[00:03:06] Intro: You are listening to The Richer, Wiser, Happier Podcast, where your host, William Green, interviews the world’s greatest investors and explores how to win in markets and life.

[00:03:25] William Green: Hi everyone. It’s a particular pleasure to welcome our guest, Tom Gayner, who’s one of the great long-term investors of our time. Tom, it’s lovely to see you. Thanks so much for joining us.

[00:03:35] Tom Gayner: Thank you so much for your hospitality. I’m glad to be with you.

[00:03:39] William Green: Hey, It’s great to see you always. I wanted to start by asking you about your individual retirement account, which I gather you set up when you were something like 14 years old.

[00:03:49] William Green: Can you tell me what possessed you to do that and also what the story of your IRA illustrates about the power of long-term investing? Because I guess this is what, this is 44 years ago now that you set it up?

[00:04:02] Tom Gayner: 47 or so by now but it has indeed gotten to the hockey stick stage of things if you were to chart it out.

[00:04:08] Tom Gayner: But to the backstory, you and I have talked about this before. When I was 14 years old, a law was passed that created individual retirement accounts, and at that point, I was working part-time from time to time in my father’s liquor store, and I remember I made about $750 that year, and I put all of it in the IRA.

[00:04:27] Tom Gayner: I don’t think the tax burden would’ve been very much on $750 but I did read the Wall Street Journal and I was sort of aware of things and without a second hesitation, it just seemed to me that, well, that’s a spectacular thing to do, is to put that away. And literally every year since then, for many years, the limit was $2,000 a year.

[00:04:47] Tom Gayner: And I don’t know if I made $2,000 in the subsequent year when I was 15 or whether to be 16 before I was fully able to fund the $2,000 but I did. And that account has been a marvelous sort of tool and teaching device to let some winners run. And I mean it’s at this moment, that IRA which is just at $2,000 a year put into it, is 10% of my net worth. So it’s a meaningful thing.

[00:05:12] William Green: Wow. And what was in it? What did you do originally and then how did it change over the years once you actually really knew what you were doing?

[00:05:20] Tom Gayner: Well, I really don’t remember what the first stock I bought would’ve been but it would’ve been a stock and I have no memory of any of the specific investments I made all the way along until such time as we got to the maybe late eighties.

[00:05:33] Tom Gayner: And it was the time when interest rates were meaningfully higher than what they are right now. I mean, 16, 17, 18%, and I believe it was Merrill Lynch who started the process of stripping the coupons above government bonds, and they would create these securities called LYONS if I remember the acronym, which was, I think an acronym for Liquid Yield Option Notes or something along those lines.

[00:05:55] Tom Gayner: And so you could buy literally a million dollars worth of these bonds at 0% interest rates, you know, zero coupon bond that would lock in a 16, 17, 18% return for 30 years. So the first memory I have of actually buying something that’s in size that worked out very well were those LYONS bonds.

[00:06:16] Tom Gayner: And then about the RJR zero coupon picked bonds, the day that Drexel Burnham went bankrupt, there was a company here in, and I’m just sort of picking and choosing the favorable memories. I made some mistakes as well, but these ones worked out. There was a company here in Richmond, Virginia called Rich Food, which was a grocery co-op that converted and went public.

[00:06:35] Tom Gayner: And it was one of those stocks that started out at 20 and went down to less than a dollar. But I knew the business and visited the company and they had new management would come in. So I bought some of that and that ended up being a hundred bagger. And then meaningfully as I look at it, looked at a cap today.

[00:06:50] Tom Gayner: And I sort of had a hint that you might ask me this question ’cause we’ve talked about it before. Home Depot is probably 35% of the value of the account. And when you look at Home Depot and Cisco and W.W. Granger, those three stocks count for more than 50% of the value in that account. And it’s just things, businesses that I had a reasonable amount of confidence in that I thought were reasonably well-priced and had the ability to compound and grow for a long period of time.

[00:07:16] Tom Gayner: And it’s worked out.

[00:07:17] William Green: So in some ways, it encapsulates so much of what would happen later in your career, right? It’s two of the great themes of your investing career, a patient compounding and tax deferral. And it’s also striking as well, I mean, I was looking at a compound interest calculator last night to see I was, you know, I didn’t have the exact numbers, but I was looking and thinking, okay, so if $700 grows at say 12% for 44 years, I think comes out to about 102,000 bucks.

[00:07:46] William Green: And then I was thinking, we’ll sell another 20 years at that and it’s basically going to be about a million bucks just at 12% a year for that time. That’s an extraordinary thing and remarkable that you appreciated it so early on in your life that you could defer gratification. What a strange hit you were Tom.

[00:08:04] Tom Gayner: I was a very strange kid and I joke with people at the moment when I became very taxed sensitive. I think I was in second grade and at that particular point in time, I used to get an allowance of a dollar a week. And I used to love collecting matchbox cars, which were the little tiny cast cars.

[00:08:22] Tom Gayner: I just loved them. And it would be seconds between the instant when that dollar hit my hand and I would trudge down to the local Woolworths store, which was in our small town. And those cars sold for 50 cents apiece, and I would lovingly and dutifully inspect the rack of Matchbox cars and I would select two of them and I would go up to the register and hand my dollar bill over for the two matchbox cars that I selected.

[00:08:48] Tom Gayner: And one day, literally, this was, I think in second grade, I handed the clerk the two matchbox cars and she rang it up and said, that’ll be a dollar four. And I said, a dollar four? And I occasionally explained to her, now these are only 50 cents apiece and there are two of them. So two times 50 is a dollar.

[00:09:05] Tom Gayner: I’ve done this several times before in my life. I was a veteran at buying two matchbox cars for a dollar. And she informed me that the state had just instituted a sales tax and it was 4%. So now instead of a dollar, it was a dollar four and my immediate just emotional reaction was dollar four, what’s sales tax? what do I get for that? And I was not very happy with the answer of what the sales clerk at Woolworths explained that the social purpose and utility of the sales tax. And I remember a tearful, painful walk back to the rack where I had to put one of those cars back and I was only able to buy one car that week and walked away with my, I think, 48 cents of change because it would’ve been 50 cents plus 2 cents for the tax.

[00:09:53] Tom Gayner: So I had 48 cents to apply towards the purchases next week but that seared a memory in my mind about acts of sensitivity that relates to life in general.

[00:10:03] William Green: Yeah and it probably helped that you were the son of an accountant and later would become an accountant. I think your daughter, one of your kids, became an accountant eventually or studied accounting before turning to finance, Right?

[00:10:13] Tom Gayner: She was a dutiful daughter and did head off to the University of Virginia with the plan of studying accounting and pretty quickly into that program, she called me one day and she said, Daddy, would it really disappoint you if I switched from accounting to finance?

[00:10:26] Tom Gayner: And I said, no, not at all. You have my complete, utter, total blessing. So she did start down that path and has enough accounting knowledge to be thoughtful and aware, and it is important despite the jives I take in accounting, including most recently in our annual report, that you have an awareness of accounting but use that force for good.

[00:10:44] William Green: And your mindset must very much have been shaped by the fact that you grew up in this fairly rural, old-fashioned place in Salem, New Jersey, I think on a hundred-acre-farm living, I think in a 250-year-old farmhouse spending a lot of time with your father and your grandmother. Can you talk about how that background shaped this kind of slow-moving patient mindset of yours, which has really been at the heart of your success as an investor?

[00:11:13] Tom Gayner: Well, I think to put a word on it, it was probably like osmosis. So just being surrounded by that environment all the time. My father did have his office in our home, and he was an accountant by training. He had done a tour of duty with a predecessor firm of Deloitte in Philadelphia, but then pretty quickly went off on his own and pursued entrepreneurial activities such as his own accounting practice, tax work for people, business consulting, deal work, restructuring, and just putting deals together.

[00:11:41] Tom Gayner: And he owned a liquor store, so just a businessman and with his office, either in our house or the one that he had in the basement of the liquor. I was at his side a great deal and just hearing him interact with people was an osmosis-like process where I’d learned so much just from his conversations.

[00:11:59] Tom Gayner: And then similarly, from my grandmother who gave me many of the books that were formative and had some of the discussions that were formative. In fact, I don’t know if I told you this story before but when I graduated from eighth grade in Salem. My grandmother gave me five shares of the local bank.

[00:12:15] Tom Gayner: And that was the era when before there were bank consolidations and mergers. Most small towns had their own bank that was headquartered there and it was a local bank. And my uncle Dick happened to be the vice president. It wasn’t the, he wasn’t the president of the bank, that he was the number two guy at that particular bank.

[00:12:32] Tom Gayner: And I can remember after and she would ask me when she gave me those five shares, she said, Tommy, would you rather be a depositor in the bank or an owner of the bank? And again, without ever looking at a financial state than her looking at the annual reports or thinking financially in any way, I just instantly said I’d rather be an owner of the bank.

[00:12:51] Tom Gayner: And I think she anticipated that question. So the next time I walked in that bank I had my shoulders back and the owner’s inspection mode going on and I thought the ballpoint pens were not attached well enough to the counter where people would endorse their checks and make some comment about to my uncle Dick about how he ought to step up his game now that he was working for me or something unwelcoming like that.

[00:13:10] Tom Gayner: But I started at a very early age. I just have no memories of there being a time that I didn’t sort of think this way.

[00:13:18] William Green: And you’ve also said that your grandmother was one of your great investment teachers because she never did anything with the portfolio that she inherited from her late husband. Can you talk about that? Cause again it gets at this idea of hanging on to good stuff for a long time.

[00:13:35] Tom Gayner: Well, yes. In fact, the facts of the matter are, that my grandfather died in 1966 and he was a small-town businessman, and small-town businessmen of that era often would gather at the local diner and drink coffee and talk about their portfolios.

[00:13:49] Tom Gayner: And it was a pretty common thing for people to own individual stocks among that crowd of people that would drink coffee at the diner. And so when he died, that portfolio was left to my grandmother. It was a modest portfolio. It was nothing fancy or large, but she was the type of widow who essentially never made another decision in her life.

[00:14:08] Tom Gayner: And his suits hung in the closet, his shoes were on the floor, she stayed in the same home and she held on to those 12 or 13 stocks that were in this modest portfolio at the time. And what I observed from that is that among those 12 or 13 stocks were Lockheed Martin and Pepsi. And those two, because they did so well, made the others irrelevant.

[00:14:34] Tom Gayner: The rest of them all could have gone to zero and it just didn’t matter. The compounding of the winners mathematically, the weighted average becomes bigger and bigger and she lived a modest but pleasant life for the rest of her life because essentially Pepsi and Lockheed Martin increased their dividend every year for the 25 or 30 years that she lived after he died.

[00:14:54] Tom Gayner: So again, that lesson wasn’t taught to me in a formal text, let’s sit down and talk about this. It was observation and I can remember talking to her and she would watch Wall Street Week with Louis Rukeyser on Friday night. Sometimes I would watch that with her. She was always a woman of keen interest in what was going on in the world, but either she had some self-confidence issues or doubt or wisdom.

[00:15:16] Tom Gayner: I can’t say which parts it was or which that these things that were working well. She left them alone and they compounded in such a way that it took care of her personal needs. And by the way, so when she passed, there was a modest inheritance, stealing, inheritance installers I’ve ever received.

[00:15:33] Tom Gayner: And at that time, that modest inheritance that she designated to me. Markel was selling for $25 a share and she gave me $25,000. So that was enough to buy a thousand shares of Markel, which is what I did with that, and by the way, I still am holding onto this. So the path and the legacy continues.

[00:15:52] William Green: Wow. So what year would that have been?

[00:15:55] Tom Gayner: That would’ve been probably ’93, ’95. Something in that era.

[00:16:01] William Green: That’s fascinating cause we’ve talked about this a lot, right? Because you went to Markel I think in 1990 and Markel went public in 1986 and the stock back then was $8.33, I think. And so now as I looked at it over the weekend, it was $1,326.

[00:16:18] William Green: So I think that’s a compound annual return of about 15% over something like 36 years. I’ve already displayed my mathematical incompetence on this show so many times but so in a way, Markel is kind of the same story, right? Of very steady, incremental, dogged progress over long periods of time. So there’s a kind of consistency here between.

[00:16:41] William Green: What you grew up with your grandmother or hearing local stories? I remember you once telling me this wonderful story of a young newlywed couple going to ask the richest man in town, the furniture store owner, I think, like, how do we sell a stock? And he was like, I don’t know. I’ve never sold one.

[00:16:55] Tom Gayner: Exactly.

[00:16:55] William Green: So there’s a really interesting consistent thread. Can you talk about that a little bit because it seems so central to the story of your life and also the story of Markel’s success, this steady incremental progress over time.

[00:17:09] Tom Gayner: Well, I think in many ways you have spoken to it and I have very little to add to that couple of pieces around the edges. So that steadiness you have to know what you are good at and what you can do that perhaps would distinguish. And my father, again, one of my great teachers used to say he might have, I can’t remember his exact phrasing, but something along the lines was, there’s always somebody smarter than you. There’s always somebody taller than you. There’s always somebody faster than you. There’s always somebody you know has more talent than you. So at the end of the day, what you should focus on is your work ethic and showing up and participating in something that is not necessarily the talent that’s going to distinguish you. It’s not height, it’s not speed, it’s not those sorts of things.

[00:17:53] Tom Gayner: So, and just sort of naturally fell into the notion of, you can call it an endurance contest if you want. And then to morph that a little bit towards a financial world, think about the idea of duration. So you can talk about Markel in 15% for 37 years. Not only is that record long in terms of its duration, but that’s actually also a pretty good percentage rate too.

[00:18:16] Tom Gayner: So both of those factors are in play but the endurance of it and the durability and the idea of continuing to be able to do it for a long period of time, that’s what’s special about it. Someone else recently was asking me about this particular idea and the thought that occurred to me was that if I was going to race, Usain Bolt is the fastest man in the world and that race was going to be a hundred yards, you should take all the money you have and bet it on Usain. He’s going to win that race 110 times out of a 100. I am never ever going to beat Usain Bolt at a 100-yard race. If you make the race 200 yards, you probably should still bet all your money on the same bull. If you make it a mile, I would still make a heavy back on Usain. If you make it a marathon, I don’t know what Usain Bolt’s marathon endurance would be and probably you don’t know what mine is either. So there’s at least a hint of uncertainty that is different than the hundred-yard race. Well then, make it a foot race from Key West Florida to Seattle. Well, now I think I have a chance, I think it’s still better than Usain but it’s no longer a race about speed.

[00:19:29] Tom Gayner: It’s a race about endurance. It’s a race about willpower and just the ability to somehow or another, to will yourself to continue to put one foot in front of the other no matter how you feel. No matter how you might be doing, and no matter where your splits times are. So those are the kind of races that I at least have a chance in.

[00:19:47] Tom Gayner: Cause I don’t have any of the natural skills or abilities or talents or intellect to beat the fast money of the world. They’re just stronger, better, faster, more talented than I am. So I can’t get that. But they’re playing a different game, they’re running a different race and the foot race from Key West to Seattle, that’s the kind of race that I at least have a chance at.

[00:20:06] William Green: There was an interview with Rich Rowe that I listened to recently who, I don’t know if you know, he’s a…

[00:20:11] Tom Gayner: I do not know him.

[00:20:12] William Green: I think he was a lawyer who then became an ultra-endurance athlete and he’s very interested about ultra endurance. And he said something I’ll slightly botch the quote, but he said something along the lines of, the person who wins in ultra-endurance is the person who slows down the least.

[00:20:27] William Green: And I thought that was really interesting, this idea of being able to persevere without disaster, right? Without falling out of the race. And in some ways, if you think about your story over the last 40 years as an investor, part of it is that you didn’t blow up, right? I mean, you had a few periods where things were tough.

[00:20:46] William Green: I remember in the late nineties you were shorting stocks, and you said to me once that I lost more in one year shorting than I’d made in the other 14 years that I’d been shorting. But can you talk about the importance of if you are playing this long-distance game, the importance actually of staying in the game, of not getting knocked out of the game, is not having to slow up so much that you sort of break this long-term compounding process?

[00:21:10] Tom Gayner: Well, I think that’s exactly right. And just the ability to continue to be there day after day after day without getting blown up. So if you want an easier example than having to endure a foot race all the way from Key West to Seattle. Think about a Thanksgiving turkey truck where there’s going to be this 5K run or something like that.

[00:21:29] Tom Gayner: It’s just meant to be fun. And you’ll see runners of all ages and abilities that just sort of are participating in this turkey truck because it’s fun. Well, inevitably there’ll be a bunch of kids that are there, and inevitably when the starter’s gun goes off, those kids sprint away from the starting line because they’re kids and it’s fun and their adrenaline levels are high and they’re going right after it.

[00:21:52] Tom Gayner: But after 200, 300, 400, 500 yards, you see them starting to bend over or you see them start to slow down, to use the word you just mentioned. But the runners who know what they’re doing have paced themselves and they know at what rate they can run in such a way that they’ll still be running at pretty much the same.

[00:22:11] Tom Gayner: By the time they cross that 5K finish line as they would right after the first hundred yards or so. So the analogy is I think well-crafted and it’s applicable and it’s exactly what that gentleman you spoke of said, the ability to just keep going. It’s something that differentiates you over time.

[00:22:28] William Green: Yeah. I think about this sometimes with someone like Peter Lynch, right? Who sprinted like crazy for 13 years, I think, and then was done, and there is a kind of athletic feat involved there to run at that pace, never to take a vacation, but just worked nonstop. And you know, you in a sense, you’ve taken the opposite tack, right?

[00:22:47] William Green: It’s this slow, steady, dogged approach but at the same time, I’m very struck, you are kind of humble and self-marking about your slowness, but in some ways, I look at you and you are actually pretty intense yourself, right? I mean, you do, you keep going. I think I got an email from you this morning at 5:15 and it’s a federal holiday today.

[00:23:07] William Green: Can you talk about that, about getting this kind of balance where you are managing your energy in a way where you can survive and you can compete in a very long-distance ultra endurance investment race?

[00:23:19] Tom Gayner: Well, I think probably like the ultra-athletes they do love it. So it’s fun. I enjoy this.

[00:23:25] Tom Gayner: And I can remember one time I was playing golf with Steve Markel and I enjoyed playing golf every once in a while. And at one point we were on the 14th hole and I was not having a good day on the golf course. It was hot and I looked at Steve and I said, Steve, can we go back to the office where I feel more comfortable?

[00:23:42] Tom Gayner: So I mean, that literally happened, and it just sort of, it encapsulates the sense of the joy that I feel in doing what I do. So the fact of the matter is, this day, which is a federal holiday, I’m getting to talk to you, one of my friends. We’re thinking about investing, we’re thinking expansively.

[00:23:59] Tom Gayner: I get to read stuff that is of interest to me. I get to sit at a nice heated office on a February day, so I get to drink coffee that somebody provided for me. So this is what I do for fun. And I enjoy playing an occasional round of golf and watching a football game or a basketball game or a baseball game.

[00:24:17] Tom Gayner: But I really do enjoy this. This is fun. This is I think, what I was put on earth to do. So it’s like the cherry hits a fire movie and there’s the scene where the gentleman is having a discussion, shall we say, with his sister, who, because of their faith, she suggested that he should not run the Olympic race, which was on a Sunday.

[00:24:37] Tom Gayner: And his response, I think it was Eric Little if I remember the guy’s name, he told his sister, he says, yes, and I agree with you that God made me, but he also made me fast. And I feel his joy within me when I run. I’m not quoting it exactly, but that’s the essence of it. So in doing this I feel this is what I was made to do and I feel joy within me when I am doing it.

[00:25:00] Tom Gayner: So that sounds like fun to me.

[00:25:02] William Green: Yeah, it’s great and there’s a lot of emphasis in your life actually on fun and humor. And I think about this a lot. Cause I feel like when I was a kid, I was a much more facetious, jokey, lighthearted person. I feel like I’ve become increasingly earnest and I’ve kind of forgotten to lighten up.

[00:25:20] William Green: And there was a great piece of advice from Stephen King to another famous novelist who was starting to be successful and he said, don’t forget to enjoy it. And I feel like I sometimes forget that. And when I look at you, I’m kind of reminded that you have fun doing this. And it’s actually, it’s built into the value system of Markel.

[00:25:37] William Green: This idea of having a sense of humor.

[00:25:40] Tom Gayner: Absolutely and I think there are several key points to keep in mind there. One, I think such a humor is a sign of intelligence because it shows that you’re able to look at something and think about it from a different point of view, or see the absurdity of things but if you don’t have that, life will beat you down. Cause there are just so many things that you encounter in life that are just absurd. For me anyway, having a sense of humor is a way of reframing things and laughing. It is an aspect of humility and not taking yourself too seriously.

[00:26:10] Tom Gayner: Because if you take yourself too seriously, that can easily slip over into thinking you’re right and if you think you’re right, you know, then you’re setting yourself up for a fall. I can’t remember his, Mark Twain or Will Rogers said something like it’s not the things that you don’t know, it’s the things that you know that aren’t so, get you in trouble.

[00:26:28] Tom Gayner: So a sense of humor acts as a break on that sort of thing and that is important. And then the last thing, humor/fun. And again, these are words that they’re not the same words, but they sort of touch one another and have some overlap. So, I wrote about Cal Ripken in the annual report this year, and I had the great pleasure of seeing him give a talk quite recently in the context of his talk and the questions that people asked as to how that streak came to be.

[00:26:53] Tom Gayner: One of the things he talked about was that as he was a rookie in his first or second or third year, he would talk to some of the older players on the club who had been there. They made a special point of sort of acknowledging that they were at the end of their career or had just finished.

[00:27:09] Tom Gayner: And it was so much fun and they had forgotten how to have some of the joy that they should have had while playing the. So that was one of the things that kept Cal Ripken motivated and dedicated to showing up every single day and continuing to play, is that he knew it was not going to last forever. So as a consequence, that helped him frame it in such a way that he appreciated each day at the ballpark. That’s joy.

[00:27:34] William Green: It was very interesting reading about Cal Ripken in your latest annual report. And look, I know nothing about American sports but you said he was known as the Iron Man for playing, I think 2,632 consecutive games. And there was a lovely quote from you where you said his unrelenting presence day after day, year after year, created the ability of his teammates to depend on him.

[00:27:57] William Green: His team knew that they could count on him. The sense of dependability he provided to his team can’t be measured. And I was thinking about you, many years ago, I think, had said to me that your father talked to you about how the greatest ability is dependability. And I remember you in your office when I hung out with you when I was interviewing you for a couple of days for Richer, Wiser, Happier.

[00:28:17] William Green: You had a post-it on your computer that reminded you of Michael Jordan’s failure earlier in life as a basketball player and his incredible perseverance after he’d not made it into his high school basketball team. I think can you talk about this very central idea of just showing up of persistence because it seems actually so essential to your success.

[00:28:40] William Green: It’s a central lesson of your career and your approach to life.

[00:28:45] Tom Gayner: I think that’s correct and really one of the ways you could frame that or think about it is for me it is a force multiplier because if the contest and the test is going to be how high you can jump or how quickly you can process something.

[00:28:59] Tom Gayner: I’m not going to win those contests. There’s somebody better, faster, and quicker at those sorts of, than almost any task you can imagine. But that ability to persist and endure and stay with it magnifies the power of whatever aspect you’re talking about. The other thing that I think is relevant, and I think this is a valuable tool for anybody, the idea of writing what I wrote about Cal Ripken, well, I don’t think, I don’t think you need to be a trained doctorate level psychiatrist to understand, I’m probably writing that as an admonition slash prescription for myself.

[00:29:35] Tom Gayner: So those letters that I write, sure there’s an audience, but the most important audience for what I write is me. I’m talking to myself in so much of what I write, and it helps me clarify my thinking and think about what I want to be and who your heroes are. Buffett and Munger talk about choosing heroes selectively, all those things just go into the soup of how it all puts together.

[00:29:58] William Green: It’s very interesting, this idea of writing things down so that you clarify your ideas and they’re there for you to keep coming back to it and to pound the ideas into your head. And I think of in your case, a couple of examples, right? First, the Markel Creed that you have about the culture that’s in every single annual report.

[00:30:17] William Green: Talking about the values of the company, and then likewise, the four part investment process that you have, the filters that you have for every investment. There’s something kind of, and you used the word creed in the annual report often or liturgy. There is something almost religious right about this way.

[00:30:35] William Green: You write down your principles. It’s very Ray Dalio-esque as well, right? You write down your principles and then you keep coming back to them. Can you talk a bit about that? Cause I think it’s something that’s very easily replicable for the rest of us and it’s actually a really important tool in life.

[00:30:51] Tom Gayner: Well, and you’re absolutely right and you can approach this from many different places. So for instance, writing in to work this morning, I was listening to somebody who was talking about the habit, the daily habit of journaling, and the importance of journaling. Well, there was no religious context to that, but this is a person who has discipline every morning when he gets up to, to do some journaling.

[00:31:12] Tom Gayner: And again, it’s an iteration of the same theme and the same way of doing things. To your point about in the Jewish tradition, the notion of saying something, it is written. It is written when you hear that phrase said, and then a reference is made to what it is that has been written. That means take a pause and think about this.

[00:31:31] Tom Gayner: This is serious. In addition to the clarification of your own thoughts when you write something down. Well, the good news is when it is written, it becomes scalable and savable. So you don’t have to repeat what you said, 10 minutes, 10 months, or 10 years later, it was written. There’s a record that is accumulating of what you wrote, and more than one person can read it at a time.

[00:31:54] Tom Gayner: So that’s where the scalability comes through. So I just appreciate the discipline that is involved in framing your conversation, framing the communication, framing anything you want to share with somebody through the written word. That seems like a good process to make.

[00:32:10] William Green: You’ve had this creed at the heart of Markel, right, since before 1986, which I think Alan Kirshner, who recently retired as Executive Chairman had been the lead writer of the Markel style, which is very much built on what you refer to as these timeless values, right?

[00:32:25] William Green: Things like honesty and fairness and hard work and the zealous pursuit of excellence and trust and a mindset of service and a win culture. And I think people tend to be kind of skeptical of this, right? When corporations talk about, you know, their virtues and the like but it seems to me truly central to Markel, it doesn’t seem like a propaganda.

[00:32:46] William Green: Can you talk about this as a kind of competitive advantage, this idea of setting the culture, setting it in stone, and having it there for, what is it now, 37 years?

[00:32:57] Tom Gayner: Correct and Alan was indeed the primary author of the Markel style, which was done long before I got here. It was part of the process when Alan and Tony and Steve Markel were about to go public.

[00:33:08] Tom Gayner: It was a time to take a pause and to do some reflection over what the values of this company were, and again, the context of setting these things down in stone, so to speak, so that when they were no longer here and they knew they were mortal, those values would continue to be carried on even when they weren’t here day-to-day to supervise that process.

[00:33:30] Tom Gayner: And know, Alan and Tony and Steve have not been here in a day-to-day basis for over a decade and all of them, Alan retired from the board a couple of years ago. Steve and Tony are obviously still involved at the board level, but they’ve stepped back from day to day, yet the essence of what was communicated in the style still pervades to the company.

[00:33:49] Tom Gayner: I do think that is a competitive advantage and the way in which it shows up is this. And the other athlete that I talked about in the annual report this year was Bill Russell. And Bill Russell primarily was a factor on the defensive side of the game. And the defense is much harder to quantify and capture in statistical metrics than what offensive contributions are.

[00:34:12] Tom Gayner: But his team won when he was on the floor. So this unquantifiable type of factor. Just like the Celtics one. When Bill Walden, I mean, when Bill Russell was on the floor, and by the way, Freud even slip there. Bill Walden ended up playing for the Celtics too, and they won when he was around too but a very different style of player than Bill Russell.

[00:34:31] Tom Gayner: But we get to see deals and get exposure to people and get opportunities that come about because people who share the same basic values as what we do they like doing business with people they know and they trust, and they prefer not to do business with somebody that they don’t know and they don’t trust.

[00:34:51] Tom Gayner: So frankly, I think we see things from the opportunity to build Markel from, you know, what businesses we did. Plus, I think our customers have a sensation that they’re dealing with somebody. He’s going to do their best to try to serve them in such a way that they’ll want to do business with us again.

[00:35:07] Tom Gayner: One of my great friends, this guy named Shad Rowe. Who was a money manager down in Dallas, Texas, and also someone I’ve learned a lot from over the years and one of his phrases, and again this goes back 20 years or so, he said he wanted to invest in companies that did things for their customers rather than to their customers.

[00:35:25] Tom Gayner: So you give these snippets of wisdom from all kinds of different sources, but they all line up in the same general direction and I think they support the foundation of how it is you should do business. And by the way, I think life works out better when you follow those rules, certainly in the long run.

[00:35:41] William Green: There was something you said to me when I first interviewed you, I think probably back in 2014 or 15, that I was very struck by that. I’ll read back to you where you said, sometimes people can build great careers and enjoy great successes for a period of time through bluster and bullying and intimidation and slipperiness but that always comes unraveled, always. Sometimes it takes a while, but it does. The people you find that are successful and just keep being successful year after year, I think you find those are people of deep integrity. I thought that’s a really interesting insight, and I’ve struggled with it for a while.

[00:36:15] William Green: I think partly because I had kind of lost a political battle at a company where I had worked and I was like, well, actually, I think kind of in some ways the snakes won. Maybe that was self-deluding, and I was a snake myself. And then I would look at kind of the political situation. I would see you know, the corruption of politics by business and big money and the like.

[00:36:34] William Green: And there’s a part of me and then also, I mean, look, Charlie Munger has talked about how Sumner Redstone was always his example of what I don’t want to be in life. And he was like, look, this guy made much more money than me but even his kids and his wives hated him and I’ve never met Sumner Redstone.

[00:36:49] William Green: I’m not trying to badmouth him but you know what I mean? This question of whether it’s actually better to live your life this way or to do business this way or to look at the counter-example of these people who are tremendously successful while having very sharp elbows and leaving a trail of lawsuits in their wake.

[00:37:08] William Green: Can you talk about that? Cause I feel like some people just assume that capitalism is kind of vicious and nasty and self-seeking and that’s the way it goes. And I think you are pointing us toward actually a different system that may actually work better in the long run.

[00:37:23] Tom Gayner: Right and I do think that capitalism is a much better system than what it’s given credit for. And I think businessmen oftentimes do a horrible job of communicating the positives of a capitalist system. So Adam Smith is given credit for being sort of the father and the intellectual creator of the system of capitalism. I believe his title was Professor of Moral Philosophy at University of Edinburgh or Glasgow or wherever he was at the time.

[00:37:52] Tom Gayner: So he approached the idea of capitalism from a moral lens and thought it was his superior system and wrote books about it in, in that way. Secondly, success, I think, is something that you shouldn’t do along only one variable at a complicated equation. There are a lot of things that go into the idea of success.

[00:38:14] Tom Gayner: So if you were, again, in the realm of athletics, Cause things just pop into my head from athletics stuff. And so if you look at Muhammad Ali and his career as a boxer and his probably reputation well deserved for being the greatest fighter ever. Well, that’s probably true, but if Muhammad Ali needed to be a tennis player or a chess player, he might not have been so successful.

[00:38:38] Tom Gayner: So if you’re going to define success, make sure you define what arena you are talking about. So just to say the word success in and of itself is too limited. It’s not enough. So I do not know the family structures of Sumner Redstone or Charlie Munger for that matter. I’m guessing that Charlie Munger’s success probably has more dimensions to it.

[00:39:01] Tom Gayner: But that is just a pure guess on my part and two points about Charlie Munger was the notion of you know, if you want to be a success, the best way to do that is to deserve it. So he operated with the idea of trying to be someone who deserved the success that he has earned and I think that’s a fundamentally important way of doing these.

[00:39:22] Tom Gayner: And there’s a business practice, there’s a life practice that flows from that. So if I just met you and we were talking about a deal or a project or some commercial transaction, and I said, William, trust me, you can’t help but if, again, if we don’t know one another, that is going to cause 99 times out of a hundred, just the tint of doubt can you? Because if I say, trust me, trust me. Your natural human reaction is, I can’t trust this guy and the notion of trust is not going to flow immediately if I started that way but if instead I say, William, I’m going to trust you and I’ve done some work and some basis for saying I trust you, I trust you, and I trust you. I trust you. And offer the gesture of trust first without demanding reciprocation or equality. I just do that in an unconditional way. What I have observed is that either you will do one of two things. You will either honor that trust or you’ll violate it.

[00:40:22] Tom Gayner: And if you’re going to violate the trust, you’ll probably do it sooner rather than later. And in so doing, you’ll have sorted yourself and we’re just not going to do business again. But if you honor that, trust and start to trust back, what happens is that starts to cascade, and it’s another element of compounding that takes place in your relationships with people.

[00:40:41] Tom Gayner: If you trust first, if you offer that service that value first, and you initiate that the world will sift and sort itself and orient and give you an enough people, enough opportunities where we have these compounding trust relationships that it just becomes marvelous over time. The same thing would be said in the word of love.

[00:41:02] Tom Gayner: If I say, love me and you try to meet somebody, you’re trying to develop a relationship. You say, love me. I don’t think that’s going to work. But if you offer love and you offer it unconditionally, is everybody going to love you back? No. But a lot of people will and they’ll do it in enduring, consistent, systemic ways. So just to orient yourself to be the initiator of trust and be the initiator of love. And then don’t be stupid, reciprocate and compound and grow the trust, relationships, and the love relationships, and filter out the ones where you’re not getting reciprocity. If you stay at the game long enough, and I’ve been at it 40-some years, you’ll find you have a wonderful group of people that are enjoyable, fun relationships that keep you coming in the office and doing what you’re doing as opposed to wanting to go play golf instead, That’s working now for me.

[00:41:53] William Green: You once described yourself to me as a node in a neural network, which I thought was a really interesting image. And the more I observe you, the more I’ve seen that this is one of your great competitive advantages that you are surrounded by people in your ecosystem who wish you well and want to help you and.

[00:42:12] William Green: It’s a remarkably powerful thing. It’s a different way of playing the game. And I guess it sort of plays to your strengths as well, cause you’re a sociable, gregarious guy. But I’m wondering, was there somebody you saw, whether it was your father or Buffett or some, someone at Graham Holdings or whatever that you looked at and you were like, that’s a really smart way of operating in the world? Or not just smart, but decent and right and feels good?

[00:42:37] Tom Gayner: The answer to your question is yes. There are people who have managed to somehow be around or bump into or be exposed to and taught me those lessons that have done it over and over and over again. So one of the first ones would’ve been my father.

[00:42:50] Tom Gayner: Cause I was a kid and I was running and I observed him in that and the public figure you speak of somebody like Don Graham or somebody like Warren Buffett. I’ve observed that in them personally for multiple decades that have learned that as an adult but it doesn’t grow stale or it doesn’t grow old.

[00:43:06] Tom Gayner: And as recently as within the last 30 to 60 days, there was a circumstance in a situation in Richmond, Virginia where there was a gentleman, and I’ve known this guy reasonably well. We’re not real close but I’ve known him reasonably well for probably the better part of 35 or 40 years.

[00:43:24] Tom Gayner: And he’s reasonably well-known around Richmond. He’s successful both in the terms that the world might immediately jump to as successful, but he’s also successful in that I know his children and they’re good people. They’re fun to be around that they have not been warped by affluents in the way that some are they are successful as well.

[00:43:45] Tom Gayner: And I think when you see that sort of kindness and love-based and trust-based, that is both financially and in human terms, successful for multiple generations. You’re really looking at something special and you ought to pay attention and try to learn something from that. And I was in a conversation with him and somehow it came up that he said, well, he gets up every day, and the first thought he has is how can he do something for somebody?

[00:44:12] Tom Gayner: How can he help? Now if somebody who I did not know for 30 every 40 years and I was meeting on the first occasion and I didn’t know a single thing about them, there’s a natural skepticism that one has. When you hear somebody say something like that, cause you wonder, you know, what’s their angle or what’s going on here?

[00:44:29] Tom Gayner: But as you get to know somebody, and you can have some sense personally that is indeed genuine and you can see 35 or 40 years of track records of how it’s worked out for that person because yeah, I think he really does mean what he says and he does that over and over and over again.

[00:44:44] Tom Gayner: Again, I’ve tried to live this. I’ve certainly been exposed to it and been taught that from my earliest memory, but yet here it is within the last say, 60 or 90 days, there was an occasion where I had a chance to drink a cup of coffee or talk to somebody who I knew a little bit and that was this core message just getting up in the morning like, what can I do today that will help somebody?

[00:45:05] Tom Gayner: And I’ve seen him do it for 40 years. So you learn those kinds of things that are exposed to them on a regular basis.

[00:45:11] William Green: It’s curious how this turns out to be incredibly helpful, even in the investment business, which we kind of assume is this ultra-competitive, zero sum game where somebody has to suffer for you to benefit.

[00:45:24] William Green: And to some degree, maybe that’s true, but I see in your life and in the life of someone like my great old friend Guy Spier, that you guys embody what I call in my book, the Mensch effect, where, you know, you’re mentors, you are trying to be decent, kind human beings to lots of people and I see the world kind of organizing itself around you.

[00:45:42] William Green: So there are lots of people trying to help you. And I was chatting with Josh Harris of a mutual friend of ours the other day. a head fund manager, who I remember he was talking to you about Amazon years ago, and you ended up buying Amazon after discussing it with him and it seems like that’s happened to you a lot, right?

[00:45:56] William Green: Where people are exchanging information in a way that’s kind of selfless. But maybe it’s also because at the time he was invested in Markel but you have that to an extraordinary degree, and it’s instructive for people because I think it suggests that there’s another way of going about business and investing, it requires a degree of courage, right? Because it’s not just guarding everything for yourself.

[00:46:22] Tom Gayner: Well, it’s both courage and cowardice at the same time and all these things tie together and I think the timeframes in which you’re talking dictate so much of how you would frame things.

[00:46:34] Tom Gayner: So if you’re talking about a short-term situation where you’re treating, I don’t know, pick whatever it is, that a Bitcoin or pork bellies or options, which tend to be measured on a day-to-day, if not moment to moment or second to second or nanosecond to second kind of measures. Those do tend to be win-loss games.

[00:46:55] Tom Gayner: And there’s zero-sum and if you win some, somebody else loses but when you stretch those time horizons out over 5, 10, 50-lifetime kind of measurements, I think you have the opportunity to play win-win games. And that’s just an entirely different way of thinking. And there’s an illustration of that, of how this can be so successful from a business point of view.

[00:47:16] Tom Gayner: I can remember a couple years ago at the Berkshire Annual Meeting and Charlie Munger, who oftentimes just puts his finger right on it. In terms of behavior and just trying to be standup people and do the right thing and think longer term. He said in response to some questions of how do you do it?

[00:47:32] Tom Gayner: How do you do it, how do you do it? The endless questions of young types trying to figure out Berkshire. He said, look, we were two guys talking on the phone and now we are bigger than General Electric. That should not have happened. And he was just trying to illustrate the point that General Electric was a company that in many ways lost its way.

[00:47:52] Tom Gayner: It had huge epic advantage as you go back 50 years ago and you look at whatever collection of businesses at whatever place in society, general electric occupied versus whatever position Berkshire Hathaway occupied 50 years ago, I think it would’ve been hard to foresee and bet and that Berkshire was going to be the one who would be more successful in many of the measurable metrics that you would think about.

[00:48:18] Tom Gayner: But that is indeed what happened and Munger would suggest, the word that he likes to use a lot is rational. And he would say Buffett and he does their best to make rational decisions day after day after day. I would extend that and say, rationality looks different when you’re playing a finite win-lose game than what it looks like when you’re playing an infinite win-win game.

[00:48:41] Tom Gayner: And I think it was James Carse, if I’m remembering the name correctly, who wrote about the Infinite Game, and he talked about, you know, in a finite game there’s a period of time, it’s finite and there’s a winner and there’s a loser. And that’s the definition of a finite game.

[00:48:55] Tom Gayner: Infinite games tend to not have so many rules and they don’t have a time horizon attached on and the only prime directive that exists in the infinite game is that all of the players of the game have to feel that they’re winning these. They’re going to stop playing and the game is no longer infinite.

[00:49:11] Tom Gayner: So I just want to play an infinite game and I’m fortunate in so many ways, the advantages I had, the upbringing, the education the base of never worried about where my next meal was going to come from, or getting a good education and I would spend that to mean the next most substantive thing that happened to me was getting married to Susan and I was married to her by age of 19.

[00:49:32] Tom Gayner: I knew a good thing when I saw it and she’s been a spectacular partner that in so many ways has undergirded so much of what I’ve done, you know, cause she was gainfully employed and frugal and just always took care of 75% of my life that I was really able to concentrate on this piece of my life to know that she had me covered for everything else.

[00:49:54] Tom Gayner: So that, that kind of partnership is a crucial component of how these sorts of things unfold and happen over time.

[00:50:01] William Green: Yeah, she’s a remarkable woman and she runs a good business too. For people who don’t know Tom’s wife, Susan, who he met I think when he was 15 and went on his first date at the custard stand in Salem, New Jersey now runs a very successful business for Markel as well, and is a remarkable person.

[00:50:18] William Green: So Tom, the first stock you bought back at Markel, where you took charge, the investment portfolio in 1990 was Berkshire back when I think the stock was at around 5,750 and now it’s what, 467,000, something like that?

[00:50:33] Tom Gayner: Something like that.

[00:50:35] William Green: How does it embody the four filters that you have for looking at a business? Cause it’s obviously grown to, I think, the best part of a billion dollars your stake in Berkshire.

[00:50:46] William Green: If we are trying to explain to listeners what a good business looks like, what a business that passes these four filters looks like, how is this in some sense the perfect embodiment of that?

[00:50:58] Tom Gayner: Well, it’s like the old joke, you know if you wanted some word definition in the dictionary, you looked it up and there was somebody’s picture there.

[00:51:04] Tom Gayner: Well, if you want the embodiment of what the four filters of the four lenses that we use to think about investments and you hoping to book it would be the picture of Berkshire there. Yeah. So each of those four filters, first off, a good business that earns good returns on capital without using too much debt.

[00:51:20] Tom Gayner: So if you look at the returns on capital that Berkshire has earned in the various businesses they’ve been in for a long period of time, they are very good and they’ve spoken and ridden and acted in such a way that they’ve talked about, it’s not that debt is wrong or there’s any moral dimension to it.

[00:51:36] Tom Gayner: And it’s not that they don’t use some debt, but they use very little and comparatively less than most other people would in the same situation or circumstances. And the reason for that is debt introduces fragility into the system that you might be very good at what you do, and you may have a fine business, but if you have an interest bill that comes due at an inopportune time, you may lose the opportunity to continue playing your infinite gain.

[00:51:59] Tom Gayner: So step number one, good business, good returns on capital without too much debt. Check, check, check. Lens number two is management teams with equal measures of talent and integrity. And so many of these lenses, I did not make these up myself. I learned them from people like Buffett and Munger and so many others.

[00:52:17] Tom Gayner: But if you look at how they have behaved over so many years, clearly the returns on capital that Berkshire owns suggests the talent that they have and the talent that is embedded within the entire system of Berkshire and the behavior, the personal integrity, they’ve always given the shareholders an ethically good deal in terms of their cut of the vast, vast majority of their wealth through owning Berkshire shares and enjoying the exact same economics.

[00:52:47] Tom Gayner: As what a shareholder does, it’s not economics that they would’ve earned as managers rather than shareholders. So that’s the test there. Step number three, and this is really where Berkshire has distinguished itself and in so many ways, set the role model and the example, what we’re trying to do at Markel is does the business path capital discipline and can they find acquisitions to reinvest the cash they made or have capital discipline in terms of being good at acquisition or share repurchases or dividend payments.

[00:53:16] Tom Gayner: Well, Berkshire had a tiny business 50 years ago and they made money and up until within the last year or two, they had taken on the challenge of reinvesting that money in their existing businesses or new businesses through acquisitions. So if you think about an Olympic diver and you know, you’re judged not only in how well you execute the dive but the degree of difficulty of that dive.

[00:53:41] Tom Gayner: So if you have a very good business and it makes excellent returns but you pay the money out in dividends or share repurchases on a pretty regular basis, well, what you’re doing is a dive of only a certain degree of difficulty. If you take it’s a swan dive and you can do it and get a 10.0, but if it’s just a swan dive, you will only get but so high a score because the degree of difficulty involved in doing that is not as much as when you introduce the triple actual reverse lunge twist kind of depth, those dives are harder to do and to execute them well and with the same degree of precision that you can execute on a swan dive.

[00:54:20] Tom Gayner: That’s how you become an Olympic champion. And if you look at Berkshire’s behavior and execution of an incredibly difficult dive for 30, 40, 50, 60 years, that’s what makes Berkshire special is that reinvestment lens and that reinvestment aspect of the third leg there. And then the fourth, and it’s really the least important, is if is price.

[00:54:41] Tom Gayner: This will work. Do you buy this? We’re not such a price that the returns of the business itself are going to roughly match what you, as a shareholder will receive. And that just means don’t pay so ridiculous a high price when you find those three things that you, the fall is yours and your execution of the purchase decision rather than what intrinsically happened at the business itself.

[00:55:02] Tom Gayner: Now here’s where the advantage of being part of the structure at Markel is so helpful. I spent the vast majority of my time on seeing whether those first three lenses are there. And if they are, and even if I conclude that this thing is way overpriced, I usually make myself buy just a little bit of it and then three months or six months go by and I sort of revisit my thesis and I think about whether those first three factors are still there.

[00:55:26] Tom Gayner: And if they’re there in, in strange, I make myself buy a little bit more. And then sometimes there’ll be extreme dislocations in the markets, or for some reason or another, the price will change. Well, by virtue, already owning it a little bit and making myself familiar with it, emboldens me psychologically to take a bigger swing when something like that comes along.

[00:55:46] Tom Gayner: And even if the never gets to the point where you think, wow, this is an incredible price, but you keep thinking, this is an incredible business. If you find yourself buying it every quarter for year after year and you are right about your underwriting decision on those first three aspects, you end up with a spectacular investment because you, the price you pay gets overtaken and swamped by the quality of the business itself.

[00:56:12] William Green: And in a way it’s the same lesson as your IRA, right? Whereas a kid where you just keep adding to the pot through thick and thin.

[00:56:19] Tom Gayner: Correct.

[00:56:19] William Green: And then you look back 30, 40 years later and you’re like, wow.

[00:56:23] Tom Gayner: Right. And then they oftentimes, people are kind of confused by, they see the long list of stocks that we own, and they think that, wow that doesn’t seem very disciplined and it seems sort of splattered all about.

[00:56:35] Tom Gayner: But that’s really the farming process. There are a lot of seeds that are planted to see which things are going to emerge and which of those things. To go back to your Peter Lynch idea, he talked about the foolishness of selling your winners, and he called that picking the flowers and watering the weeds and talked in his book, which my grandmother gave me by the way, or whatever, that, you know, the discipline of not taking a profit prematurely, which is a human tendency, you want to do that. You celebrate the victory lap, the checkered plague rises. In getting back to my IRA story, I remember this vivid like I came this close to doing something truly stupid with my own Home Depot story and fortunately, I talked myself out of it or somehow or another, I averted this particular trade.

[00:57:18] Tom Gayner: So coming out of the housing crisis, Home Depot was really doing quite well. I mean, they proved that the renovation model as opposed to new construction was a durable just operating really well. And I thought for a nanosecond, especially because it was in my IRA, I could write covered calls on it, to generate a little more cash and have a little more cash to invest.

[00:57:41] Tom Gayner: And fortunately that thought passed before I did so because had I done that, those calls would’ve been exercised, and that Home Depot would’ve been sold in 2011 or 12 or something like that. I would’ve missed the last decade potentially of what came from owning a home. Because I would’ve taken a short-term win and celebrated a win and had a great trade, but missed an epic sort of moving-the-needle kind of company that has influenced the investment results, not just for my IRA but for Markel in total. That’s our third-largest holding. So it matters.

[00:58:16] William Green: When I think about the lessons of your career in some ways, it’s a perfect embodiment of Munger’s teaching that you want to be focusing on avoiding standard stupidities, right? It’s all the things that you avoided that didn’t mess up the compounding journey.

[00:58:32] William Green: Can you talk about that a bit? Because there are these things you’ve done like keeping your expenses low, living within your means, weaning yourself away from shorting stuff, not predicting the future moves of interest rates and inflation and the like, and just sort of sticking to your four filters. It seems to me this is replicable. There’s actually a lot that you don’t do that we can also not do as regular investors if I’m expressing that correctly.

[00:58:57] Tom Gayner: Well, I think that’s true and in fact, the comedian Jerry Seinfeld has a great routine about the involuntary luge and just like go watch the luge competition, and these people are wearing these micro micrometer level clothing and they’ve trained their muscles and they have this sharpened blade to go down the luge and you get to the bottom of the luge at a certain speed and that it’s going to be hundreds of a second.

[00:59:20] Tom Gayner: That determined the difference between the gold medal winner and the fourth-place person who’s going away from the Olympics with nothing. Well, Jerry Seinfeld is this comedy machine, and I can’t do it justice here. He said, what would be the result? How far behind would be the person that they just sort of grab out of the spectator line and chuck him down the luge?

[00:59:38] Tom Gayner: You know, it’s not going to win the gold medal, but I think you’ll find that the time, as long as you don’t get hurled from the luge trend is not going to be massively different than the person who is trained to be a great Olympic caliber luge athlete and you think about that in terms of investment in those things you just talked about of costs and trading and taxes being such a huge bit of that.

[01:00:01] Tom Gayner: So the investment world in and of itself, and you think about the compounding that takes place within businesses that are successful in earning good returns on capital, that is giving you a downhill luge tube to ride in. You know, when you start investing in major companies and in, you know, publicly traded companies you’re not trying to go downhill in an uphill luge.

[01:00:25] Tom Gayner: Just give yourself permission to take advantage of the force that’s already there. So then what separates the true amateur or the person who’s going to, who’s going to die doing this from the person who ends up posting a pretty good time. It’s the ability to minimize friction as much as possible and not get in those curves where the forces overtake you and throw you out of the luge track.

[01:00:48] Tom Gayner: So by maintaining this discipline, I’m just trying to ride down that luge track that is there in the context of businesses that are successful at serving their customers and taking care of people. And, you know, always going back to that notion of a company that makes a positive difference and helps their customers out.

[01:01:07] Tom Gayner: You’re in a downhill luge. Just stay in the luge and don’t get hurled out of it and don’t operate it in such a way that you increase the friction that’s there or not.

[01:01:18] William Green: I guess one of the best ways of getting thrown out of the luge and messing up disastrously is by partnering with people who are untrustworthy. You’ve often talked about money managers as custodians and shepherds of other people’s savings. Right? I remember Chris Davis once said to me that you’d actually freed him from the moral straight jacket of becoming a money manager because you explained this notion of stewardship and being trustworthy and he thought okay, so maybe as Charlie would say, it’s a low vocation, but it is a vocation.

[01:01:48] William Green: And I wondered if I could ask you, like, when you are trying to appraise the talent and integrity of managers or you are trying to appraise the talent and integrity of people to partner with what are you looking for? I mean, cause obviously we need to partner with people who are going to put our interests first.

[01:02:03] William Green: And in the investment business, there are a hell of a lot of them who are not out to do that, right? They’re in survival mode where they’re looking out for themselves first. What are the tells? What are the clues when you are trying to assess whether someone is going to look out for you or not?

[01:02:17] Tom Gayner: Most people have a trail behind them. There are people that they’ve done business with that know them, that if you spend a little bit of time and do a little bit of due diligence, you can kind of get this rough sense of that this is a person who makes the people around them better off worse offs.

[01:02:35] Tom Gayner: I don’t think that is as impossible a task as what you think. And you got to keep your eyes open and be sensitive to if your thesis is confirmed day by day or disconfirmed day by day. Again, getting back to that conversation in the earlier point in the conversation where you offer trust, you trust first, and that trust is either reciprocated or violated and just through a lifetime of doing that sort of thing, both you build that network of relationships, you become one of the, one of the nodes on that web of trust.

[01:03:06] Tom Gayner: And the people that you have it with, it compounds them. Becomes bigger and bigger over time. And by the way, the best way for a new person to come onto that node is for them to be vouched for by someone who was already on the node. So I’m sure again, in the diligence you would’ve done for the people you’ve written about over the years.

[01:03:26] Tom Gayner: You didn’t just talk to the person that you were writing about. You talked to other people who had dealings with that person to kind of see if you were on the right track or not and I suspect, I think your hit ratio is probably pretty good. And if you were setting out to write the book today as compared to 10 years ago, I dare to say, I think you might even be better at it today because you’ve been in the process for the last 10 years and you’ve developed your own filters and Spidey senses and ways and methods to think about. Am I on the right track or not?

[01:03:59] William Green: When Buffett and Berkshire made a big acquisition earlier in 2022, I think and bought a stake in Markel, I think I’m right in saying they invested a little over 600 million. So a pretty big boat of confidence in Markel and you as the CEO. What did that mean to you, knowing having owned Berkshire since 1990, and having served as a director on the board of the Washington Post Company alongside Warren?

[01:04:26] William Green: I mean, there is a sense in which it’s a sort of blessing from the people you greatly admire them, recognizing you as a node in the neural network in the web of seamless deserved mutual trust that Charlie talks about. What did that mean for you?

[01:04:42] Tom Gayner: Well, as Charlie Munger might say, after that setup, I have nothing to add.

[01:04:46] Tom Gayner: You’re exactly right. It was a great day. I found out about it in the same way that everybody else did. The filing of their 13F. So it’s just two normal public channels, but it was a very affirming, uplifting, happy day in my life when I saw that 13F.

[01:05:00] William Green: Could you see yourself ever, I know it’s an unfair question, but could you see yourself ever ending up at Berkshire?

[01:05:06] Tom Gayner: My job is to do the best I can. Markel is a spectacular place and I’ve been given every opportunity in the world. And if we keep compounding things here, I think everybody’s going to be happy. Berkshire has a great team. I mean, they have great people in place there and they’re very concerned with their own legacy and survival and way of doing things. And again, I’m rooting for them since that’s our largest holding. So I think we’ll both be okay.

[01:05:30] William Green: I feel, Tom like I want to bet you a box of donuts that at some point in the next 10 years, you know, Markel is going to end up acquired by Berkshire. You’re going to end up being part of the family. And you don’t need to comment on this, but I want a jelly donut if that’s if I win.

[01:05:46] Tom Gayner: How about I buy you donuts for some different reason?

[01:05:48] William Green: Okay. I think you shouldn’t buy me donuts at all.

[01:05:51] Tom Gayner: So then I’ll eat. I’ll buy you them and I will eat them.

[01:05:54] William Green: My wife will pay you not to buy me donuts.

[01:05:57] William Green: Talking of wives, one of the things that really stands out when I look at your life it is that you’ve managed to a degree that very few ultra successful money managers have. To have a successful family life. You have three grown-up kids that I know you’re close to and love and regard as I think you once described them to me as three normal enjoyable adult children. Right?

[01:06:19] William Green: And you’ve been happily married for a long time to a very decent person and I often find when I’m being interviewed by people, they’re asking me, well, have you met many of these really successful investors who actually are happy and who have good lives? And you are on the short list of people that I tend to cite.

[01:06:38] William Green: And I wondered if you could talk a little bit about that, about how you’ve managed to balance the intensity of your work and the demands on you with actually still managing to have successful relationships with your family and friends.

[01:06:52] Tom Gayner: I think that’s an important and complicated topic in a lot of ways.

[01:06:55] Tom Gayner: There’s a lot of ways I could go on that. One thing that I often find myself in conversation with fellow investors, On is the idea of optimizing something versus satisfying something. And I would put myself in the category of a satisfier as opposed to an optimizer. In many ways, and I don’t want to make an extreme statement there, but in the realm of investment, a lot of people spend a lot of time and focus on optimizing something, and then that’s a great thing as long as it’s properly constrained.

[01:07:26] Tom Gayner: And there are certain things in this world where it’s an imperfect world, it’s a finite world. It’s only going to get so good. And when you try to optimize something beyond the coin at which you and be optimized in this world, I think you’ve set yourself up for frustration and disappointment.

[01:07:43] Tom Gayner: That might be where some of that unhappiness or pressure or attention manifests itself is pushing that boundary too far. Now. Similarly, at the other end of the extreme, it’s a mistake to be satisfied with anything. So for instance, you raise the issue of jelly donuts, which I love as much as any human being alive.

[01:08:03] Tom Gayner: But if it would, if, think about it in a systemic way, if I set my standard and threshold for the degree of satisfaction that a particular jelly donut would bring me, I would eat too many jelly donuts and they would not be of good enough quality such that it would end up causing a problem for me of obesity or diabetes or things.

[01:08:23] Tom Gayner: Things of that nature. So it’s important to set the satisfaction bar high enough that I can enjoy appropriately some number of jelly donuts, which bring me joy and satisfaction in life without thinking that I can only allow myself to eat the best jelly donut that’s ever been made on the planet. Well, that would result in me eating either one or zero jelly donuts.

[01:08:46] Tom Gayner: And that’s not a good outcome from my point of view. So going to set those dials and levers and goalposts in such a way that it’s the appropriate zone between optimization and satisfaction. And I think the tendency among type A, professional investors is to air a little bit too much towards the optimization function as opposed to the satisfaction function. And as a consequence, you have a bit of an unbalanced system that does not produce the outcomes that you’re ultimately looking for in many different dimensions.

[01:09:21] William Green: I like the phrase that I quoted from you in my book where you talked about being radically moderate and that seems in some ways to sum up your approach both to eating and exercise and investing and much else, right? There is a sort of golden mean aspect to your approach.

[01:09:37] Tom Gayner: I think that’s absolutely true and you can give credit to God or Annie Duke, and you’d be right in both dimensions and you will think that might be an odd couple to cite, but I actually think they both have valuable things to teach it.

[01:09:49] Tom Gayner: And, you know, I think about books and that Thinking in Bets book that, that Annie Duke wrote about the process and the discipline of your process, and you know, her word that she came up with in, in that book, which I use a lot, so my colleagues are familiar with hearing it, is resulting where you look at the outcome and you make a judgment about whether your process was good or bad based on the outcome and that’s not true and it’s not the way you do it.

[01:10:15] Tom Gayner: Now, if you have a good process, it is often the case that yes, you do have good outcomes, but you can have a good process. And within that, there are times when you have bad outcomes, but you may still have a good process. So, for instance, getting back to Cal Ripken, well, I don’t know what his lifetime batting average would be, but if I’m guessing, I don’t know, 275, 285, something like that means that only 27, 28% of the time that, that he stepped up to the plate.

[01:10:43] Tom Gayner: Did he walk away with a hit? 7 out of 10 times, he didn’t but in the context of Major League Baseball, whatever process he used to get to where he was successful almost 30% of the time, that’s an excellent process. And it’s time tested even more by the length and durability of his career where he was able to do it for so long.

[01:11:07] Tom Gayner: So you can kind of discern that process probably was pretty good by the outcome. But oftentimes when you’re looking at things, you’re looking at an outcome which you’re measuring over a much shorter timeframe. And to some degree, you’re challenged with the notion of separating out luck from skill or the signal from the noise as the same would be. So again, long-term horizons help you make better judgments about whether you’re dealing with a good process or not.

[01:11:35] William Green: When you are thinking about how to divide your time up between your family and your work and your faith and your love of music and going to concerts and going to sports events and stuff, and also reading, which you do a lot of reading books and philanthropy, which you’re very involved with. Do you have some kind of filter for thinking about how to spend your time, how to decide like, yeah, I’m going to do this, or no, this is a bridge too far for me?

[01:12:01] Tom Gayner: Sure. Well, one of the filters is, can I do that with somebody? So I’m going to go to a ballgame. If I go with Susan that makes the odds of going to that ballgame much higher.

[01:12:10] Tom Gayner: If I didn’t go to that ballgame with Susan and my children, I’m going to go to that ballgame. So those are not mutually exclusive and so many and many times that there’s a book to read. Well, if I really like the book, I’ll share that book with my family, with my children. And oftentimes then you can talk about that book over a meal or a cup of coffee or something like that.

[01:12:33] Tom Gayner: So the point is try to find things that are not mutually exclusive. When you’re mutually exclusive and you’re up against the hard boundary of 24 hours a day, then that’s a much more limiting factor and you’re going to miss and not be able to optimize, to use that word in a different sense, what you can do as opposed to ones where there, there are overlaps and you get a couple of different bites at the apple from the same thing.

[01:12:55] William Green: One of the things that, that I guess has changed dramatically over the years that I’ve known you is you know, you’ve become more and more important within Markel and wealthier. And wealthier as you’ve gone through compounding, and I remember talking to you and Susan, your wife about your deep cheapstakedness. Right? You would talk about how it was painful for you to go out for more than one meal a day when you were on vacation, or you could never bring yourself to buy food in an airport. And I remember when we went shopping once before dinner you drove off in your Toyota Prius to Kroger’s and you had your membership card that you got you a discount at the supermarket, which is not very sort of master of the universe-ish flashy, grandiose behavior.

[01:13:34] William Green: And I’m wondering if now that money has sort of really become less and less of an issue now that you’re a CEO making millions of dollars a year, whether there’s any change at all in your attitude to money or whether you’re still as cheap as ever, Tom. And I say this with love and affection.

[01:13:51] Tom Gayner: Well, thank you and I appreciate it. And I did need to stop and be to do on this particular note. The only change that I will admit to is that when you’re ordering some Mexican food and you order the guacamole and they say, you know, the guacamole is extra. At this point in my life, I have the guacamole, but there was a point in my life when I didn’t. So the biggest change is I am now willing to pay extra for the guacamole. It’s worth it, and I enjoy it.

[01:14:17] William Green: So that’s almost the only change? You’ve not bought any sort of huge holiday home or flashy car or private plane or yacht or anything?

[01:14:25] Tom Gayner: No. I did end up giving that Prius away to my daughter and passing down a car and bought a new Toyota Hybrid. But not the Prius but a RAV4 this time but I’ll try to keep that for a decade as well and buy one car decade, it’s fine.

[01:14:37] William Green: Can I ask you one final question before I let you go?

[01:14:39] Tom Gayner: One final question? Absolutely.

[01:14:41] William Green: Okay, I want to ask you about your suitcase, the missing suitcase. Tell people because I’ve been following this saga with such delight on Facebook for months. Tell us what happened to your suitcase.

[01:14:51] Tom Gayner: Well, I was trained again by my father about many things and he was in the 7th Army during World War II, which was, Patton was in command of that and Patton was replaced and went to the 3rd army, if I’m getting that correct but the idea of traveling light was embedded in me, in a very early era.

[01:15:09] Tom Gayner: And my father used to go, we’ll wait for weeks at a time with a single gym bag. Long before that became a sort of popular thing to do. This would’ve been memories from the 1970s or so. So that was just embedded and ingrained in me and almost never check a bag but on this particular trip that I was going to be on the road for about a month and had lots of business meetings. So I needed a suit or two and different things. I allowed myself to pack sloppily enough that it did not go in one single bag, and I ended up checking it. And it ended up being a once-in-a-generation kind of mistake for me. The luggage was lost and just for fun as a travel log, I don’t keep a journal, but sort of writing about where that luggage might be at any given point in time became amusing to me and perhaps some of my friends.

[01:15:52] Tom Gayner: And lo and behold, four months later. Four months later, I received a phone call and I was out of town. And normally when a phone call comes in that I do not know the name of the number I don’t pick it up. And lo behold, the caller did indeed leave a message. So I checked the message and he informed me of his name and he was in Frederick, Maryland, or something like that, which is three or four hours from Richmond.

[01:16:14] Tom Gayner: And he said I’ve got your luggage and I’m going to deliver it, so I just wanted to get your home address properly. And lo and behold, he delivered it. He took a picture of the delivery and we got it on the next day in there. It was on my front stoop and it was just a long-lost miracle that the luggage made it back.

[01:16:31] Tom Gayner: So for another 30 or 40 years, I promise I will not be checking in luggage. I have to wear every item of clothing I’m going to use on a trip on the road. I’m going to carry on but that’s a once every 30-year mistake.

[01:16:45] William Green: And I like the fact that when it got to you, it had a label that said either urgent or priority on it. It was like a big cosmic joke that they were messing indeed with your head.

[01:16:53] Tom Gayner: Indeed sir.

[01:16:55] William Green: Tom, I know you have to go to another meeting, and it’s just been a real delight chatting with you and it’s always really a pleasure. So thank you.

[01:17:02] Tom Gayner: Thank you. Good fun to see you.

[01:17:03] William Green: Take care.

[01:17:04] Tom Gayner: You as well.

[01:17:06] William Green: All right, folks. Thanks so much for joining me for this conversation with the great Tom Gayner. I’m sure you can see why he’s one of my absolute favorite people in the investment world. He’s a top-notch investor, but also such a kindhearted and decent and good-natured person. If you want to learn more from Tom, you can read about him in some depth in my book, Richer, Wiser, happier which explores how he’s built a powerful competitive advantage by adopting an array of smart habits whose benefits compound over time.

[01:17:36] William Green: I’d also highly recommend reading Tom’s Annual Letters to Shareholders, which you can find on the website of the Markel Corporation. They’re some of the best investment letters you’ll ever read. Consistently thoughtful and well-written. I’ll be back very soon with some more terrific guests. Next up is Samantha McLemore, who’s worked with the legendary fund manager Bill Miller for the last 20 years and recently took over the reins from Bill as he retired earlier this year.

[01:18:04] William Green: In the meantime, please feel free to follow me on Twitter @WilliamGreen72, and do let me know how you’re liking the podcast. I’m really grateful for all of the warm feedback I’ve received from you over the last year. So thank you truly. Until next time, take care and stay well.

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