Got back yesterday from Omaha trip to Berkshire Hathaway annual meeting aka Woodstock for Capitalists. There were many takeaways, I am going to blog here about the last event we attended and will fill in other details in future posts.
The last event we did was Sunday am, a breakfast hosted by Markel (NYSE:MKL). Markel is a Richmond, VA based specialty insurance company, they actually offer data breach protection now among many other things. Anyway, they follow the Berkshire model -write conservative policies, and invest the float. We got to see their CEO and CIO answer questions for two hours on all manner of investing questions. They have been compounding book value at ~ 20%/year going back to the 80s by following simple processes. I was struck by how often simplicity came up throughout the weekend. Buffett said on Saturday "if you are investor with an IQ of 155 then sell 30 points to someone else, you don't need them."
The most interesting part of the Markel breakfast for me was hearing firsthand what their CIO Tom Gayner had to say about investing. He has four basic rules of investing:
1. Invest in businesses that are profitable and earn good returns on total capital (w/o excessive leverage!). This seems basic but its important to remind yourself of its primacy (simplicity in action...also recall that avoiding leverage is important not just in the business you are investing in but also its customers)
2. People running the company must have talent *and* integrity. One without the other does you no good.
3. Reinvestment dynamics - best business in the world is one that makes good return on capital and can reinvest it to make the same or better rate - that's a compounding machine.
4. Fair price - a business that meets the first 3 criteria & as an outside shareholder earn the same sort of return the business would. Be on the same side of the table as management.
Finally there was this "I hope you notice the elements we describe didnt talk much about geopolitics, interest rates, the economy, commodity, oil, gold prices, etc" All important but you have no control over them. (just like threats vs vulnerabilities)
This approach has led Gayner and Markel to a very successful decade plus track record. Its also led them to "boring" companies like Pepsi and Diageo. However, I also noticed that SAP (NYSE:SAP) was in their portfolio. They have 0.8% invested in tech, didn't do the math but I guess SAP is the bulk of that. I have always been struck that despite being the 2nd or 3rd largest software company in the world you never hear about people investing in SAP and yet here it is in a value investor's portfolio next to the usual dowdy brands that value people love.
I got the chance to talk to Mr Gayner at the end and said " I am a software guy and was surprised to see SAP in your portfolio, we always joke that it stands for Shut up And Pay. Once you get it in it runs your business and you can't get it out. Can you comment on why you selected a tech company?"
Gayner said "I think you just answered your own question."
He had heard a bunch of people at companies complaining about their SAP implementations, when he asked them what they were going to do about it, the answer was - send another check to Germany. So he jumped in. Value investing is pretty simple.
Good video of a similar talk by Markel and Gayner here.