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