities available.
Considering the similarity between their two investment styles, it is no surprise that there is some overlap between the portfolios of Gayner and Buffett.
Gayner's portfolio
The most significant similarity is the fact that Gayner has invested around 10% of Markel's portfolio in Buffett's company, Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial). The investment is spread across the conglomerate's A- and B-shares. In total, the asset manager owns $700 million of stock in Berkshire.
The second-largest holding in the portfolio is CarMax Inc. (KMX, Financial). This is a particularly intriguing holding because the U.S.'s largest used car retailer is a cyclical business. The rest of the portfolio is stuffed full of consumer defensives, companies that are unlikely to see a substantial decline in earnings in a recession. The same cannot be said of CarMax.
Still, what this company does have is the ability to reinvest capital at a high rate of return. The used car market in the U.S. is also gigantic, and even though the company already employs 25,000 people, it still has plenty of room to grow from its current footprint.
What's more, the business is expanding into the digital space. Towards the end of last year, it launched a new online platform that allows customers to select how they want to buy and test drive their vehicles: online, at a CarMax location or through a combination of both.
In many ways, CarMax is a lot like Amazon (AMZN). The company prioritizes customer service and low costs. Its salespeople do not receive commission for pushing more expensive vehicles on customers. They receive the same level of compensation for each car sold.
Further, management has promised to return any cost savings from size efficiency through to customers with lower prices. As the company has been in the business for nearly 30 years, this is a brand consumers know and trust.
CarMax also has an enviable amount of data on its vehicles and sales. Considering all of these advantages, it should come as no surprise that the company reported a return on equity of 25% last year and a return on capital employed of 6.4%.
CarMax seems to be a classic Gayner-style investment. The company has a vast market it can grow into and achieves outstanding returns on equity, returns that are reinvested back into the business to drive growth.
Global market
The third-largest position in Gayner's Markel portfolio is Brookfield Asset Management Inc. (BAM, Financial).
Brookfield has been around, in one form or another, for the past 100 years and during this time, it has submitted an application for itself as one of the world's best infrastructure investors.
Assets under management at the company have nearly tripled over the past 10 years to $355 billion. The company's return on equity last year was 13.8%. As more and more investors look to Brookfield to manage their infrastructure investments, it should be able to continue to grow for a long time.
Brookfield invests investors' money and then skims a fee off the top for itself, a scalable, high-return approach that has proved to be lucrative over the past century. As the demand for private equity-style investment management continues to grow, Brookfield's expansion is unlikely to slow down.
Disclosure: The author owns shares in Berkshire Hathaway.
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