The Evolution of a Value Investor – Tom Gayner

Tom Gayner is the president and Chief Investment Officer at Markel, and a Director at Graham Holdings, Colfax, the Davis Mutual Funds as well as The Community Fund of Richmond and the Bon Secours Health System. Mr. Gayner, who is a CPA, worked as an accountant, a stockbroker and an equity analyst before joining Markel in 1990.

Evolution of Investing

  • Language of business is accounting, need rudimentary understanding of accounting to give context to what the numbers mean when analyzing a company
  • Quantitative metrics does not tell you enough nowadays because pond of finding opportunities based solely on PE ratios, PEG ratio etc… is over fished
  • Notion of spotting value in only a small snapshot of time where you only buy it expecting it to go up in a short period doesn’t work
  • Moving from spotting of value to spotting the progression of value (what is its worth next year, the year after that etc.…)

4 Point View to Spot Opportunities

  1. Profitable Business with good returns on capital (Demonstrated record of profitability), that doesn’t use too much leverage to do it
  2. Management and the management teams that are running the business. 2 attributes: character and ability
  3. Reinvestment dynamics of the business: what is the compounding feature of the company? What feature of the business is scalable/replicable?
  4. Price + evaluation

Other Notes

  • To measure management + management teams, the questions to answer is whether the management’s value line up with your own investment strategy
  • To determine management effectiveness, read annual reports, proxy statements, magazine articles and get a gut feel whether if the management team is acting that is reasonable
  • The structure of Merkel is similar to Berkshire Hathaway in the sense that the basis of the company is an investment company, that used premiums collected to reinvest in equity and compound that growth overtime
  • “If you are living less than what you are making, you are rich” because if you keep doing that, that gap has the potential to compound, make a positive return over time
  • Before in Wall Street, Tom was screening for new lows, looking for that value stock to research
  • Now he looks for the new highs, and investigate why they are growing at that rate. This process will bring you higher quality stocks that compound significantly more over time