Everybody loves a good Warren Buffett quote. But the man can only say so much.
Lucky for us, the Berkshire Hathaway Chairman and CEO has inspired countless investors and operators to heed his advice and coin their own memorable quips.
One of those investors is the CIO at Markel (NYSE: MKL) , Tom Gayner. Like Berkshire, Markel prides itself on writing profitable insurance and skillfully investing the firm's capital with a penchant for Buffett-like stock picks.
The company has been wildly successful with this approach -- growing book value per share 1,750% over the past 20 years, or 15% annually. For comparison, Berkshire has compounded book value per share at an annual rate of roughly 14% over that time period (to be fair, Berkshire's equity base was 70 times the size of Markel's 20 years ago).
Gayner hasn't been at Markel for that entire run, but his temperament and wisdom have further bolstered the firm's sterling repuation. Here's are five nuggets of truth from Gayner from a speech back in 2008.
1. On management
Make sure that the people running the company, your partners, have equal measures of both talent and integrity, one without the other is useless.
Gayner's mention of "your partners" is noteworthy. Last week, at the Value Investing Congress, multiple presenters stressed the importance of insider ownership and scouring proxy statements. One presenter went as far as saying the proxy statement was "the most important SEC filing."
With huge chunks of skin in the game, in addition to integrity and talent, it's easy to see why founder-led companies such as Under Armour and Chipotle have been able to crush the market over the long haul.
2. On liquidity
Liquidity is a little bit like oxygen. We need it for the very breath of life itself; however, if our atmosphere was nothing but oxygen. we would blow ourselves to smithereens just from... trying to light a cigarette.
Given the Federal Reserve's recent actions, liquidity and its indirect impacts have been on top of investors' minds. With fresh money rushing into assets like agency mortgage-backed securities, mREITs like American Capital Agency (NASDAQ: AGNC) and ARMOUR Residential REIT (NYSE: ARR) have seen their balance sheets explode in size during a time of rising fixed-income prices.
Investors recently saw the potential side effect of too much liquidity when fear of the Fed turning down the faucet crept into the market and slammed bond prices.
3. On bad businesses
The worst kind of business in the world is one that doesn't make very good returns on capital, but needs more of it all the time -- we call those airlines.
Aside from Gayner's shot at airlines, he reminds us that this simple concept is often overlooked. If a company hasn't been a steward of your capital or has no plan to be one, why would you throw more money at a losing proposition?
4. On the price of gold, currencies, (the looming government shutdown), etc.
While they are all hugely important items, they're out of our control and not dependably predictable.
Yes, I added the mention of the potential government shutdown part, but I'm sure Gayner would include that in this list of unpredictables. Consider a business like Visa (NYSE: V) -- a company lauded for its high returns on capital. If the U.S. government shuts down for a few silly days, are consumers from hundreds of countries going to stop swiping their cards? No. Business will go on, and the good ones will continue to thrive.
5. On price
The way I define a fair price is one that allows me, as an outside shareholder, to earn the same sort of return that the business itself earns intrinsically.
Gayner is value investor at heart, but as investing guru Bruce Greenwald says, "everyone considers [themselves] a value investor." No one wants to pay $1 for something only worth $0.50.
Investors should be looking for businesses they believe have the ability to grow earnings or book value at a healthy rate, then ask themselves if the price the market is asking for that growth is reasonable. If a company can grow its earnings at 20% for the next several years, but you pay 60 times those earnings, you aren't likely to experience the same success as the underlying business.
Gayner's great, but he's still no Buffett Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.
David Hanson owns shares of Markel. The Motley Fool recommends Berkshire Hathaway, Chipotle Mexican Grill, Markel, Under Armour, and Visa. The Motley Fool owns shares of Berkshire Hathaway, Chipotle Mexican Grill, Markel, Under Armour, and Visa. Try any of our Foolish newsletter services free for 30 days.