Latest / Masters in Business / Thomas S. Gayner on Things That Matter in Markets (Podcast)

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Thomas S. Gayner on Things That Matter in Markets (Podcast) · Masters in Business

0:02
Speaker 1: This is Mesters in Business with Very Results on Bluebird Radio.
0:07
Speaker 1: Here this week on the podcast, I have an extra
0:11
Speaker 1: special guest. His name is Tom Gayner, and he has
0:14
Speaker 1: a fascinating position in the world of investing in finance.
0:19
Speaker 1: He is the chief Investment Officer and co CEO of
0:23
Speaker 1: Marquel Corporation, which he describes as a publicly traded family office.
0:29
Speaker 1: They have an insurance arm that's the genesis and history
0:33
Speaker 1: of the company, but he also has been running the
0:35
Speaker 1: investment portfolio for quite a while. That's their second arm.
0:39
Speaker 1: And they have, for lack of a bitter word, of
0:41
Speaker 1: venture or private equity group that purchases companies, really a
0:47
Speaker 1: fascinating history, a tremendous track record, and really a very
0:51
Speaker 1: interesting gentleman. I found this conversation to be fascinating and
0:55
Speaker 1: I think you will also so with no further ado,
0:59
Speaker 1: my discussion with Marquel Corporations is mesters in Business with
1:05
Speaker 1: Very Results on Bloomberg Radio. My extra special guest this
1:11
Speaker 1: week is Tom Gainer. He is the c i O
1:14
Speaker 1: and co CEO of Marquel, a diversified financial holding company.
1:20
Speaker 1: He has been dubbed the next Warren Buffett by no
1:24
Speaker 1: less an expert than Jason's wide of the Wall Street Journal.
1:28
Speaker 1: From two thousand to Gainer's stocks have averaged a return
1:32
Speaker 1: of eleven point three percent annually, while the SMP five
1:36
Speaker 1: hundred returned a mere four point two percent counting dividends.
1:40
Speaker 1: Tom Gainer, Welcome to Bloomberg. Thanks so much for having me.
1:44
Speaker 1: So I've been looking forward to having this conversation. You're
1:48
Speaker 1: kind of an interesting guy working in kind of an
1:51
Speaker 1: interesting company. I don't think a lot of folks know
1:54
Speaker 1: what Marquel is and does. Why don't we start by
1:57
Speaker 1: just give us the short version? What is Marquel? Sure?
2:01
Speaker 1: And in fact, not only do a lot of people
2:03
Speaker 1: not know what Marquelle does, a lot of people don't
2:05
Speaker 1: know how to pronounce it. So uh, it's an easy
2:08
Speaker 1: screening uh technique. When somebody asked for Markel, they probably
2:12
Speaker 1: don't know who they're talking to. So yes, Marquelle to
2:15
Speaker 1: some degree. I think the shorthand way of describing it
2:18
Speaker 1: in the usage of today's words is, we're a family
2:22
Speaker 1: office that happens to be publicly traded. Now, the way
2:26
Speaker 1: that business started was in the nineteen thirties as a
2:29
Speaker 1: specialty insurance company. It's kind of an interesting history in
2:32
Speaker 1: that Sam Marquel was in Norfolk, Virginia and he was
2:37
Speaker 1: on the city council there, and Norfolk, Virginia was a
2:39
Speaker 1: place where a lot of veterans would be getting off
2:41
Speaker 1: the boat from World War One, some of whom decided
2:44
Speaker 1: to stay. And it was the early days of the
2:47
Speaker 1: automobile and trucking industry. So Sam Marquel had been an
2:51
Speaker 1: insurance agent. Uh, there were veterans getting off the boat.
2:54
Speaker 1: They were they were providing cab rides which were unregulated,
2:58
Speaker 1: unlicensed Nicola Ride Jitney's was the name of the term.
3:02
Speaker 1: Of course, accidents ensued, as would be the case and
3:05
Speaker 1: anything like that, and Sam Marquel got a law passed
3:08
Speaker 1: that said, if you're going to operate one of these jydneys,
3:10
Speaker 1: you had to have insurance and just the people would
3:13
Speaker 1: provide it. And well, no insurance company would was willing
3:17
Speaker 1: to take that sort of risk. So Sam markl said, well,
3:20
Speaker 1: I'll started an insurance company to take that risk. I
3:23
Speaker 1: don't know what the chicken and egg was, whether Sam
3:25
Speaker 1: had the chess moves all laid out before you proposed
3:27
Speaker 1: the proposal of the ordinance. I would not be surprised
3:30
Speaker 1: if he did. But that was really the start in
3:32
Speaker 1: the genesis of the company, and they caught a mega
3:35
Speaker 1: wave in the sense that the automobile trucks, the highway system,
3:39
Speaker 1: the internate interstate highway system for thirty or forty years,
3:43
Speaker 1: you really had this tail wind of epic growth in
3:46
Speaker 1: the underlying business that that they would ensure. Um. We
3:51
Speaker 1: could go on and on with this conversation, but I
3:53
Speaker 1: think the hallmark that still matters today is you look
3:57
Speaker 1: at problems, you look at something that somebody needs, You
3:59
Speaker 1: try to be creative. You try to figure out a
4:01
Speaker 1: way to solve it. And that's what Marquell does historically,
4:06
Speaker 1: largely through insurance products and ensuring things that a lot
4:10
Speaker 1: of other companies choose not to do for a variety
4:12
Speaker 1: of legitimate reasons. But then also we've expanded into a
4:16
Speaker 1: lot of different products and services, industrial products and services
4:20
Speaker 1: over the last fifteen years with the growth of mark
4:22
Speaker 1: El Venture. So we we can we can do anything
4:24
Speaker 1: and everything, and if we can figure out a way
4:26
Speaker 1: to make the customers and the employees better off by
4:28
Speaker 1: doing so, we'll do it. So the interesting thing about
4:31
Speaker 1: the insurance side is insurers taken cash against the future
4:37
Speaker 1: potential liability, but between when the policy is sold and
4:41
Speaker 1: want to pay out has to be made. Hey, we
4:44
Speaker 1: have to do something with all this capital, which brings
4:48
Speaker 1: us to your job, your essentially c i O of
4:53
Speaker 1: of market al assets. How do we describe your title?
4:56
Speaker 1: And we'll get to the co CEO thing in a bit,
4:58
Speaker 1: but technically what is your job description? Well, the c
5:02
Speaker 1: i O in terms of chief investment officers post chief
5:05
Speaker 1: information officer. That is exactly the job I had prior
5:09
Speaker 1: to becoming the co CEO, and effectively it is still
5:12
Speaker 1: a job that's embedded in my role. Now, again, if
5:15
Speaker 1: you're a business historian and you have a sophisticated listening base,
5:19
Speaker 1: if you think about insurance, first off, set it up.
5:21
Speaker 1: Your your initial point is correct in that an insurance
5:25
Speaker 1: company collects premiums today and they're gonna make a payment
5:28
Speaker 1: to for a claim sometime in the future. So embedded
5:32
Speaker 1: in every single insurance company is an investment operation. And
5:36
Speaker 1: historically it's not been unusual for insurance companies to make
5:40
Speaker 1: the vast majority, if not the totality, of their earnings
5:45
Speaker 1: from what they make on the investments while they're holding
5:48
Speaker 1: that pool of money. That that's the case. If you
5:50
Speaker 1: can if you can run the the insurance side as
5:53
Speaker 1: a break even and then just be free to do
5:56
Speaker 1: what you want with that capital over until those potential
5:59
Speaker 1: liabilities come home to roost. That's not a bad source
6:02
Speaker 1: of capital. It's very cheap, exactly, and a lot of
6:05
Speaker 1: minds have figured that out and and and known about that.
6:09
Speaker 1: There's some interesting sort of financial history episodes. If you
6:12
Speaker 1: go back to the nineteen sixties or seventies when conglomerates
6:15
Speaker 1: were sort of the hot money things of the day,
6:18
Speaker 1: many of those had an insurance company as the financial
6:22
Speaker 1: core of the business. In the Gulf and Western teleedi
6:25
Speaker 1: and things like that. Now, I think there's an interesting
6:29
Speaker 1: cultural circumstances that's at play there in that if you
6:34
Speaker 1: look at insurance companies that are run by investment people,
6:37
Speaker 1: oftentimes that that movie didn't end that well, uh, because
6:42
Speaker 1: you know, investment people have a certain mindset, a certain culture,
6:45
Speaker 1: certain way of doing things, a certain lifesty, sort of
6:47
Speaker 1: lifestyle they'd like to to lead. Insurance people probably not
6:51
Speaker 1: wired that way. And most insurance companies are run by
6:55
Speaker 1: people who came up through the discipline of insurance, so
6:58
Speaker 1: they were claims people. They were at stuaries, they were
7:01
Speaker 1: salespeople whatever, But the realm of insurance is what they're
7:05
Speaker 1: wired to do and how they understand life. Uh, they
7:08
Speaker 1: may or may not understand capital allocation and investments quite
7:12
Speaker 1: so much. Similarly, and and as such, since they don't
7:15
Speaker 1: understand it, I don't think they appreciate it and the
7:18
Speaker 1: discipline and what's required to be really top league in
7:23
Speaker 1: that requirement. Similarly, investment people when when they run an
7:27
Speaker 1: insurance based organization and they came up through the realm
7:30
Speaker 1: of investments, I think sometimes there's a tendency not to
7:34
Speaker 1: appreciate the detail work and the daily discipline of what
7:39
Speaker 1: it takes to to run a very good insurance operation.
7:43
Speaker 1: So if you look at organizations that have successfully been
7:46
Speaker 1: able to balance that tension and have both sides of
7:49
Speaker 1: the house not have one overwhelmed the other side, that
7:53
Speaker 1: list is very very short. Yep, And we're gonna talk.
7:57
Speaker 1: Let's talk a little bit about that list, um. And
8:00
Speaker 1: part of the reason you're implying is, Hey, some groups
8:04
Speaker 1: are a little too safety first and to risk averse
8:06
Speaker 1: if they're overly waited on the insurance side. Other groups
8:10
Speaker 1: are too aggressive and risk embracing you need that balance,
8:14
Speaker 1: which leads us to the comparison that I have to ask,
8:18
Speaker 1: when did you start first hearing yourself described as the
8:23
Speaker 1: next one Buffett, a mini one Buffett. He used Geico
8:27
Speaker 1: as a giant source of inexpensive capital, and obviously did
8:32
Speaker 1: okay with it, right, did pretty well with it, better
8:35
Speaker 1: than pretty well. Um, when did you first start hearing
8:38
Speaker 1: these noises? Because you've been with Marquel now for twenties something. Wow,
8:44
Speaker 1: she's thirty one years. So how long was it before
8:47
Speaker 1: these silly comparisons began? Well, I guess the first time
8:50
Speaker 1: I really heard it was when I said it to
8:52
Speaker 1: myself looking in the mirror, and and and frankly, that
8:57
Speaker 1: would have happened even before I joined Marquelle. Really, the
9:00
Speaker 1: way that started was the first time I became aware
9:04
Speaker 1: of of Buffett and Berkshire was in eighty four with
9:07
Speaker 1: the seminal Carol Loomis article in Fortune. And I can
9:11
Speaker 1: remember I worked for a firm called Davenport and Company
9:14
Speaker 1: of Virginia. Wonderful firm. Um still there today, been in
9:18
Speaker 1: Richmond since eighteen sixty three. So uh, not going anywhere.
9:22
Speaker 1: I'm going anywhere. The head of the department was a
9:24
Speaker 1: gentleman named Joe Antram, and I read this article and
9:27
Speaker 1: here's how naive and stupid I was. So it was
9:29
Speaker 1: in eighty four. I was twenty two years old, and
9:33
Speaker 1: I went into Joe's office and I said, hey, Joe,
9:36
Speaker 1: have you ever heard of this guy named Warren Buffet?
9:39
Speaker 1: Had Joe was sort of a crusty fella, and he says,
9:41
Speaker 1: it's Buffet, you idiot, and threw me out. Well, I
9:44
Speaker 1: went to the cutting edge technology of the day, which
9:47
Speaker 1: was the standard and Poor's tear sheet and I and
9:50
Speaker 1: I looked at the Berkshire Hathaway page. And my training
9:53
Speaker 1: is as an accountant. I started out as a CPA
9:55
Speaker 1: with Price Waterhouse Coopers, and I looked at those numbers
9:58
Speaker 1: and I could tell, without resorting to four decimal point calculations,
10:02
Speaker 1: they were good. So I became a Berkshire. I became
10:04
Speaker 1: aware of Berkshire at that point. When did you first
10:07
Speaker 1: become a Berkshire investor? Not until which also points out
10:10
Speaker 1: how stupid one can be. Because when I first saw
10:13
Speaker 1: he was right when he when he said get out
10:15
Speaker 1: of here as exactly, he was right. So as a kid,
10:17
Speaker 1: and the stupid things you do as a kid. Now, i'll, i'll,
10:21
Speaker 1: i'll defer to the notion that at age two you're
10:23
Speaker 1: still a kid. So I asked for grace, and in
10:25
Speaker 1: that sense, so I looked at it. I could tell
10:28
Speaker 1: the numbers were good, and I made the Syrian mistake.
10:31
Speaker 1: I think the stock was dolls or something like that,
10:34
Speaker 1: so expensive exactly, and I said, no stock could possibly
10:38
Speaker 1: be worked that much. So I made the great mistake
10:41
Speaker 1: of oh mission, and sat there and watched it go
10:44
Speaker 1: from that to the first share we bought was five thousand,
10:47
Speaker 1: seven and fifty dollars. And by the way, that's still
10:50
Speaker 1: a pretty goodbye. But there's immense lessons to be learned
10:54
Speaker 1: from that. So the per share value as opposed to
10:57
Speaker 1: the per share price, it's do your math or do
10:59
Speaker 1: your homeworking about that. And by the way, getting back
11:02
Speaker 1: to Teleedin, which is one of those companies that was
11:04
Speaker 1: on the list of balancing out the insurance in the
11:07
Speaker 1: industrial sides of the business under the leadership Henry Singleton.
11:11
Speaker 1: Uh Phayus Seraphim is a famous money manager who made
11:15
Speaker 1: a lot of his reputation and returns by being right
11:17
Speaker 1: about tele dine in the early days, and people used
11:20
Speaker 1: to ask Sarahim what's the next tele dine and his
11:23
Speaker 1: famous response was the next tele digne is teleed. So
11:27
Speaker 1: when you got something right and you're gonna have exactly
11:31
Speaker 1: dance with a girl you brang with and keep dancing.
11:34
Speaker 1: But so answering your question about how the Berkshire comparison
11:38
Speaker 1: started to take place, So six Marquet went public and
11:43
Speaker 1: luck of the draw, I was the analyst at Davenport
11:46
Speaker 1: who was assigned to cover it. So I started covering
11:50
Speaker 1: Marquelle from the day of the I p O. And
11:52
Speaker 1: what I observed was here was an insurance company that
11:55
Speaker 1: made an underwriting profit. And at that time, in an
11:58
Speaker 1: era of meaningfully fire rates, you didn't really need to
12:02
Speaker 1: be disciplined about your insurance so much because you make
12:04
Speaker 1: so much from interesting income that you you could engage
12:08
Speaker 1: in cash flow underwriting. You just wanted to get cash
12:10
Speaker 1: in the door and we'll worry about the claims. Well
12:12
Speaker 1: a nominal basis, not necessarily real basis, but still, but
12:16
Speaker 1: this was an unusual discipline to stick to the idea
12:19
Speaker 1: of making an underwriting profit, even amidst the ability to
12:23
Speaker 1: earn epic investment returns. So what I saw and by
12:27
Speaker 1: this time, I'm twenty five or so from the I
12:30
Speaker 1: p O is that here's here's an insurance based organization
12:34
Speaker 1: which is going to make a dedicated to making an
12:36
Speaker 1: underrated profit. And Steve Marquell, who was the vice chairman
12:39
Speaker 1: at the time, was open minded and had already started
12:43
Speaker 1: making some equity investments with those pennies of underwriting profit
12:47
Speaker 1: out of each dollar. So they had a long term
12:49
Speaker 1: mentality from day one. So I saw that instantly. It
12:52
Speaker 1: was it was it was a lightbulb kind of realization,
12:55
Speaker 1: and I wanted to own some of that stock and
12:58
Speaker 1: be connected to the company. So from eight six through
13:01
Speaker 1: ninety four years Steve Marquelle became up friend, a client,
13:06
Speaker 1: a business associate, and he might tell the story differently.
13:09
Speaker 1: I might tell it differently depending on the point of view.
13:12
Speaker 1: But I sort of begged him for a job for
13:14
Speaker 1: four years because I just wanted to be part of that.
13:16
Speaker 1: In Marquelle did one of their famous double the size
13:19
Speaker 1: of the company deals or they bought they bought another
13:22
Speaker 1: company that was as large as what they were. Steve
13:25
Speaker 1: had been managing investments by himself. I thought he might
13:28
Speaker 1: like a wingman, and UH offered me the job at
13:31
Speaker 1: that time. I got to call it at that and
13:33
Speaker 1: I assume you jumped right at it exactly. And and
13:35
Speaker 1: let's let me just stay with Marquelle for a moment.
13:38
Speaker 1: They famously they don't hold analyst days. They don't give
13:42
Speaker 1: earnings guides or things like that. At least that was
13:45
Speaker 1: the reputation back then. Tell us a little bit about that.
13:49
Speaker 1: What was the thinking behind if you're going to cover
13:52
Speaker 1: us you figure it out? Well, there's a lot of
13:55
Speaker 1: layers to that, but but I think it makes sense
13:58
Speaker 1: think about it this way. If you if you really
14:00
Speaker 1: are as you said, the first definition of Marquel the
14:04
Speaker 1: family office, which is a very popular term these days,
14:06
Speaker 1: that was not a term so much when I joined.
14:10
Speaker 1: If you really want shareholders who are going to be
14:13
Speaker 1: there for a long period of time and have a
14:16
Speaker 1: sense of ownership and have a sense of partnership and
14:18
Speaker 1: really wish to be multigenerational investors, Well, I run a
14:23
Speaker 1: business and setting aside the investment side, but the markl
14:26
Speaker 1: ventures sides of things in the businesses that we run,
14:30
Speaker 1: which are long term established businesses, I don't think and
14:34
Speaker 1: the people who run those businesses do not think about
14:36
Speaker 1: their customers in a quarterly timeframe. We think about our customers.
14:41
Speaker 1: Once you're a customer of ours, in whatever business we have,
14:45
Speaker 1: we want to be doing a good enough job for
14:46
Speaker 1: you and delivering enough value and delighting you in such
14:49
Speaker 1: a way that you want to keep doing business with us.
14:52
Speaker 1: So cutting that into quarterly time frames and setting expectations
14:57
Speaker 1: that are tied to that, I just see it's like
15:00
Speaker 1: a bad idea and and contradictory to to how we
15:03
Speaker 1: would really run a business. So we didn't have to
15:06
Speaker 1: think up all these things ourselves. We got to observe
15:09
Speaker 1: the way Buffett did things. And we've been going to
15:12
Speaker 1: the Berkshire Annual Meeting since UH since nine, which had
15:16
Speaker 1: been the first year, the first year I joined, because
15:18
Speaker 1: what he said to Steve at that point was, in
15:21
Speaker 1: terms of investors that we wanted to get at Marquelle,
15:24
Speaker 1: the people who are most likely to understand what we're
15:27
Speaker 1: doing are people who already own Berkshire. So rather than
15:30
Speaker 1: try to get them to come to UH Richmond and engage, so, well,
15:35
Speaker 1: if you own Berkshire, you're already you're already qualified, So
15:38
Speaker 1: let's go there and start meeting people. So that very
15:41
Speaker 1: first year that we were there just because I've been
15:43
Speaker 1: in the investor business for a couple of years. There
15:45
Speaker 1: were there were six people that were willing to sit
15:47
Speaker 1: down and drink coffee and eat bagels with Steve Markette
15:49
Speaker 1: and I And we didn't have formal presentation or anything.
15:52
Speaker 1: We just talked and answered their questions and then went
15:54
Speaker 1: on for maybe two and a half three hours or
15:56
Speaker 1: something like that in that room, six people. Uh. Chuck
16:00
Speaker 1: Achery was one who's a legendary investor. I don't know
16:03
Speaker 1: whether he's been on your your your podcast or not.
16:05
Speaker 1: Wonderful guy and an introduction. Uh, he would be a
16:09
Speaker 1: well worthy person who's talking to and he's a meaningful
16:12
Speaker 1: teacher to me. I do indeed. Uh. Michael Lowenstein, whose
16:18
Speaker 1: father was Louis Lowenstein, the professor at Columbia Business School
16:23
Speaker 1: exactly Um, and one of his cousins I can't remember who,
16:27
Speaker 1: but one wonderful family and sort of the right kind
16:30
Speaker 1: of people, goteamed Peter Caman from Boston. Jonathan Brandt at
16:34
Speaker 1: Ruwayne Kinnef is one of the panelists that asks Buffett
16:37
Speaker 1: questions at the meeting, whose father was a roommate and
16:40
Speaker 1: buddy of a Buffett and Bill Rwayne. So we started
16:44
Speaker 1: off with just an absolutely wonderful set of people and
16:48
Speaker 1: and all Steve and I said at the end of
16:49
Speaker 1: that meeting was you know, we'll be back again next
16:51
Speaker 1: year and if you know anyone who would be interested,
16:54
Speaker 1: please let him know and we'll get together. So we
16:57
Speaker 1: started doing that, and that became an annual tradition, and
16:59
Speaker 1: we did that year after year after year. What started
17:01
Speaker 1: with six people. By the time you got to the
17:04
Speaker 1: year before last, which was the last in person meeting
17:07
Speaker 1: that Berkshire had, we had something on the order of
17:10
Speaker 1: people at that meeting, and again the same format. We
17:14
Speaker 1: open it up, we say thank you for being here,
17:16
Speaker 1: great to see you, what questions can we answer for you?
17:20
Speaker 1: And and there are more Marqueue shareholders in that room
17:25
Speaker 1: then typically come to our annual meeting. So it really
17:27
Speaker 1: is cultivating of the community that that's out there. And
17:30
Speaker 1: this year, uh, unfortunately, because the Berkshire meeting was virtual
17:34
Speaker 1: and and that the crowd wasn't there, I said, well,
17:37
Speaker 1: we have the opportunity to try to create some center
17:40
Speaker 1: of gravity in Richmond, Virginia, because that convening, that worldwide
17:44
Speaker 1: convening of people who are searching for certain values in
17:47
Speaker 1: certain ways of running a business. The world is hungry
17:50
Speaker 1: for that. So let's give him a forum and the
17:52
Speaker 1: venue to do so. So we found a concert arena
17:56
Speaker 1: and Richmond, Virginia that had a roof but open air
17:58
Speaker 1: to to try to, you know, meet people halfway that
18:01
Speaker 1: the pandemics are coming. We're getting better. We had a
18:04
Speaker 1: meeting we had My goal was to get a hundred
18:06
Speaker 1: and a hundred out of town professional investors to attend.
18:10
Speaker 1: We ended up with about a hundred and fifty professional
18:12
Speaker 1: investors and then between employees, associates, local people. We had
18:16
Speaker 1: five hundred people at that meeting and we tried to
18:18
Speaker 1: make it fun. We had we had food trucks, we
18:21
Speaker 1: had beer trucks, we had a band. And that makes
18:25
Speaker 1: seem minor, but it speaks to the culture of trying
18:28
Speaker 1: to connect with people in ways that you just cannot
18:30
Speaker 1: do in any other way than than be with them,
18:33
Speaker 1: and and to cultivate this long term sense of ownership
18:36
Speaker 1: where your time horizons are infinite, eternal, rather than than
18:41
Speaker 1: than cut into two quarterly things. It's it's just an
18:44
Speaker 1: entirely different way of approaching things and thinking about things,
18:48
Speaker 1: So it doesn't really comport a match up with the
18:52
Speaker 1: typical way that that major finance has done. Not right
18:55
Speaker 1: or wrong, just different. I like it. I love the
18:57
Speaker 1: idea of burning Man for finance exact it of oh great,
19:01
Speaker 1: another boring hotel conference room. I mean, the one good
19:05
Speaker 1: takeaway from the pandemic is those sorts of financial you know,
19:10
Speaker 1: just deadly meetings. They seem to be attenuating quite quite
19:14
Speaker 1: a bit. And I think people are maximizing their multitasking
19:20
Speaker 1: skills when they're listening to something like that on a
19:22
Speaker 1: on a zoom. God, I don't out have the patience
19:25
Speaker 1: for the endurance to do that with the without fidgeting
19:28
Speaker 1: and looking at something else too. I'm with you on it.
19:31
Speaker 1: Let's talk a little bit about your background, which has
19:34
Speaker 1: some really interesting things about it. You've described yourself as
19:40
Speaker 1: knowing that you're just good and not great. Explain that
19:44
Speaker 1: who who goes out and says I'm not great? I'm
19:47
Speaker 1: good and I'm aware of that. Well. I was in
19:51
Speaker 1: a discussion last night with an absolutely fascinating person, absolutely
19:54
Speaker 1: high end quality on every measure you could you could
19:58
Speaker 1: think about, and and that excellence shown through and the
20:03
Speaker 1: discussion took this twist and turn where the distinction between
20:06
Speaker 1: an optimizer and a satisfier came up. And and I
20:11
Speaker 1: think there is a tendency among type A people, extraordinarily
20:17
Speaker 1: high accomplishment people, high achievers, to really latch onto the
20:22
Speaker 1: idea of optimization. And there's nothing wrong with that, But
20:25
Speaker 1: sometimes there can be a hidden, intangible, unquantifiable cost to
20:32
Speaker 1: focusing entirely on optimizations all the time. Einstein says that
20:36
Speaker 1: you know, not everything that counts can be counted, and
20:40
Speaker 1: not everything that counts. Einstein smarter to me. Here's a
20:43
Speaker 1: perfect example of how you can remember not not everything
20:47
Speaker 1: that counts can be counted, and not everything that can
20:49
Speaker 1: be counted counts. There you go, my special guest, Very Riddles,
20:53
Speaker 1: thanks for the pickup. And the was that Einstein? I
20:55
Speaker 1: thought that was I thought that was some management consultants.
20:59
Speaker 1: I'm gonna go with line stuff, but I'll defer to
21:02
Speaker 1: I'll defer to the fact checking experts on that. But
21:04
Speaker 1: but the point is there there's an element of intuition
21:09
Speaker 1: of of the the intangible sense of spirit and culture
21:15
Speaker 1: that I find extraordinarily different difficult to matter that sometimes
21:18
Speaker 1: you got you gotta to let people have some room
21:20
Speaker 1: to make some mistakes and look at outcomes that are
21:23
Speaker 1: not optimized and what you get in design thinking and
21:27
Speaker 1: in systems approach, if you're dealing with the right kind
21:30
Speaker 1: of systems, there there's there's a bit of an evolutionary
21:33
Speaker 1: process where um mistakes that you make start drifting away,
21:37
Speaker 1: and things that you did right start compounding and and
21:40
Speaker 1: and and magnifying themselves. And and as such, if you
21:43
Speaker 1: just if you just leave a little slack in the
21:45
Speaker 1: system and you don't try to press it to the
21:47
Speaker 1: last red line of what's there, you allow time and
21:51
Speaker 1: space and muscle and rest and energy to create things
21:56
Speaker 1: that you you couldn't have thought of beforehand, and that
21:59
Speaker 1: happened somewhat through serendipity. So I think, I think humility. Uh,
22:04
Speaker 1: And it's it's an epic challenge. I'm fifty nine years
22:07
Speaker 1: old now, and fortunately things have worked out well, and
22:11
Speaker 1: I have credibility because my record is pretty good. I
22:14
Speaker 1: have a lot of empathy and and understanding of the
22:17
Speaker 1: challenge that would face year old or twenty five year
22:21
Speaker 1: old or me at two trying to get on the
22:23
Speaker 1: ladder and get the career and get the leeway and
22:27
Speaker 1: latitude that I enjoy right now, because if you think
22:29
Speaker 1: about it, say you're twenty two or and you're trying
22:32
Speaker 1: to pitch somebody to demandage money for them or being
22:35
Speaker 1: given discretion. Typically if you just say the kinds of
22:38
Speaker 1: things that I do for a long time, and we're
22:41
Speaker 1: gonna be patient, we're gonna look at this and sifting,
22:43
Speaker 1: so you don't really stand out enough to get people
22:47
Speaker 1: to to write you a chack, especially exactly so you're
22:51
Speaker 1: you're forced, almost almost bullied by the system to make
22:56
Speaker 1: hyperbolic statements and and claim precision and flame efforts that
23:01
Speaker 1: are that are super human just to get people to
23:04
Speaker 1: to give you the job and give you the money
23:06
Speaker 1: to manage. And I think markets are are are quantum systems.
23:11
Speaker 1: They defy understanding, and you can do a lot of
23:15
Speaker 1: work and you can keep trying to get to the
23:16
Speaker 1: next decimal point of understanding. But there's a certain irreducible
23:20
Speaker 1: quantity to human psyche and greed and fear and all
23:23
Speaker 1: those sort of things that really do matter and markets,
23:26
Speaker 1: And I just think it's helpful to be humble to
23:30
Speaker 1: acknowledge that, don't pretend you can know it. And but
23:34
Speaker 1: virtue of not pretending that you can know it. I
23:37
Speaker 1: think you're more open to ideas, people, different ways of thinking.
23:43
Speaker 1: Um that you can start out with the premise that
23:45
Speaker 1: this person I'm talking to is probably smarter than I am.
23:48
Speaker 1: They're demonstrably smarter than I am. So I think I
23:50
Speaker 1: should listen and learn something. And if you just go
23:54
Speaker 1: about your daily life that way, you do learn things,
23:57
Speaker 1: and you do get exposed to things, and the people
23:59
Speaker 1: that were right they start to occupy a greater and
24:02
Speaker 1: greater share of your mind share, and the people who
24:04
Speaker 1: are wrong kind of kind of kind of drift away
24:06
Speaker 1: into a smaller and smaller little thing. So the math
24:09
Speaker 1: of compounding really accentuates the positive, and it it makes
24:13
Speaker 1: the it makes the mistakes drift away into irrelevance over time.
24:16
Speaker 1: I do like the idea of of not being a
24:20
Speaker 1: maximalist optimizer to give you a little breathing space to
24:24
Speaker 1: allow um. Creativity and collaboration are the things to bubble up.
24:29
Speaker 1: I don't remember whose quote I'm about to steal, but
24:33
Speaker 1: the line is jazz is the space between the notes,
24:36
Speaker 1: and it's that same You need a little breathing room
24:39
Speaker 1: in order to allow some creativity to take exactly. So,
24:42
Speaker 1: so let's talk about a horrible, terrible, ridiculous mistake you've
24:47
Speaker 1: made um or at least everyone else who does this,
24:52
Speaker 1: it's a horrible mistake. Co C E O S is
24:55
Speaker 1: usually a disaster. Somehow, you guys seem to have made
24:59
Speaker 1: that work. Yeah, I think you're correct to point out
25:02
Speaker 1: that that's that's not the odds way to bet. And
25:04
Speaker 1: I think it gets back to some of the history
25:06
Speaker 1: and culture of Marquel that makes it work in the
25:09
Speaker 1: sense that, all right, you had Sam Marquell, who was
25:11
Speaker 1: the original founder of the company. He ran it from
25:14
Speaker 1: its inception up until I think the mid fifties, late
25:17
Speaker 1: fifties something like that. Sam had four sons who were
25:21
Speaker 1: two sets of twins, and when he unfortunately died, the
25:25
Speaker 1: business then was taken over by the by the four sons,
25:29
Speaker 1: and and they ran it essentially by unanimous consent. I
25:32
Speaker 1: believe they had lunch every day, if not almost every day,
25:36
Speaker 1: and for any kind of strategic or or more than
25:39
Speaker 1: just little decision, there had to be unanimity among the
25:42
Speaker 1: four And I think you can sort of picture how
25:45
Speaker 1: this unspoils everyone has veto power exactly, and the company
25:48
Speaker 1: did not grow that much during their era. That they
25:52
Speaker 1: ran it. But then what happened, But so he went
25:55
Speaker 1: from one CEO to effectively four despite what the titles
25:59
Speaker 1: might have been. So then the second generation started to
26:04
Speaker 1: go the way of all flesh, and the third generation
26:07
Speaker 1: comes along. And at this point there are twelve cousins
26:09
Speaker 1: that that are in existence, some of whom worked for MARKL,
26:13
Speaker 1: some of whom did not, And the generational transfer succession
26:17
Speaker 1: issues started to be become paramount and become important. A
26:20
Speaker 1: lot of sifting and sorting about that. The public offering
26:23
Speaker 1: offering in Night six was one of the tools used
26:27
Speaker 1: to bring about some some finality that. But at the
26:30
Speaker 1: end of all that sifting and sorting, three of the
26:33
Speaker 1: twelve cousins said we're in, and in effect they did
26:37
Speaker 1: a leverage buyout of the second generation where they gave
26:40
Speaker 1: them a note with a coupon to provide income and
26:43
Speaker 1: sale process to the to the second generation, but gave
26:47
Speaker 1: them the stub equity underneath of it, so that as
26:49
Speaker 1: they built, the value of the business had attributed to
26:51
Speaker 1: the equity as opposed to the debt that was there
26:54
Speaker 1: for the second generation. The the I p O did
26:56
Speaker 1: two things. It paid off that debt, It gave the
26:58
Speaker 1: company a little bit of a capital bay and culturally
27:02
Speaker 1: it said, you know, you don't need to be a
27:04
Speaker 1: member of the Marco family to own equity interest. And
27:07
Speaker 1: I'm a perfect example of that. I'm not a Marquelle
27:10
Speaker 1: family member, not married to Mark, I haven't no Markel blood.
27:13
Speaker 1: I mean, but I've been there thirty some years. I've
27:14
Speaker 1: been there since I was a kid, So I feel
27:16
Speaker 1: like a member of the Marco family. And I owned
27:19
Speaker 1: some equity in the company from the I p O
27:21
Speaker 1: from day one and had always sort of been accumulating
27:25
Speaker 1: more stock as uh as as time goes by. So um,
27:29
Speaker 1: there's that element of how the transition is taken place.
27:33
Speaker 1: So the four went down to three and and really
27:36
Speaker 1: a triumvirate of Steve Markel, twenty, Mark Ellen, Alan Kirshner,
27:39
Speaker 1: who was a cousin in law. H ran the business
27:42
Speaker 1: for decades and as as they started to to to
27:47
Speaker 1: move on, um Alan retired from the board year and
27:51
Speaker 1: after years or so ago, Steven Tony are still in
27:54
Speaker 1: the board but not active in day to day management. UM.
27:57
Speaker 1: You know that that went to read it too, so
28:01
Speaker 1: Richie and myself. And it's also connected to the evolution
28:04
Speaker 1: of the business itself in that historically the insurance business
28:09
Speaker 1: was the largest single piece of the company. Investments are there,
28:14
Speaker 1: but um, you know, it's just the investment operation that's
28:17
Speaker 1: embedded in an insurance company. So while we emphasize investments
28:20
Speaker 1: more than most, every insurance company has an investment operation,
28:23
Speaker 1: so that that wasn't weird. As Marquel Ventures has grown
28:26
Speaker 1: to become substantial part of the company, you have two
28:29
Speaker 1: very distinct pieces of the company. So in in reality,
28:33
Speaker 1: the way it works between Richie and myself is that
28:36
Speaker 1: and this is really the way it worked with Allantoni
28:38
Speaker 1: and Steve as well. Um, in the era of the Triumvirate,
28:43
Speaker 1: everything on the income statement reported to Tony Marquel. So
28:47
Speaker 1: what branches did we have, how many salespeople, what were
28:50
Speaker 1: the locations, all the all the sort of things that
28:53
Speaker 1: would the managing the reals, all that would Tony would
28:57
Speaker 1: be the ultimate authority and really the ultimate EO of that.
29:01
Speaker 1: And I was in the room sometimes when when Alan
29:03
Speaker 1: and Steve would disagree with him, but they would always say,
29:06
Speaker 1: at the end of that meeting, if that is your decision,
29:09
Speaker 1: that is your area, so we support you, and they
29:11
Speaker 1: walk out of the room, the doors closed, and there's
29:14
Speaker 1: the team speaks with one voice. Similarly, Steve was in
29:17
Speaker 1: charge of the balance sheet of the organization and anything
29:21
Speaker 1: the lost reserve, setting, the m and a activity strategy,
29:24
Speaker 1: stuff like that. Steve was the ultimate authority on that
29:26
Speaker 1: sort of stuff, and Alan joked he was the world's
29:29
Speaker 1: highest paid referee because he would adjudicate disputes between the
29:32
Speaker 1: two of them to make sure that's how it worked.
29:34
Speaker 1: So with Richie Eye, it's a slightly different gearing. He's
29:38
Speaker 1: in charge of the insurance operations of the business. I'm
29:41
Speaker 1: in charge of the investments and the ventures operations and
29:44
Speaker 1: um Our. Our normal working relationship is if something meaningful,
29:48
Speaker 1: substantive comes up in one of our areas, the first
29:51
Speaker 1: person that I will talk to about an upcoming deal
29:54
Speaker 1: or a capital a big capital allocation decision, I'll talk
29:57
Speaker 1: to Richie and make sure he and I get on
30:00
Speaker 1: the same page. We we don't see the world Eye
30:02
Speaker 1: die on everything, but we we functioned and work it out.
30:05
Speaker 1: And similarly, um on an insurance thing, he would come
30:08
Speaker 1: to me first and we worked that out. So on
30:12
Speaker 1: major capital allocation decisions, it's very important that he and
30:15
Speaker 1: I managed to find agreement and we have on day on,
30:18
Speaker 1: day to day matters. The tactical execution of the business itself.
30:22
Speaker 1: We both operate as soul CEOs. In the realm of
30:26
Speaker 1: the business was as we run. So you mentioned so
30:29
Speaker 1: we have insurance, we have asset management, and you mentioned
30:32
Speaker 1: the third arm Marquale Ventures. That's kind of unusual for
30:36
Speaker 1: an insurance company. Let's talk a little bit about, UM,
30:40
Speaker 1: what what brought this division about and what sort of
30:45
Speaker 1: things you look at? What do you focus on? Sure? Well, again,
30:47
Speaker 1: the way it came about was being aware of the
30:50
Speaker 1: Berkshire example where you saw Buffett and Buffett would give
30:54
Speaker 1: a lot of credit to Henry Singleton and Telen and
30:57
Speaker 1: seeing that model and how that how that worked. UM,
31:01
Speaker 1: we'd always bought equity securities, and there's a there's a
31:05
Speaker 1: construct and a way we think about what we buy
31:09
Speaker 1: and and really it's the same thing we hope Marquel
31:11
Speaker 1: shareholders think about us when when they when they buy
31:14
Speaker 1: Markel stock. So we look for profitable businesses with good
31:18
Speaker 1: returns on capital that don't use too much debt to
31:20
Speaker 1: do it. We look for management teams with equal measures
31:22
Speaker 1: of talent and integrity. We look for businesses that have
31:25
Speaker 1: reinvestment opportunities or great capital discipline, and we look for
31:29
Speaker 1: that at a reasonable price. That's that's the quick and
31:32
Speaker 1: dirty way of describing what we look for when we're
31:35
Speaker 1: buying a public security. Well, from my point of view,
31:38
Speaker 1: whether that's buying a hundred shares or something, a thousand
31:41
Speaker 1: shares of something, or the entire company, the thought process
31:45
Speaker 1: is exactly the same. So we'd seen the example from
31:48
Speaker 1: Berkshire and Televign of what it meant to go from
31:51
Speaker 1: passive minority shareholders to actually controlling shareholders in diverse businesses,
31:58
Speaker 1: and and that's really the way it happened. Really from
32:01
Speaker 1: the first minute that I went to Markel in ninety
32:04
Speaker 1: always had it in the back of my mind that
32:06
Speaker 1: this would be a future leg of growth and sustainability
32:10
Speaker 1: for the company. It wasn't until two thousand and five
32:13
Speaker 1: that the stars aligned in a particular deal because it
32:16
Speaker 1: happened to be in Richmond, Virginia, because I happened to
32:18
Speaker 1: personally know the CEO. We were not in the traditional
32:23
Speaker 1: investment banking channels deal flow channels. It just happened through
32:27
Speaker 1: serendipitous circumstances. Some of that time and space that we
32:30
Speaker 1: talked about. Found a company called m F. Bakery Equipment,
32:34
Speaker 1: which if you if you get McDonald's hamburger or hot dog,
32:39
Speaker 1: very good odds that there's buns and rolls were baked
32:41
Speaker 1: on a m F. Baker Equipment, the leading company at
32:44
Speaker 1: what they do, and that in that world. So happened
32:47
Speaker 1: to be headquartered in Richard, Virginia, happened to know the CEO,
32:50
Speaker 1: happened to know it was for sale, a knew the seller,
32:53
Speaker 1: and we were able to do a deal. And doing
32:54
Speaker 1: that one deal raises a flag and then all of
32:57
Speaker 1: a sudden, my phone starts to ring and I didn't
33:00
Speaker 1: know you guys would do that? And how about this business?
33:03
Speaker 1: How about that business? And it really has cascaded from that.
33:07
Speaker 1: So so Berkshire is kind of known for when when
33:11
Speaker 1: Buffet and Monger find a company I like that meets
33:15
Speaker 1: similar qualifications, including very very strong leadership, talent management of
33:21
Speaker 1: the company, they basically put them into the Berkshire family
33:25
Speaker 1: and let them run the business continue running the business
33:29
Speaker 1: so successfully. I'm assuming you bring a similar approach that
33:33
Speaker 1: is correct and for instance, one of the ways to
33:35
Speaker 1: validate that and look at what people do not what
33:37
Speaker 1: they say. The CEO of a MF Bakery, who we
33:41
Speaker 1: bought that business with in two thousand and five is
33:45
Speaker 1: still the CEO of that business sixteen years later. Correct.
33:47
Speaker 1: Of the twenty or so businesses that we have bought
33:51
Speaker 1: over the last sixteen seventeen years, probably fifteen or sixteen
33:56
Speaker 1: of them are still run by the CEO who's there
33:59
Speaker 1: the day we show it up. So we're very much
34:01
Speaker 1: hopeful that the management team, the leadership team that is
34:04
Speaker 1: in place, well, we'll stay with us and become part
34:07
Speaker 1: of the Marquelle family and grow and flourish because we
34:10
Speaker 1: will take the worry about capital off the table from them.
34:12
Speaker 1: We'll take and and I'll tell this story about a
34:15
Speaker 1: MF for example. So UM, you know, it was owned
34:19
Speaker 1: by a local set of of business people in Richmond,
34:23
Speaker 1: and it was what I would call a club private
34:24
Speaker 1: equity deal. So it's not levered to the extent that
34:27
Speaker 1: many private equity circumstances would be, but it had some
34:30
Speaker 1: leverage attached to it. And the CEO of the business
34:33
Speaker 1: when I showed up Um and Marquelle bought things. I said,
34:37
Speaker 1: you know, in the in the old days, Ken when
34:39
Speaker 1: a when a machine broke. That was a really bad
34:41
Speaker 1: day for you because you had an unhappy customer and
34:46
Speaker 1: you had an interest built to pay at the same time,
34:48
Speaker 1: and that creates tension. I said, um, these days and
34:53
Speaker 1: forever going forward, I'm not rooting for machines to break,
34:57
Speaker 1: but I know in the real world world they do.
34:59
Speaker 1: And on that day, instead of that being a bad day,
35:01
Speaker 1: I now want that to be a good day. I
35:03
Speaker 1: want you to show up. I want you to fix it.
35:06
Speaker 1: I want you to make it right. I want you
35:07
Speaker 1: to make your customer happy. And if you do that,
35:10
Speaker 1: and you do that repeatedly, dependently, and never waver from that,
35:14
Speaker 1: what will happen over the course of the next three, five,
35:16
Speaker 1: seven years is your reputation for being that person will
35:20
Speaker 1: grow and grow and grow, and you'll get paid fairly
35:22
Speaker 1: for doing that. So by removing the financial constraint of
35:26
Speaker 1: an interest bill and adding the dimension of that time
35:30
Speaker 1: horizon where look, I'm not gonna worry about this quarter
35:33
Speaker 1: because I know this is the right thing to do.
35:35
Speaker 1: So we're just gonna do it, and then the accounts
35:37
Speaker 1: will tally up with the results of that. But I'm
35:39
Speaker 1: just I'm willing to bet that will be good, and
35:41
Speaker 1: that is a business that in a no growth industry.
35:44
Speaker 1: They've done a couple of tucking deals since that time,
35:46
Speaker 1: but there's six times the size that they were the
35:50
Speaker 1: day we showed up, and they're every bit as as profitable,
35:54
Speaker 1: if if not more so. And I think the mentality
35:56
Speaker 1: with which the businesses run has been helped by the
36:01
Speaker 1: market capital umbrella. We really give somebody the room to
36:07
Speaker 1: do what they want to do anyway. So, so bakery
36:10
Speaker 1: equipment is the first acquisition you do, what are the
36:15
Speaker 1: next couple of acquisitions and what Because from what I've read,
36:20
Speaker 1: there's not a whole lot of rhyme or reason. It
36:22
Speaker 1: just seems as long as it meets those four metrics
36:25
Speaker 1: that you described in terms of UM profitability and return
36:30
Speaker 1: on capital, talent, integrity, etcetera. UM, you guys seem to
36:34
Speaker 1: be pretty open minded as to the sort of acquisitions
36:38
Speaker 1: that makes sense for you. Well, that's exactly right, and
36:40
Speaker 1: those four things are indeed the selection criteria. Now, if
36:43
Speaker 1: I wanted to speak in an academic setting, and I
36:46
Speaker 1: wanted to convince the consultants and the academics that I
36:49
Speaker 1: did indeed have some sort of rational strategy, I could
36:52
Speaker 1: frame it in such a way where I said, Um,
36:54
Speaker 1: what we are looking for is large companies within small industries,
36:58
Speaker 1: because if you look at a mark get leader in
37:01
Speaker 1: a small industry, what you have is a situation where
37:03
Speaker 1: you are the go to vendor, you are the go
37:05
Speaker 1: to supplier, you have some advantages of incumbency, and unless
37:09
Speaker 1: you mistreat your customer or do something wrong or don't
37:12
Speaker 1: keep up, um, you are highly likely to get the
37:15
Speaker 1: next order. So if you if you look at all
37:18
Speaker 1: our businesses, it is often the case that these companies
37:21
Speaker 1: are actually pretty well known and and very good and
37:25
Speaker 1: very dominant at the little niche there in. And because
37:28
Speaker 1: it's a small industry that is not as attractive to bigger,
37:32
Speaker 1: bigger companies that are gonna come after it, And because
37:34
Speaker 1: it is so well established and so dependent upon by
37:36
Speaker 1: their customers, it's harder to start up a competitor into garage.
37:40
Speaker 1: And I don't think uh, you know, the young geniuses
37:44
Speaker 1: at the Stanford Business School are trying to figure out
37:47
Speaker 1: breakthrough to disruptive ways to break brand. Uh So these
37:51
Speaker 1: are these are not the sort of things that people
37:53
Speaker 1: are talking about our our interests, but we can build
37:55
Speaker 1: a fine business, uh By by collecting these these wonderful
37:59
Speaker 1: things and grow. Give us another one. Tell us another
38:01
Speaker 1: example of a business that UM the average person might
38:06
Speaker 1: not think of as a long term profitable business, but
38:10
Speaker 1: you guys have managed to put into your UM balance
38:14
Speaker 1: sheet and have been very happy. Well, I mean the
38:17
Speaker 1: most recent company that we we bought as a company
38:20
Speaker 1: called Buckner Cranes and and and this is an interesting
38:25
Speaker 1: case studies well and why we get these these things?
38:28
Speaker 1: UM fourth generation family. So if a family business has
38:32
Speaker 1: made it to the fourth generation, they know what they're doing.
38:36
Speaker 1: And there's something that's just fundamentally right about a circumstance
38:39
Speaker 1: like this. This was an inbound call. Somebody called us
38:42
Speaker 1: and said, laid out the snippet thumbnail case of what
38:47
Speaker 1: this company was, what they do UM. And they had
38:49
Speaker 1: started out in a steel erection business, and they rented
38:52
Speaker 1: cranes and the crane size kept growing and it kept
38:57
Speaker 1: becoming more and more sophisticated over time. So they're kind
39:00
Speaker 1: cranes lift things from three hundred to a thousand tons.
39:03
Speaker 1: And in addition to the crane itself, and it's it's
39:07
Speaker 1: a German manufacturer that supplies Buckner with its cranes and
39:10
Speaker 1: Buckner in turn leases them out to the companies that
39:14
Speaker 1: are erecting wind turbans are very large structures or new
39:17
Speaker 1: football stadiums, things of that nature. Um And and you
39:21
Speaker 1: can't just show up like at the at the hert
39:24
Speaker 1: lot and rent one of these things. You have to
39:26
Speaker 1: know what you're doing. And if you don't know what
39:27
Speaker 1: you're doing, oftentimes Buckner will provide the crew or the
39:30
Speaker 1: technical expertise right right. So it's a real value add
39:34
Speaker 1: kind of business with a good, good, um you know,
39:37
Speaker 1: physical base there. But the family and the family values
39:41
Speaker 1: really mattered to the family as they were looking to
39:44
Speaker 1: sell their business and create liquidity for the third generation
39:48
Speaker 1: but set the fourth generation up for success to run
39:51
Speaker 1: the business going forward. So they called. We went down
39:55
Speaker 1: to to visit them. Immediately, we struck up a warm
39:58
Speaker 1: and friendly relationship and did a did a home and
40:02
Speaker 1: home and and and came to came to terms and
40:05
Speaker 1: it came on board. So that's how some things like
40:08
Speaker 1: this happened. Um And at that three hundred tons to
40:12
Speaker 1: a thousand tons crane, I mean thousand tons lifts. You
40:17
Speaker 1: can't do that over the internet. You can't do that
40:19
Speaker 1: from a foreign country. There's certain there's certain underwriting criteria
40:23
Speaker 1: that if if you really go through the traps of
40:25
Speaker 1: what you're looking at, that speaks to the likely durability
40:29
Speaker 1: and and need for that business. If you need to
40:31
Speaker 1: lift something there's a thousand tons, there are not many
40:33
Speaker 1: people in the world who know how to do that.
40:36
Speaker 1: And again, I don't think that's the kind of thing
40:38
Speaker 1: that kids in business score trying to figure out how
40:40
Speaker 1: to how to disrupt that. You can't. It's not that
40:42
Speaker 1: you gotta lift it. It's too small to be worth
40:44
Speaker 1: their time and effort, but it's large enough that there's
40:47
Speaker 1: a real business exactly we have. We have These stories
40:50
Speaker 1: could just go on and on, and we're the largest
40:52
Speaker 1: grow of indoor house plants in the world through our
40:55
Speaker 1: cost of Farms business. If you go in indoor house plans,
40:59
Speaker 1: So when I go to the local whatever home depot, Walmart, Ikea, Kroger,
41:06
Speaker 1: all those kinds of films, Marquel is the company that's
41:09
Speaker 1: providing the cost fight and Costa Farms gives the name
41:13
Speaker 1: of that company, and even within Costa there would be
41:15
Speaker 1: sub brands within that, so you don't exactly know when
41:18
Speaker 1: you're looking at the label who the ultimate, uh, folks.
41:21
Speaker 1: Folks are but but that would be us very interesting.
41:24
Speaker 1: So so there are two data points I'm kind of
41:26
Speaker 1: fascinated about. One is in your public investments, your ten
41:31
Speaker 1: largest holdings, they're almost half your portfolio. They're about that's
41:37
Speaker 1: pretty unusual. When I look at the average let's look
41:40
Speaker 1: at a stock mutual fund, the top ten holdling is
41:43
Speaker 1: usually way below thirty. Tell us why you approach this
41:47
Speaker 1: with such a concentrated bet on those top ten stocks. Well,
41:53
Speaker 1: I think there are a couple of things that come together.
41:55
Speaker 1: And and one of my great investment teachers was my grandmother,
42:00
Speaker 1: So let me get to her in just a minute now. Obviously,
42:03
Speaker 1: those ten have worked, and those have been circumstances where
42:06
Speaker 1: we're basically right, and I had a high degree of
42:09
Speaker 1: confidence in order to make some substantial bets to put
42:13
Speaker 1: them in the portfolio at that size. But then time
42:16
Speaker 1: and being right about your fundamental under right into the
42:18
Speaker 1: business kind of is your friend. As Charlie Munger says,
42:21
Speaker 1: you know, the time is the friend of a wonderful
42:23
Speaker 1: business and the enemy of a mediocre business. So here's
42:26
Speaker 1: here's my grandmother's story. So when I was a kid,
42:29
Speaker 1: um and a and a nerd at that on Friday nights. Unfortunately,
42:33
Speaker 1: instead of being able to get a date, sometimes I
42:35
Speaker 1: would I would sit with my grandmother and we would
42:37
Speaker 1: watch Wall Street Week with Lewis rock Eiser and my grandmother, Um,
42:41
Speaker 1: she was widowed at a my my grandfather had died
42:45
Speaker 1: and she was one of the types of widows that
42:47
Speaker 1: basically never made any substantive decisions after that, so she
42:52
Speaker 1: remained in the same house. His suits hung from the
42:55
Speaker 1: rack in the closet, his shoes were on the floor.
42:57
Speaker 1: And being a just a small town, local business man
43:00
Speaker 1: in the nineteen sixties, they would have been the type that, uh,
43:03
Speaker 1: you know, they drank coffee at the diner together and
43:06
Speaker 1: they would talk about their stock portfolio and that sort
43:08
Speaker 1: of thing. That's what small town business people did. And
43:11
Speaker 1: he had a twelve fifteen stock little portfolio. These are
43:14
Speaker 1: these not massive sons sums of money. And those twelve
43:19
Speaker 1: fourteen stocks that my grandfather had when he died, my
43:23
Speaker 1: grandmother held those until she died. Now within those that
43:28
Speaker 1: that little portfolio there was Lockheed, Martin and Pepsi. Now
43:32
Speaker 1: the fact of the matter is the other ten holdings
43:34
Speaker 1: could have gone to zero and it wouldn't have mattered
43:37
Speaker 1: the total. I bet my grandmother was the ninety five
43:40
Speaker 1: percentile in investment returns basically because she caught two mega
43:46
Speaker 1: winners that she was able to hold for thirty years
43:48
Speaker 1: in terms of the growing dividends and and funding her
43:52
Speaker 1: pleasant but modest lifestyle. It did that and observed that basically,
43:57
Speaker 1: when when you're right about something, uh, don't don't get
44:00
Speaker 1: off the train's if that train is gonna gonna keep rolling. Uh.
44:04
Speaker 1: I think we're both searching for who we should attribute
44:07
Speaker 1: these quotes too, but I think it might have been
44:09
Speaker 1: Peter Lynch talked about that tempt, that human tendency to
44:12
Speaker 1: want to, you know, sell your winners. Exactly. Well, that's
44:16
Speaker 1: that's a that's pulling the flowers and watering the weeds.
44:19
Speaker 1: That exactly. Sorry, I'm not the smartest guy in the
44:23
Speaker 1: roby trying to have to be the dumbest. If I
44:24
Speaker 1: got a flower, this is blooming, let it grow. And
44:27
Speaker 1: and another data point that's kind of mind blowing. Uh. So,
44:31
Speaker 1: your your capital portfolio is about twenty seven billion dollars.
44:35
Speaker 1: Your costs are just incredibly low, less than point oh one,
44:40
Speaker 1: about one seventy the cost of the typical U S
44:44
Speaker 1: stock mutual funds. How do you manage to keep your
44:47
Speaker 1: cost structure that low. Well, we don't have a lot
44:51
Speaker 1: of people, so it's it's myself. I have had um
44:56
Speaker 1: gentleman named Dan Gartner who works on the on the
44:57
Speaker 1: on the equity side, that's been there ten or twelve
45:00
Speaker 1: years for the For the first seventeen years that I
45:03
Speaker 1: was at Marcale, after Steve hired me, we managed the
45:05
Speaker 1: portfolio in house and I did that solo. After seventeen
45:10
Speaker 1: years of doing that, I decided to add one person
45:13
Speaker 1: and and that was Dan Um And then a couple
45:15
Speaker 1: of years ago added one more person. So um, we
45:19
Speaker 1: have that group of people thinking about the equity investment portfolio.
45:23
Speaker 1: We have three people working on the on the fixed
45:25
Speaker 1: income side, which is also a treasury function of managing
45:29
Speaker 1: just the cash balances of the coming So we have
45:31
Speaker 1: an extraordinarily small number of people doing it by Wall
45:35
Speaker 1: Street standards, our compensation is very modest, so that keeps
45:38
Speaker 1: the keeps the keeps the costs down. And here's here's
45:41
Speaker 1: the implicit cost savings that cannot even be measured or quantified.
45:46
Speaker 1: But make the numbers you cited even better is our
45:49
Speaker 1: turnovers extraordinarily love. We tend to be able to buy
45:52
Speaker 1: things and hold them for a long period of time,
45:54
Speaker 1: which means we're not occurring the tax costs of realizing
45:58
Speaker 1: gains and paying the tax at point. So the growth
46:01
Speaker 1: in the deferred tax liability, which is just compounding over time,
46:08
Speaker 1: that isn't an easily quantifiable cost, and it's not captured
46:11
Speaker 1: in that in that basis point of management figure talking about.
46:14
Speaker 1: But in terms of dollars, that's bigger than all the
46:16
Speaker 1: others by multiples. Quite quite interesting. So so we talked
46:21
Speaker 1: a little bit about markul Ventures earlier. You're not doing
46:26
Speaker 1: what I think of his venture capital is early seed stage.
46:29
Speaker 1: You're buying mature companies. And you mentioned you've done fifteen
46:34
Speaker 1: of these deals since two thousand. We talked about the
46:38
Speaker 1: crane company, We talked about UM, the bakery machinery company.
46:42
Speaker 1: Give us another example of the sort of transaction that
46:46
Speaker 1: attracts your attention, well, a couple of the other examples. UM,
46:52
Speaker 1: if we have a company called the Catrell and if
46:55
Speaker 1: you're driving up and down the highway and you see
46:57
Speaker 1: a trailer hauling seven, eight or nine cars, were the
47:01
Speaker 1: dominant company that makes those trailers, and we've owned that again,
47:06
Speaker 1: I lose track of times, five, eight year or something
47:08
Speaker 1: like that. Spectacular business and the gentleman who runs at
47:12
Speaker 1: Danny's Inc. Just a first rate individual. Um, they open
47:17
Speaker 1: carriers is like like when they pull up to a
47:20
Speaker 1: car dealership and twenty new cars. It's one of those
47:23
Speaker 1: that's exactly wrong. Um. So they've just done a spectacular
47:26
Speaker 1: job over many, many years of taking care of their
47:30
Speaker 1: customers and incrementally, uh, sort of getting more and more
47:33
Speaker 1: of the flow and and the wonderful thing about that
47:35
Speaker 1: particular business and a variety of reasons that we were
47:38
Speaker 1: able to to buy it. Uh, it's cyclical. So for instance,
47:43
Speaker 1: when car sales are going up and there is incremental
47:46
Speaker 1: demand for the trailers to move the cars around, it's
47:50
Speaker 1: it's a it's a nicely profitable business and that they're
47:52
Speaker 1: going to earn good returns if they if they run
47:54
Speaker 1: their internal operations reasonably well. If car sales are flat
47:58
Speaker 1: or going down, they're gonna ruggle to break even and
48:01
Speaker 1: there's nothing they can do about that. You can't you
48:04
Speaker 1: can't reduce your prices by ten percent to induce demand.
48:07
Speaker 1: People either need it right now, or they don't need
48:10
Speaker 1: it at all. Now, that makes that business a little
48:13
Speaker 1: hard to finance if you're using a lot of debt
48:16
Speaker 1: to buy it. So by virtue of the fact that
48:18
Speaker 1: we're not using debt to do that, our underrating decisions
48:21
Speaker 1: gets to be a lot easier and you don't need
48:23
Speaker 1: to have an MBA to sort of figure this out.
48:25
Speaker 1: My math was, if I buy that today, I'm pretty
48:28
Speaker 1: sure that within the course of the next five years,
48:30
Speaker 1: I'm gonna get out all my money and and then
48:33
Speaker 1: still known the business was probably better and bigger in
48:35
Speaker 1: five years, especially with the culture they have and the
48:38
Speaker 1: people that are running it. And I really have some
48:40
Speaker 1: indifference about whether I'm make zero in year one and
48:43
Speaker 1: of it in year two, and ten percent of it
48:46
Speaker 1: in year three and zero again in year four, and
48:48
Speaker 1: whatever the residual is in year five. That that pattern
48:51
Speaker 1: doesn't matter to me because I'm not trying to pit
48:54
Speaker 1: quarterly quarterly goals and as such, um we're able to
48:58
Speaker 1: be competitive to buy businesses like that because we're not
49:03
Speaker 1: competing with people who are using leverage finance to do so.
49:08
Speaker 1: So that's just another small example, and it's it's been cars,
49:12
Speaker 1: uh I was about to make the mistake of saying
49:14
Speaker 1: cars can't drive themselves. Uh, but you know, well we'll
49:17
Speaker 1: get Arguably they still can and believe they'll get their eventus.
49:21
Speaker 1: That was one of the things we thought about. And
49:22
Speaker 1: even if you have a car that can drive itself,
49:24
Speaker 1: if you don't want to say you want a brand
49:26
Speaker 1: new car to come on, do you want to have
49:28
Speaker 1: twelve miles on it? Not seven hundred. So so let
49:30
Speaker 1: me ask you a little bit of a twist question, Um,
49:33
Speaker 1: how do you know if one of your acquisitions is
49:36
Speaker 1: not working out? I mean, there's some pretty clear metrics
49:38
Speaker 1: for hey, we're seeing revenues increase, we seeing profitabilities increase.
49:42
Speaker 1: How do you measure when hey, maybe we made a mistake,
49:46
Speaker 1: this one isn't working sure. Well, Mike Keaton, who is
49:50
Speaker 1: my partner in mark l Ventures and he's the president
49:52
Speaker 1: of Marc le Ventures day to day execution of the
49:55
Speaker 1: mark le Ventures business, he has a great saying. He says,
49:59
Speaker 1: you know what it feel it's like when you're making
50:00
Speaker 1: a mistake. It feels great because it didn't feel good.
50:08
Speaker 1: So we we make mistakes, We do that, but we
50:11
Speaker 1: do have financial reporting. And again I started out life
50:16
Speaker 1: as an accountant and the accounting profession where we could
50:19
Speaker 1: do hours and hours on the path of the accounting profession.
50:22
Speaker 1: But a good accountant, a true account an accountant who
50:25
Speaker 1: is honoring his craft, is giving you a feedback loop
50:30
Speaker 1: that this worked or didn't work. So when we make mistakes,
50:34
Speaker 1: in the fullness of time, they show up. So what
50:37
Speaker 1: we do is we stop doing that um and we
50:40
Speaker 1: do more of the things that work, and we do
50:42
Speaker 1: less of the things that didn't work, and over time,
50:44
Speaker 1: the weighted average of that really works in your favor.
50:48
Speaker 1: And again I use that language very precisely, the weighted average,
50:52
Speaker 1: because the things that worked mathematically become larger and larger
50:56
Speaker 1: as a percentage of the total, whereas the things that
50:58
Speaker 1: didn't work become less and less a percentage of the total.
51:02
Speaker 1: So the mistakes get deluded into the the overall solution,
51:08
Speaker 1: which which in aggregate worked out just fine. It's my
51:10
Speaker 1: grandmother's lesson. I really don't know the names of those
51:13
Speaker 1: other ten stocks she out, but it doesn't matter. So
51:18
Speaker 1: so you pride yourself on investing with management groups that
51:23
Speaker 1: not only have been successful, but have integrity and have
51:28
Speaker 1: built a corporate culture of both quality and success raises
51:33
Speaker 1: an interesting question during COVID. You have twenty thousand employees,
51:38
Speaker 1: How did you maintain that corporate culture? How did you
51:40
Speaker 1: keep everybody involved, integrated and all moving in the same direction. Well,
51:45
Speaker 1: it's a I mean I roding last year's annual report.
51:49
Speaker 1: There's been an unprecedented use of the word unprecedented, and
51:53
Speaker 1: that's an accurate statement to make. None of us had
51:55
Speaker 1: a playbook for how to do this and how to proceed.
51:59
Speaker 1: And of those twenty people, fifteen thousand of them are
52:03
Speaker 1: within ventures, and a lot of them are in the
52:05
Speaker 1: category of frontline workers um as as are. One of
52:10
Speaker 1: our business is called half Co and it makes the
52:12
Speaker 1: flooring for trailers of tractor trailers and it's wood. And
52:17
Speaker 1: as the president of that business, guy named Bruce Bader, said,
52:20
Speaker 1: you can't make wood floors from home. So we had
52:23
Speaker 1: to keep a factory running, and we had to figure
52:25
Speaker 1: out how to operate cleaning procedure, sanitation procedures, not wildly
52:30
Speaker 1: unlike the procedures that existed to get into this building
52:33
Speaker 1: this morning. You got to figure all of that out
52:35
Speaker 1: on the fly, and and we did so. And I
52:38
Speaker 1: am so amazed and so grateful for the ways in
52:42
Speaker 1: which the leaders of those companies, and by that I
52:44
Speaker 1: mean not just the CEOs, but the people who work
52:46
Speaker 1: for them, and the front line supervisors and and all
52:49
Speaker 1: of the associates who they went to work among other
52:52
Speaker 1: other reasons because they needed to work. And so it's
52:57
Speaker 1: our job to figure out. Look, if you want to work,
53:00
Speaker 1: and you can work, and by the way, our society
53:02
Speaker 1: needs you, we must find a way to figure out
53:06
Speaker 1: how to do that as safely and as effectively and
53:09
Speaker 1: as sufficiently as possible. That's our job. So that's really
53:12
Speaker 1: what we have been about, um and the very act
53:15
Speaker 1: of doing that, it's it's almost like exercising. So if
53:18
Speaker 1: you want to lift a lot away, I would suggest
53:21
Speaker 1: and and that weight is just too much for you
53:23
Speaker 1: right now, but it's within the realm of theoretical possibility.
53:26
Speaker 1: I would suggest to you, Well, let's let's let's lift
53:28
Speaker 1: a little bit. Let's that now, let's do it a
53:31
Speaker 1: couple of times. And then when we can do that
53:33
Speaker 1: and do it a couple of times, well, let's lift
53:36
Speaker 1: of that. You build muscle by doing this is not
53:40
Speaker 1: theoretical exercises, So there's some theories that guide you but
53:43
Speaker 1: the very act of doing itself is what creates the
53:47
Speaker 1: learning of of how to do it. So there's been
53:51
Speaker 1: a lot of that going on, where we've been learning
53:53
Speaker 1: how to move differently and lift different ways of what
53:56
Speaker 1: we had, and in and of itself, that act has
53:59
Speaker 1: really forced culture where you could choose, and I believe
54:03
Speaker 1: there is a great choosing going on, not just in Marquel,
54:05
Speaker 1: but really sort of society really large, whether you really
54:08
Speaker 1: want to do that or not. And there are some
54:10
Speaker 1: professions in some circumstances where you don't have to quite
54:12
Speaker 1: do that so much. In our business, you do both.
54:15
Speaker 1: In the fifteen thousand frontline workers, and I would argue
54:19
Speaker 1: in a second arrive it of sense even the white
54:21
Speaker 1: collar workforce that can work remotely. There's something about being
54:26
Speaker 1: together in person, the the water cooler conversations, the coffee
54:31
Speaker 1: cup conversations, the quips that the use of humor and
54:36
Speaker 1: laughing and joking and going back and forth. It's really
54:39
Speaker 1: hard to do in a in a virtual world. Of that,
54:43
Speaker 1: I think there's a place for everything in this world.
54:47
Speaker 1: It's not right or wrong, it is just different. So
54:50
Speaker 1: we run the gamut of where it's just the physical reality,
54:54
Speaker 1: whether we're making wood floors or lifting a thousand tons,
54:57
Speaker 1: you've got to be present to win, so you got
54:59
Speaker 1: to do that in and that creates some aspects of
55:02
Speaker 1: the culture by itself of doing. So there's some that
55:05
Speaker 1: that's creative. So you may not think of us as
55:07
Speaker 1: a creative business and insurance operation or white collar work,
55:11
Speaker 1: but it's something. It's it's almost like an advertising agency.
55:15
Speaker 1: So there are some parts of our business which are
55:17
Speaker 1: actuarial and and formula and mathematically driven, but there's a
55:21
Speaker 1: lot of our insurance business which is more like an
55:25
Speaker 1: advertising agency than it is a big insurance company. Because
55:29
Speaker 1: you've got to be creative and you gotta figure out
55:31
Speaker 1: how to solve this problem with some risk that's not
55:33
Speaker 1: going to be put the words out of my mouth.
55:35
Speaker 1: All problem solving, unless you're doing basic arithmetic, involves creativity. Hey,
55:41
Speaker 1: maybe this will work. Sometimes not every solution is ideal
55:44
Speaker 1: for this problem. Let's see what else we can come with.
55:47
Speaker 1: Come up with and that doesn't really work. Great over
55:50
Speaker 1: a zoom um, let's talk a little bit about some
55:52
Speaker 1: of your favorite companies. You have some holdings, and when
55:56
Speaker 1: I look at some of your top five or top ten,
56:00
Speaker 1: they're almost nothing like each other. There there's just a
56:03
Speaker 1: mix of companies Carmacks, Disney Berkshire, Amazon, Regeneran, and then
56:08
Speaker 1: a whole bunch of investing firms Blackrock, Federated, oak Tree,
56:11
Speaker 1: trow Uh. I have I named anything that you've jettison
56:15
Speaker 1: since or actually you know, oak Tree is no longer
56:18
Speaker 1: with us. That's part of Brookfield Asset Management, which is
56:21
Speaker 1: our second largest holding that we have, And we are
56:24
Speaker 1: no longer owners of Carmacks. Oh, you sold Carmacks, which
56:27
Speaker 1: had a huge run up given the craziness with supply chain,
56:32
Speaker 1: and I think at a certain point that just became
56:34
Speaker 1: fully valued. Well, I guess no, and I would I
56:37
Speaker 1: would um admit an error on my part in this,
56:41
Speaker 1: and in fact that the gentleman who runs Carmacks, the CEO,
56:44
Speaker 1: I mean, we'd owned it for a long time and
56:45
Speaker 1: have been absolutely great holding. When we sold it, I
56:48
Speaker 1: called him and I said, Bill that that was our circumstance,
56:51
Speaker 1: not yours. Carmacks is a great company. It's very well run.
56:54
Speaker 1: Have epic respect for what you do. We enjoyed being
56:57
Speaker 1: a shareholder for for a long long time. When we
56:59
Speaker 1: go back to the initial days of the pandemic and
57:02
Speaker 1: the shock losses from event cancelation insurance business interruption, which
57:08
Speaker 1: was uncertain in the first quarter of twenty loose track
57:12
Speaker 1: of years in time. These days, UM we reported a
57:16
Speaker 1: combined ratio of one eighteen, so as compared to our
57:20
Speaker 1: historical record of underwriting profitability, where that combined ratio number
57:24
Speaker 1: would always be below a hundred one eighteen, that is
57:27
Speaker 1: the worst period market corporation is endured in ninety years
57:31
Speaker 1: of existence. It was not a great quarter UM And
57:36
Speaker 1: the model where we're using the profits from the insurance
57:40
Speaker 1: company to create the flow to to create the exactly
57:45
Speaker 1: so jet engines don't fly in reverse. That jet engine
57:49
Speaker 1: was flying in reverse during the first quarter of as such.
57:53
Speaker 1: And I think even independent of that, there were kind
57:56
Speaker 1: of a combined set of forces at work where look,
57:58
Speaker 1: we gotta we gotta make sure or that the insurance
58:01
Speaker 1: businesses on firm capital footings. It's a regulated business and
58:05
Speaker 1: we always want margin of safety and margin of air
58:07
Speaker 1: that humility. Look, let's let's not pretend we're the smartest.
58:10
Speaker 1: So if we were the dumbest, what do we need
58:12
Speaker 1: to do to protect ourselves from us to make sure
58:14
Speaker 1: we keep going So we would have re underwritten in
58:18
Speaker 1: this years. What we did. We re underwrote every single
58:21
Speaker 1: security we wrote, and by the way, in that environment,
58:25
Speaker 1: we also re underwrote our thinking on every insurance policy
58:29
Speaker 1: we wrote. Because it was clear that this was a
58:33
Speaker 1: fundamental change that that had overtaken all of us. So
58:38
Speaker 1: let's make sure that we're adoptable and thinking that we're
58:41
Speaker 1: able to answer the bell for the next round of
58:43
Speaker 1: the fight. So in looking at each and every security
58:46
Speaker 1: that we owned and recognize and look, I want to
58:48
Speaker 1: take a little bunny on the table off the table,
58:50
Speaker 1: and I wish to make sure that the capital footings
58:53
Speaker 1: are um impeccably sound and unquestionable um looking at each
58:59
Speaker 1: and everyone. Among the decisions that we decided to sell
59:03
Speaker 1: was was CarMax um and I thought, you know, at
59:05
Speaker 1: that point in time, locations were closed. Who needs a
59:08
Speaker 1: new car? Who needs a used car? Well, it turns
59:10
Speaker 1: out everybody did. But I did not foresee that coming.
59:14
Speaker 1: And you just given the time and facts of the
59:16
Speaker 1: of the circumstances, there were there were several things we
59:19
Speaker 1: sold at that point in retrospect, they all went up,
59:21
Speaker 1: and they all went up a watch since since that sale.
59:24
Speaker 1: But at the same time, our capital basis has never
59:27
Speaker 1: been questioned. The integrity of the business is there. And
59:30
Speaker 1: we kept eighty percent of what we owned it at
59:32
Speaker 1: that point across the board in aggregate, and that's done great,
59:35
Speaker 1: so you know we're in good shape. You would have
59:38
Speaker 1: had to anticipate not only a surge of movement to
59:43
Speaker 1: the suburbs that would require more cars, but you would
59:46
Speaker 1: have had to anticipate all of the supply chain on
59:50
Speaker 1: the semiconductor, all that whole interruption and supply issues that
59:55
Speaker 1: have led to just a surge and used car prices
59:58
Speaker 1: and unavailability new cars. Kind of hard to foresee coming
1:00:04
Speaker 1: um in the first quarter. As I wrote in last
1:00:07
Speaker 1: year's annual report on the whole discussion of the pandemic stuff,
1:00:11
Speaker 1: we did not see that coming. So it's a long
1:00:13
Speaker 1: list of stuff we did not see coming. To add
1:00:15
Speaker 1: those to the list, so let's talk about some of
1:00:17
Speaker 1: the companies you kept, because well, not not a bunch
1:00:21
Speaker 1: of stiffs or some pretty good companies. I want to
1:00:24
Speaker 1: get a sense of the thought process as to what
1:00:27
Speaker 1: leads you to find a company like I guess in
1:00:31
Speaker 1: some ways Disney and Amazon are somewhat similar, but in
1:00:35
Speaker 1: so many ways. They're so different. What led you to
1:00:38
Speaker 1: each of them and what led you to stay with
1:00:41
Speaker 1: them over the long haul? Well, let me take each
1:00:44
Speaker 1: of those two because they think they yes, they are
1:00:48
Speaker 1: instructives to take Amazon as as a as an example.
1:00:51
Speaker 1: I talked earlier about the importance of the shareholders of
1:00:54
Speaker 1: Marquel and the desire that we have at Marquel to
1:00:57
Speaker 1: have great shareholders who are thoughtful and intelligent and and
1:01:01
Speaker 1: really contribute ideas and thoughts to me and to mark
1:01:07
Speaker 1: Hell that make us better, and specifically with Amazon. I
1:01:10
Speaker 1: have a friend named Josh Tarasov who runs his own
1:01:13
Speaker 1: UM investment management firm, and he's he's done extraordinarily well,
1:01:17
Speaker 1: so mark El shareholder friend Um and and so we
1:01:20
Speaker 1: had a relationship. We talked back and forth, and Josh
1:01:24
Speaker 1: noticed that if you went back and I can't again
1:01:28
Speaker 1: a lose track of time a decade or more or whatever,
1:01:32
Speaker 1: our holdings in the world of technology were pretty slim
1:01:36
Speaker 1: call it. Let's round it to zero, not much. And
1:01:39
Speaker 1: and Josh and is is kind and helpful and gentle
1:01:42
Speaker 1: way was helping me realize I might be making a
1:01:45
Speaker 1: mistake about this. And when you say kind and gentle,
1:01:49
Speaker 1: was he like, Tom, what the hell are you doing here?
1:01:52
Speaker 1: You're missing the boat? Or was he you know, how
1:01:54
Speaker 1: kind and how gentle? He really was kind of gentle.
1:01:56
Speaker 1: So just despite I mean, I love New Yorkers because
1:02:00
Speaker 1: they are they are by the way, that was kind
1:02:02
Speaker 1: and gentle. Just so you know, I understand that completely.
1:02:05
Speaker 1: Um And and there's no mystery or subterviews about that.
1:02:08
Speaker 1: You know, what is warm with you? I get that,
1:02:11
Speaker 1: So I can absorb that and not take it personally.
1:02:14
Speaker 1: But by the way, Josh is a kind and gentle person.
1:02:16
Speaker 1: But it really walked me through thinking about Amazon and
1:02:21
Speaker 1: helping me to come to understanding in a in a
1:02:24
Speaker 1: much more productive way than that that I had in
1:02:26
Speaker 1: the past. So that's point number one. So that trade
1:02:29
Speaker 1: worked out, I'm guessing yeah, it's more more more green
1:02:32
Speaker 1: than red on that one. And here's the other thing
1:02:33
Speaker 1: that that really matters. So one of my hiccups or
1:02:37
Speaker 1: concerns about Amazon would have been the idea of the
1:02:39
Speaker 1: valuation at that instant. You know, what, what what is
1:02:42
Speaker 1: it if I if I pencil out numbers? Um And
1:02:46
Speaker 1: because Marquel has been a profitable insurance underwriting an organization
1:02:52
Speaker 1: for so long, what that creates is regular periodic cash
1:02:55
Speaker 1: flow and the ability to do dollar cost averaging. So
1:02:58
Speaker 1: I've been to Marquel a little for thirty years, well
1:03:01
Speaker 1: times four for a quarter, that's a hundred and twenty quarters.
1:03:05
Speaker 1: And I would say of those hundred and twenty quarters
1:03:08
Speaker 1: that I've been there, the insurance operations and now the
1:03:11
Speaker 1: venturous operations as well, have deposited cash into the investment account,
1:03:18
Speaker 1: maybe a hundred and sixteen out of those under in
1:03:20
Speaker 1: twenty quarters. So you have money to put to work, exactly.
1:03:23
Speaker 1: And if I make a mistakes, Among the mistakes you
1:03:26
Speaker 1: can make are you can make a mistake about valuation,
1:03:30
Speaker 1: where look, this is a great company, but it's just
1:03:32
Speaker 1: really high priced and so you paid too much for it.
1:03:36
Speaker 1: Or you can make a mistake about the business itself
1:03:38
Speaker 1: it's not as good a business as you thought it was. Well,
1:03:41
Speaker 1: if I'm right about the second thing, that this is
1:03:43
Speaker 1: really a good business, I get to solve for the
1:03:47
Speaker 1: valuation problem a little bit by dollar crost averages, nibble, nible, nimble, nimble, nimblemble,
1:03:51
Speaker 1: dooble over time, and and again. The ultimate return that
1:03:55
Speaker 1: you earn if you really have a long term horizon
1:03:59
Speaker 1: is the intrinsic return that the business itself earns, not
1:04:02
Speaker 1: the trading returns from the more volatile stock farns. It's
1:04:05
Speaker 1: the underlying returns on capital that the business and self farns.
1:04:08
Speaker 1: So dollar cost averaging and flow and time. It enables
1:04:13
Speaker 1: you to get to the point where, um, you can
1:04:17
Speaker 1: you can. You can power your way through evaluation error,
1:04:21
Speaker 1: especially if the growth is exactly exactly. I mean, that
1:04:24
Speaker 1: needs to be true for you to be able to
1:04:26
Speaker 1: power through the valuation. But if the growth doesn't happen,
1:04:28
Speaker 1: then you've got a problem on your aunts. What about
1:04:30
Speaker 1: a company like Regeneraan, which seems to be so industry specific. Yeah,
1:04:35
Speaker 1: and I'm going to give credit to my colleague Dan
1:04:37
Speaker 1: Gartner for that particular stock that is that is his
1:04:40
Speaker 1: pick and the way our system works, Um, he has
1:04:43
Speaker 1: a sleeve of money that he manages. He gets a
1:04:45
Speaker 1: portion of that of that flow as well. And part
1:04:48
Speaker 1: of his job for me is to signal through his
1:04:52
Speaker 1: purchases what he has conviction about. And Regeneraan is his
1:04:56
Speaker 1: idea and something that he has conviction about. And again,
1:04:59
Speaker 1: if you look Regeneration's performance over the last five ten years,
1:05:02
Speaker 1: I mean it's especially the past two years have been
1:05:05
Speaker 1: pretty good, but even more than that. And and again,
1:05:07
Speaker 1: while Dan is the expert on that, not me, you
1:05:10
Speaker 1: have founder leaders here, they were in place. You have
1:05:13
Speaker 1: a culture of scientific discovery that seems to be embedded
1:05:17
Speaker 1: in that organization. And talk about sort of the comfort
1:05:20
Speaker 1: level that you get from investing people that are making
1:05:23
Speaker 1: the world a better place rather than the worst place.
1:05:26
Speaker 1: Regeneration is solving some thorny problems. And and I as
1:05:29
Speaker 1: a human being, I'm grateful for what for what they
1:05:32
Speaker 1: do and what they've come come up with a sort
1:05:35
Speaker 1: of rooting for them. So it wins on a lot
1:05:37
Speaker 1: of different counts. So I saw you give a speech
1:05:39
Speaker 1: some years ago where you said, hey, when you walk
1:05:42
Speaker 1: into the bar, you want to be the bartender or
1:05:45
Speaker 1: not the people at paying for drinks. And hence the
1:05:49
Speaker 1: parallel or things like black Rock and and t ro Price.
1:05:53
Speaker 1: Tell us about the thoughts about investing in the world
1:05:57
Speaker 1: of financial services. Yes, I think it's fundamentally historically been
1:06:01
Speaker 1: a very good business for a long time. I think
1:06:04
Speaker 1: that will continue to be the case. So now a
1:06:07
Speaker 1: lot of people look at this space. I'm sorry to interrupt,
1:06:09
Speaker 1: but a lot of people look at the space and say, hey,
1:06:11
Speaker 1: there's fee pressure, and there's competition from crypto and from
1:06:16
Speaker 1: private equity and from all this other stuff. How do
1:06:19
Speaker 1: you respond to that. I think there's always been competition.
1:06:22
Speaker 1: Competition is just the nature of things. That's all to
1:06:24
Speaker 1: to bring in a different topic, the idea of theology
1:06:27
Speaker 1: that said Martin Luther's Great Gift to the world was
1:06:31
Speaker 1: not the theology of Lutherism, it was it was competition.
1:06:33
Speaker 1: So the Catholic Church had some competition. It's been going
1:06:36
Speaker 1: on for a long time. It is the nature of
1:06:38
Speaker 1: of creativity and freedom that uh. And this is a
1:06:41
Speaker 1: wonderful thing that you hope somebody somewhere saying, you know,
1:06:44
Speaker 1: I could do that better than that. Our rural progresses
1:06:47
Speaker 1: on account of that. But and here's the other advantage
1:06:50
Speaker 1: in financial services, Um, there's not a lot of sunk
1:06:54
Speaker 1: costs when when you have a financial operation. So if
1:06:58
Speaker 1: something is not profitable, you don't have a planet that
1:07:02
Speaker 1: you need to deject exactly, So fire that group and
1:07:05
Speaker 1: move on. Right. It's all human capital. It's not it's
1:07:09
Speaker 1: not big factories or cranes or any of that stuff.
1:07:13
Speaker 1: It's your people are your assets. And you know you're
1:07:16
Speaker 1: constantly they're all competing with one another to show their ability. Right.
1:07:20
Speaker 1: So if you look at sort of anything in the
1:07:22
Speaker 1: financial services businesses, by and large, it's like our body
1:07:26
Speaker 1: temperature that we have to check before we got into
1:07:28
Speaker 1: come into the building today, ninety eight point six, and look,
1:07:31
Speaker 1: if you're one on one point six, I'm bet they
1:07:33
Speaker 1: wouldn't have let me in here today for sure. Pretty
1:07:36
Speaker 1: quick feedback loops, So financial services groups and and this
1:07:40
Speaker 1: is a really important notion, the idea of feedback loops
1:07:43
Speaker 1: and and awareness and tying that to humility and just
1:07:46
Speaker 1: always been willing to listen to other people. Where people
1:07:49
Speaker 1: get themselves in trouble is where they where they don't
1:07:52
Speaker 1: pay attention to feedback loops. And there are some things
1:07:55
Speaker 1: that I put in the category these are mistakes that
1:07:58
Speaker 1: only experts can make because people are so sure themselves.
1:08:02
Speaker 1: And I read a wonderful book recently called The Long
1:08:05
Speaker 1: Gray Line, and it's by a gentleman named Rick Atkinson.
1:08:08
Speaker 1: It is about the West Point class of nineteen sixty six.
1:08:12
Speaker 1: This is a really good book. And if you think
1:08:14
Speaker 1: about that, just picture it in your mind for a second.
1:08:17
Speaker 1: So those kids, and they were kids when they started
1:08:21
Speaker 1: would have been the entering West Point in ninetto the
1:08:25
Speaker 1: height of idealism and JFK and Moon Race and all
1:08:29
Speaker 1: that sort of stuff. And the author does this great
1:08:31
Speaker 1: job of connecting you to this kid from Wisconsin and
1:08:34
Speaker 1: this kid from Tennessee, and this kid from upstate in
1:08:36
Speaker 1: New York, and there were girlfriends and their family and
1:08:38
Speaker 1: their situations, and you really felt like you got to
1:08:40
Speaker 1: know them. And then you got to follow them through
1:08:43
Speaker 1: their four years at West Point and who was the
1:08:45
Speaker 1: rule follower and who was the rule breaker, and and
1:08:47
Speaker 1: and the branches of the army that they decided to
1:08:51
Speaker 1: go to so on and over, and then they finished
1:08:53
Speaker 1: in nineteen sixty six and they had dumped into Vietnam,
1:08:58
Speaker 1: and you hear their story race and and the tragic
1:09:03
Speaker 1: circumstances of what was involved. And if the people who
1:09:05
Speaker 1: were in charge had listened to the people who were
1:09:09
Speaker 1: on the ground, we would have done things differently. And
1:09:12
Speaker 1: when you see that so vividly explain there, it puts
1:09:17
Speaker 1: me in this situation where we have twenty some thousand
1:09:20
Speaker 1: people working from Marquel. I feel responsible for them, and
1:09:23
Speaker 1: I feel responsible for the decisions that I make that
1:09:27
Speaker 1: affect them with no control or ability to influence their
1:09:32
Speaker 1: fate by themselves sometimes, so I always went to personally
1:09:36
Speaker 1: guard against being that expert who thinks he knows. I
1:09:40
Speaker 1: want to listen, I want to hear it. I want
1:09:42
Speaker 1: to I want to get that sense of what the
1:09:43
Speaker 1: people with boots on the ground who were there doing
1:09:46
Speaker 1: it have, um and that that feedback loop of just
1:09:49
Speaker 1: staying connected to that is a fundamentally important philosophy and
1:09:53
Speaker 1: way of doing things. I liked that a whole lot. Uh.
1:09:57
Speaker 1: Last company, I want to ask you before we get
1:09:59
Speaker 1: to our favorite questions. You have been a marriage shareholder
1:10:04
Speaker 1: for a long time. Are you still a share holder?
1:10:06
Speaker 1: Unfortunately now? And again that was also exactly I mean
1:10:11
Speaker 1: they still haven't recovered. Yeah. And and my goodness, if
1:10:14
Speaker 1: you um, I mean Arnie Sorenson, who did a spectacular
1:10:18
Speaker 1: job as the leader there. If you saw the video
1:10:21
Speaker 1: that he put out in the early days of the
1:10:23
Speaker 1: pandemic and the emotions that were there. And I'm sure,
1:10:28
Speaker 1: but I don't know whether the cancer had been disclosed
1:10:30
Speaker 1: at that point or not. Uh, that was the first
1:10:33
Speaker 1: class individual doing first class things. I still have every
1:10:37
Speaker 1: epic regard for the business but given their circumstances, in
1:10:41
Speaker 1: our circumstances, I needed to make the painful but difficult
1:10:44
Speaker 1: decision to to eliminate that portfolio. And technically, you could say,
1:10:50
Speaker 1: and I'll admit made a mistake that that stock price
1:10:53
Speaker 1: is higher today than it was when we sold it,
1:10:55
Speaker 1: But we sold it for different reasons than just what
1:10:58
Speaker 1: the stock price was at that POINTE fascinating, Tom. I
1:11:01
Speaker 1: know I only have you for a couple of minutes,
1:11:03
Speaker 1: and I have to thank you for being so generous
1:11:05
Speaker 1: with your time. But let's jump to all of our
1:11:08
Speaker 1: favorite questions we ask all of our guests. See if
1:11:11
Speaker 1: we can get a little insight into a little more
1:11:13
Speaker 1: insight into who you are and what makes you tick.
1:11:16
Speaker 1: Starting with tell us what has kept you entertains? Uh
1:11:21
Speaker 1: during the past eighteen months? What are you watching on
1:11:24
Speaker 1: either Netflix or Amazon Prime? Uh? Well, during this period
1:11:28
Speaker 1: when we've all been stuck at home. Well, sure, I
1:11:31
Speaker 1: am completely grateful for the return of live sports and
1:11:34
Speaker 1: live music because those are both things that I just
1:11:37
Speaker 1: love h immensely. And uh, it's football season and I
1:11:42
Speaker 1: have a college football guy. But to be able to
1:11:44
Speaker 1: go back to u v A and be in person
1:11:46
Speaker 1: for those games, and over the last forty years i've
1:11:50
Speaker 1: been I've missed no more than five home football games
1:11:52
Speaker 1: at v A. And it's what my family does. So
1:11:54
Speaker 1: so I went to v A, my wife went to
1:11:55
Speaker 1: u v A. I have three children who went to
1:11:57
Speaker 1: address everybody up in the guard the stadium. Fortunately, my
1:12:01
Speaker 1: children are old enough that I don't have to dress
1:12:03
Speaker 1: them anymore, and when they were young enough to have
1:12:05
Speaker 1: to be dressed pretty much my wife did that. So
1:12:08
Speaker 1: I'm not much what I mean, you're wearing a sweat show,
1:12:11
Speaker 1: We're there. We're good for that. So it's it's fun
1:12:13
Speaker 1: to be back at live sporting events and live music
1:12:16
Speaker 1: in terms of podcasts and streaming. I'll tell you one
1:12:20
Speaker 1: that has really captured me is Broken Record with Rick Rubin.
1:12:24
Speaker 1: I don't know if you know Rick music producer with
1:12:27
Speaker 1: complete diversified portfolio, everybody from Jay Z to Johnny Cash.
1:12:31
Speaker 1: Did he record a Springsteen albums? I don't know, but
1:12:37
Speaker 1: I certainly wouldn't rule it out. Who didn't he record
1:12:39
Speaker 1: and who didn't he do over the last thirty years.
1:12:42
Speaker 1: So it's a fabulous way of learning history when you
1:12:47
Speaker 1: have somebody as knowledgeable as as what Rick Rubin is
1:12:51
Speaker 1: and has been connected to so much music. I mean
1:12:54
Speaker 1: music reflects the zeitgeist of the times, and whether it's
1:12:58
Speaker 1: reflecting it or cause and it it's it's it's right there.
1:13:02
Speaker 1: So uh for these artists to talk about their craft
1:13:05
Speaker 1: and talk about their art with I find those conversations
1:13:09
Speaker 1: to be things that I really learned from and have
1:13:12
Speaker 1: been UM just sort of as I go out and
1:13:15
Speaker 1: walk listening to that podcast quite a bit. It's my
1:13:18
Speaker 1: favorite one. I'm gonna check that out. I'm a big
1:13:20
Speaker 1: music fan. Um. Since you mentioned going to live shows,
1:13:23
Speaker 1: what live acts have you seen since the world has
1:13:27
Speaker 1: begun to reopen? Well, there's a there's a particular artist
1:13:31
Speaker 1: in in Virginia. I'll give him a plug here. His
1:13:33
Speaker 1: name is Scott Miller. He's from Swoop, Virginia, which is
1:13:37
Speaker 1: outside Stanton. And neither one of them sounds the way
1:13:40
Speaker 1: it's spelled. And I'll let your viewers google that that
1:13:44
Speaker 1: map and figure out what I'm saying there. But Scott
1:13:48
Speaker 1: I would describe as someone who has sort of a
1:13:49
Speaker 1: definitive Virginia voice. So listen to his music. It's a singer,
1:13:54
Speaker 1: songwrite or folks stuff. And I think I've heard him
1:13:57
Speaker 1: about four or five times since the uh since the
1:14:01
Speaker 1: pandemic is that it first when first live shows started,
1:14:05
Speaker 1: he had one in Staten, Virginia and then one up
1:14:07
Speaker 1: in a natural Chimneys which is near Harrisonburg, Virginia. So
1:14:11
Speaker 1: you've done two shows in two weeks, and I had
1:14:13
Speaker 1: been to both shows. I was telling people I had
1:14:15
Speaker 1: been to on of the Scott Miller concerts that had
1:14:19
Speaker 1: been since the pandemic. And I'm not still a little
1:14:21
Speaker 1: hundred percent, but anytime I get the chance to to
1:14:23
Speaker 1: hear him, I looked to do. So. One of the
1:14:26
Speaker 1: artists that threw the during the pandemics that he's not
1:14:29
Speaker 1: touring anymore is Aaron Neville. He's probably a little more
1:14:32
Speaker 1: well known than than than Scott Miller up until the pandemic.
1:14:35
Speaker 1: That's the artist who had seen the most times and
1:14:37
Speaker 1: absolutely love his his music and just just being in
1:14:41
Speaker 1: a room where Aaron Neville is saying that's a good thing. Yeah,
1:14:44
Speaker 1: to say the least. The Neville brothers also the whole
1:14:47
Speaker 1: the whole family's supertown. Correct. Um. Let's talk about your
1:14:50
Speaker 1: early mentors who helped shape or guide your career. Well,
1:14:54
Speaker 1: clearly my father probably occupies a singular spot in that um.
1:14:58
Speaker 1: He was a cp A in Salem County, New Jersey.
1:15:01
Speaker 1: In Salem County, compared to most parts of New Jersey's
1:15:04
Speaker 1: very rural um, he would have started his c p
1:15:08
Speaker 1: A practice in Salem County probably in the early nineteen fifties,
1:15:12
Speaker 1: after serving in World War Two and finishing up his
1:15:15
Speaker 1: UH education at Temple on the on the G I
1:15:18
Speaker 1: bill just to give some insight into my father and
1:15:21
Speaker 1: the way he did things. So he became a reasonably
1:15:24
Speaker 1: successful businessman over over time. And when people would ask
1:15:28
Speaker 1: him where he went to school, he would say Temple, oh.
1:15:32
Speaker 1: And I observed my father doing that all the time,
1:15:33
Speaker 1: and I kind of one time I asked him, Dad,
1:15:36
Speaker 1: when when people ask you where you good school, you
1:15:38
Speaker 1: say Temple? Oh? Why? Why why do you do that?
1:15:40
Speaker 1: He said, Well, when I say Temple, people say oh,
1:15:44
Speaker 1: So I figured i'd save him the time. That's very flat,
1:15:49
Speaker 1: but that's an insight into the way he did things.
1:15:51
Speaker 1: And I don't know if you remember the show Green Acres, well,
1:15:54
Speaker 1: there was Mr Douglas and Mr Haney as the polar opposites,
1:15:59
Speaker 1: and my father was somewhere between the two so he
1:16:01
Speaker 1: had practiced with the predecessor firm of Deloitte in Philadelphia,
1:16:05
Speaker 1: but left the big city to return to where he
1:16:07
Speaker 1: was born, in Salem County, and became an accountant there.
1:16:11
Speaker 1: And he had a very interesting practice. So he would
1:16:14
Speaker 1: do people's tax work. He did business consulting, He owned
1:16:17
Speaker 1: a liquor store, among other things. He would put together
1:16:19
Speaker 1: deals and as opposed to taking a fee, would take
1:16:22
Speaker 1: a percentage interest in the in the business of a
1:16:24
Speaker 1: little bit of carri Avengers. And his office was in
1:16:26
Speaker 1: our home and in the house where I grew up,
1:16:28
Speaker 1: among other things. In addition to just during my father
1:16:31
Speaker 1: and liking him and hanging out with him. Um in
1:16:34
Speaker 1: the farmhouse we grew up we grew up in, there
1:16:36
Speaker 1: were only two rooms that were air conditioned. One was
1:16:38
Speaker 1: my parents bedroom and the other was his office. So
1:16:41
Speaker 1: for all kinds of reasons, I hung out at his office.
1:16:44
Speaker 1: And he read the Wall Street Journal, So I read
1:16:45
Speaker 1: the Wall Stree Journal. And and as a kid doing
1:16:48
Speaker 1: my homework or just sitting in his office coloring books
1:16:51
Speaker 1: or reading whatever, I would hear him as he was
1:16:54
Speaker 1: talking to people on the phone, or people would be
1:16:56
Speaker 1: in and out, and and he was kind enough. I
1:16:58
Speaker 1: came along a little bit later in his life where
1:17:00
Speaker 1: I was just allowed to be an observer and through
1:17:03
Speaker 1: osmosis pick up the idea of business without formal instruction.
1:17:08
Speaker 1: But that was that was the case from a from
1:17:10
Speaker 1: an early age. So so many things I learned about
1:17:13
Speaker 1: life and business was just hanging around with my dad
1:17:16
Speaker 1: through the early years of my life. Interesting, you mentioned
1:17:20
Speaker 1: the long gray line. What are some of your other
1:17:22
Speaker 1: favorite books? What have you been reading lately and what
1:17:25
Speaker 1: are some of your favorites? Well, it's funny you should
1:17:27
Speaker 1: ask that, And um, I read all the time. That's
1:17:30
Speaker 1: what I do in spare moments. And I love traveling
1:17:32
Speaker 1: for so many reasons, not the least of which it's
1:17:34
Speaker 1: always have a book in my hand and a bag
1:17:36
Speaker 1: of stuff to read. And it's like asking me, what
1:17:39
Speaker 1: what did I eat last Tuesday? I don't know, but
1:17:42
Speaker 1: I'm sure I ate something. So I always draw the
1:17:45
Speaker 1: blank when people ask me that questions. I know what
1:17:47
Speaker 1: I'm reading right now. It's The Lincoln Highway by Amor Tolls.
1:17:51
Speaker 1: And I thought his book Gentleman in Moscow was a
1:17:54
Speaker 1: spectacular book, so I eagerly awaited his his next book
1:17:58
Speaker 1: that has come out recently. I think it might be
1:18:00
Speaker 1: even better written than Gentleman in Moscow. So it's it's
1:18:03
Speaker 1: it's a wonderful book. And I will say one thing
1:18:05
Speaker 1: about reading, uh, I mean obviously connects to role models.
1:18:09
Speaker 1: Charlie Munger is about as good as they get. At
1:18:11
Speaker 1: the top of the list, Monger talks about not reading
1:18:13
Speaker 1: fiction and he thinks it's a waste of time. That's
1:18:16
Speaker 1: something that I would disagree with. And I think one
1:18:18
Speaker 1: of the reasons I enjoy fiction is fiction by definition,
1:18:23
Speaker 1: creates muscles of empathy. To read a good work of fiction,
1:18:27
Speaker 1: what's gonna happen is you're going to find yourself sort
1:18:30
Speaker 1: of inhabiting the character, and you're gonna find yourself in
1:18:34
Speaker 1: that setting and in that circumstances. And what you're doing
1:18:36
Speaker 1: without even realizing is you're figuring out and learning how
1:18:40
Speaker 1: to put yourself in someone else's shoes. And I think
1:18:43
Speaker 1: that is a very underappreciated skill in today's world where
1:18:47
Speaker 1: we it's it's so easy to just get inside your
1:18:50
Speaker 1: own head and living your own world, to live and
1:18:52
Speaker 1: work remotely, to have your groceries delivered, you kind of
1:18:54
Speaker 1: forget what it means to be part of a broader
1:18:57
Speaker 1: society and to be able to see things from somebody
1:19:00
Speaker 1: else's point of view. I can't think of anything that's
1:19:03
Speaker 1: really more powerful than that. So I think the tool
1:19:06
Speaker 1: of reading fiction, just to just to teach yourself how
1:19:09
Speaker 1: to do that, is a really good way of of
1:19:12
Speaker 1: doing things. I'm gonna share something amusing with you. We
1:19:15
Speaker 1: were having a conversation about uh. Isaac Asimov's Foundation is
1:19:20
Speaker 1: now a show on Apple Plus and Dune. Frank Herbert's
1:19:24
Speaker 1: June not only is in the theaters, but it's on
1:19:27
Speaker 1: HBO Max. And the conversation we had amongst a group
1:19:31
Speaker 1: of investors are the kids like me who were big
1:19:36
Speaker 1: sci fi nerds not coincidentally, tend to be more inclined
1:19:42
Speaker 1: to invest in technology and some out their concepts than
1:19:46
Speaker 1: the people who always thought sci fi was wacky. And
1:19:48
Speaker 1: I'm I'm I would be fascinated to find out if
1:19:51
Speaker 1: anybody has ever done a study on that, because if
1:19:54
Speaker 1: it makes sense, Hey, half the stuff we read about
1:19:57
Speaker 1: in sci fi self dry in cars, robots, Uh, magic
1:20:02
Speaker 1: shots of your own DNA that make diseases go away.
1:20:07
Speaker 1: That's eight years old, and here it is a portable
1:20:11
Speaker 1: computers that allow you to do video talking in your pocket.
1:20:15
Speaker 1: All this stuff is straight out of sci fi. So
1:20:18
Speaker 1: who better to be investors in that than the people
1:20:21
Speaker 1: who it was formative for them as as a child.
1:20:24
Speaker 1: I can remember as a kid, I spent a lot
1:20:26
Speaker 1: of saturdays in my youth at the Franklin Institute in Philadelphia,
1:20:29
Speaker 1: which is their science museum, And I can remember the
1:20:32
Speaker 1: um first telephone that had video attached to it, and
1:20:36
Speaker 1: you would stand in one room and your friend would
1:20:38
Speaker 1: stand in the other room, and you would talk to
1:20:39
Speaker 1: yourself over this amazing thing. Of course, it died because
1:20:42
Speaker 1: network effect. At that time, it was so expensive that
1:20:46
Speaker 1: all right, you got one, Well are you gonna call?
1:20:48
Speaker 1: There's nobody else who has one. But it has become pervasive.
1:20:51
Speaker 1: In your point, your point is well taken. What sort
1:20:54
Speaker 1: of advice would you give to a recent college grad
1:20:57
Speaker 1: who was interested in a career in either venture private
1:21:01
Speaker 1: equity investing or traditional finance investing? Well, um, there's a
1:21:08
Speaker 1: guy even here's a book I read Robert Hagstrom, who
1:21:10
Speaker 1: has written a lot of books about Buffett. I think
1:21:13
Speaker 1: you wrote a book, if I'm remembering the title exactly right,
1:21:16
Speaker 1: called Investing the Last liberal art. And it really is
1:21:21
Speaker 1: the concept and the notion of using both the right
1:21:25
Speaker 1: and left side of your brains, both of them too.
1:21:28
Speaker 1: Analyze and be disciplined and and do your work, but
1:21:32
Speaker 1: at the same time, never lose your sense of imagination, creativity, curiosity,
1:21:39
Speaker 1: wonder about what else might be true, what's the other
1:21:42
Speaker 1: side of the argument. Um have one friend, shad Row
1:21:46
Speaker 1: from from Texas, who has Texas ways of saying things,
1:21:49
Speaker 1: And one of his statements that I always remember is
1:21:51
Speaker 1: that you must remember that any pancake, no matter how thin,
1:21:55
Speaker 1: has two sides. So I think the number one thing
1:21:59
Speaker 1: is as you're coming up, is just always be developing
1:22:02
Speaker 1: your mind, be developing your creativity, and be developing those
1:22:06
Speaker 1: feedback loops and and don't ever think you've arrived at
1:22:09
Speaker 1: the answer. This is not a problem to be solved.
1:22:11
Speaker 1: It's a problem to be worked at, and it's fun
1:22:13
Speaker 1: to work at it. It's it's it's exercise in your mind.
1:22:16
Speaker 1: It's it's it's free, and it's it's it's like that
1:22:18
Speaker 1: scene from Chariots of Fire where the you know, the
1:22:21
Speaker 1: sister is telling the runner, you know, he shouldn't run
1:22:25
Speaker 1: on Sundays, And there was a person of deep faith,
1:22:27
Speaker 1: and he responded to his sister that, well, yes, the
1:22:30
Speaker 1: Lord giving me faith, but he also made me fast.
1:22:33
Speaker 1: So the run is how he feels his grace. That
1:22:36
Speaker 1: was what he was made to do. So I think
1:22:39
Speaker 1: if you're if you really are fascinated by finance and investments,
1:22:43
Speaker 1: and I know as a kid, I always have been
1:22:45
Speaker 1: um doing it every day, reading something, talking to somebody,
1:22:50
Speaker 1: arguing a case back and forth, both sides. In fact,
1:22:54
Speaker 1: one of the things that I joked with Steve Marquelle
1:22:57
Speaker 1: about had this sort radminical style about him where at
1:23:02
Speaker 1: any given point in time, his office was next to
1:23:04
Speaker 1: mine for many years, and if I had an idea,
1:23:07
Speaker 1: I would go into his office and I would tell
1:23:08
Speaker 1: Steve this idea and he would say, and that's just
1:23:11
Speaker 1: the dumbest thing I ever heard. And we would argue
1:23:13
Speaker 1: it and I would go away, and then I would
1:23:16
Speaker 1: come back a couple of days later or something that
1:23:18
Speaker 1: I said, you know, Steve, I think actually you were
1:23:19
Speaker 1: right about that, and he and he would say, no,
1:23:22
Speaker 1: I think you were right about that, and then we
1:23:24
Speaker 1: would argue with the other way. And that was just
1:23:27
Speaker 1: the technique to get more robust understanding of what might
1:23:32
Speaker 1: in fact be the case, and usually it's not the
1:23:34
Speaker 1: polar extreme. In either case, the answer is to be
1:23:38
Speaker 1: found somewhere in the middle. And as one of my
1:23:41
Speaker 1: one of my digitally cool friends says, people have forgotten
1:23:44
Speaker 1: the fact that there are some numbers that exist between
1:23:47
Speaker 1: zero and a hundred. You know, the genius of law
1:23:50
Speaker 1: school is that mood court forces you to not pick
1:23:54
Speaker 1: usaw and argue it. You have to be prepared not
1:23:57
Speaker 1: only to argue both sides, but at at a moment's
1:24:01
Speaker 1: known as switched positions, and suddenly you know alonely the
1:24:04
Speaker 1: plane if you're now the defendant, and you have to
1:24:06
Speaker 1: make that case. And there's something to be said for
1:24:10
Speaker 1: you shouldn't be long anything unless you understand you know,
1:24:13
Speaker 1: you shouldn't be bullish on anything unless you understand the
1:24:15
Speaker 1: bear case, and vice versa, because listen, someone's for every buyer,
1:24:20
Speaker 1: there's a seller. There's two sides to you know that pancake.
1:24:23
Speaker 1: You have to be able to be on to see
1:24:25
Speaker 1: at least both sides of that argument. So our final question,
1:24:29
Speaker 1: what do you know about the world of investing today?
1:24:32
Speaker 1: You wish you knew thirty seven years ago or so
1:24:34
Speaker 1: when you were first getting started. If I look at
1:24:38
Speaker 1: the mistakes that I've made, the ones that have been
1:24:40
Speaker 1: most costly have been those of admission. So to look
1:24:43
Speaker 1: at Berkshire when I was twenty two years old and
1:24:46
Speaker 1: have it so obvious to me as an accountant that
1:24:49
Speaker 1: this is good, and yet not by it that's stupid. UM,
1:24:53
Speaker 1: And I think I make that mistake less than I
1:24:55
Speaker 1: used to. Um. When you find something that's really good.
1:24:58
Speaker 1: I mean, here's another thing that Buffets said that has
1:25:00
Speaker 1: has profoundly changed for me over time. He says, you know,
1:25:03
Speaker 1: being an investor made him a better businessman, and being
1:25:06
Speaker 1: a businessman made him a better investor. I can tell
1:25:09
Speaker 1: you through the responsibility of what's involved in mark a
1:25:14
Speaker 1: ventures and operating real businesses. I know from firsthand experience
1:25:19
Speaker 1: that operating a real business and doing well at it
1:25:22
Speaker 1: is hard. It's hard, and people who are good at it, Uh,
1:25:28
Speaker 1: don't be so quick to abandon them when they go
1:25:31
Speaker 1: through a rough spot. Uh. Again, going back to Shadow,
1:25:34
Speaker 1: he has a saints is in the investment business. Uh,
1:25:37
Speaker 1: You're You're never smart. People generally speaking don't become stupid,
1:25:43
Speaker 1: and stupid people almost never become smart. So if you
1:25:47
Speaker 1: find smart, hard working, intelligent, creative, dedicated people, stick with
1:25:53
Speaker 1: them because they're going to accomplish things over time that
1:25:56
Speaker 1: will amaze you, and and give them the leeway, give
1:25:59
Speaker 1: them the grace to make mistakes when there are mistakes
1:26:02
Speaker 1: of learning UH and non fatal that you can you
1:26:05
Speaker 1: can recover and learn from. And just having grace for
1:26:09
Speaker 1: that is something that's easier when you're older than it
1:26:12
Speaker 1: is when you're younger. So those are things I wish
1:26:14
Speaker 1: I knew was a twenty nine year old instead of
1:26:16
Speaker 1: having to them. That's a lovely point to end on.
1:26:20
Speaker 1: Thank you so much, Tom for being so generous with
1:26:23
Speaker 1: your time. We have been speaking with Tom Gainer. He
1:26:27
Speaker 1: is the c i O and co CEO of Marquel Corporation. UH.
1:26:31
Speaker 1: If you enjoy this conversation, we'll be sure and check
1:26:34
Speaker 1: out any of the previous four hundred such discussions we've had.
1:26:38
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Speaker 1: wherever you get your podcast from. We love your comments,
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Speaker 1: Daily Reads at rit Halts dot com. Follow me on
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Speaker 1: Twitter at rit Halts. I would be remiss if I
1:27:01
Speaker 1: did not thank the crack team that helps put these
1:27:03
Speaker 1: conversations together each week. Paris Wald is my producer, Mohammed
1:27:08
Speaker 1: is my audio engineer. Michael Batnick is my head of research.
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