Wednesday, January 18, 2012

An Interview with Markel's Tom Gayner: On Hedging, Intrinsic Value, Banks, and Investing in Europe

Tom Gayner is president and chief investment officer of Markel Corporation (MKL) and president of Markel Gayner Asset Management (the investment subsidiary of Markel Corporation).  He's been investing their since 1990 and manages roughly $ 2 billion.

Over the past twenty years the book value* of Markel has compounded in the high teens.

As of September 30, 2011, the top holdings in the Markel portfolio included: Carmax (KMX), Berkshire Hathaway A & B shares (BRK.a, BRK.b), Fairfax Financial Ltd (FRFHF) and Diageo (DEO). Gayner doesn't sell stocks in the Markel portfolio all that often.

Some excerpts from this recent GuruFocus interview with the value investor:

On Hedging
...the costs of hedging are substantial, so we try not to incur those. We don't assume that we have a more accurate view of the future than others. So in general we try to avoid incurring those costs, which helps the returns.

In the interview, Gayner also explains how he'd estimate Markel's intrinsic value. Gayner's answer on intrinsic value is not unlike the way Berkshire Hathaway's intrinsic value can be estimated.

On Large Bank Stocks
...I have decided that they're beyond my circle of competence to invest in them.

In the interview, Gayner was asked about Fairfax Financial (and, as noted above, one of Markel's top holdings) saying:

"...we have a lot of respect for what they're doing and how they've compounded value over the years." 

He was also asked about Prem Watsa, the founder, chairman, and chief executive of Fairfax Financial calling him "a very talented and honest businessman."

A Solution to Investing in Europe?
If you look at Nestle (NSGRY) and Diageo (DEO) whether Europe goes up, down, sideways, whether they solve the problem in one month, or one year, or ten years, the economics of those companies are likely to do pretty darn well.

Successful investors generally know their own own limits well and Gayner sure seems to be a good example of someone with that quality.

Check out the full GuruFocus interview here.


* An imperfect measure but can still be a useful gauge.
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