The Exchanges

Q Well, let's go back. So the internet bubble, uh, sort of burst. I think it was March, 2001. Is that right?

A That is exactly right, and here's another case where sort of, um, luck, serendipity process all combined to create, as Munger would say, a Lollapalooza outcome. So we were involved in a transaction where, again, we, we bought a company that was larger than what we were, and that was Terra Nova, uh, and caused us to move from being a U.S.-based national insurer to an international company, and we were negotiating a deal right in the midst of all, all of that, um, in early, um, I believe the deal closed on March one. Now March ninth, I think was the day that the NASDAQ topped. I remember that because among other things, March ninth is my wife's birthday. So it's a, it's a meaningful date to me. Um, and within 20 minutes of me getting my hands on that portfolio, I had sold 99% of the equity positions because in my, my sense, they had drunk the Kool-Aid and had a NASDAQ Laden portfolio at a time when those, those prices just made no sense to me whatsoever. So on the, on the day of closing, we.

AI assessment note: “That is exactly right, and here's another case where sort of, um, luck”

Q I want to come back to Markel and just continue on this path to the present day. Let's fast forward to, uh, six months before what is known as the great financial crisis. What are the, what are your memories of sort of the conversations you're having inside of Markel? What you're thinking? Did you anticipate this happening? Um, yeah, walk me through that.

A Well, I mentioned my partner, Mike Eaton. Mike has a great saying. He says, you know what it feels like when you're making a mistake? Feels great. If it didn't feel good, you wouldn't be doing it. So when I think about oh six or seven or times that led up to the great financial crisis, I was making mistakes. I was, I was absolutely doing that. And I can remember, for instance, we were not large shareholders of Citicorp, but we did own some and maybe our cost in it was 50 bucks and it was seven times earnings and yielding five percent or something like that. The, the number seemed rather compelling and there's always a A turnaround story at Citi that if you, if you believe this time is the time it's really gonna all, all work, uh, it's, it's always selling at a compelling valuation. So we owned some Citi. And as the crisis began to develop, I think at 26, I sold the entire position. And, and I can just remember feeling horrible about that. But I also remember the feeling of We're in this storm and I just don't know the dimensions of this storm and this storm can get worse. So as painful as it is to me to take this loss, which was manageable and inside the context of a, of a portfolio, but just, I hate losing. And that was clearly a loss. I decided to sell it. Now that proved to be a pretty darn good decision because it went a lot lower, uh, before, before it stopped going down. …

AI assessment note: “So when I think about oh six or seven... I was making mistakes.”

Q Let's talk about debt, because I think that's an interesting area to go on a little rabbit hole here, and I want to talk about your thoughts on debt, how to unwind it. You learned a lesson from, I think it was Shelby Davis around debt. Would you share that with us?

A Well, it was in the early days of Markel Ventures. So Markel obviously started out as an insurance company. It had always been willing to invest in equity securities and be long-term. But the next logical step when you're investing in equity securities and you're doing it from the perspective of what is the underlying businesses involved, instead of just buying a partial interest in that business through the purchase of publicly traded shares, how about we buy a majority of it or all of it? And There were people who were rightly concerned about what it is we knew and what skills we had when we were buying controlling interest in companies that weren't in the insurance business. So Shelby Davis was a wonderful and is a wonderful teacher and mentor and helped me in many ways along the way. And I can remember in the early days having a conversation with about, uh, about the Markel Ventures business with him and he, he, Very quickly and succinctly put his finger right on it. He says, you know, if you want to make sure you're not buying a business run by a crook, buy one that doesn't use leverage. And so I said, tell me about this. He says, well, think about it. If you're, if you're a hundred percent equity financed, you are not going to steal money from that business because it's your own money. Crooks don't want to steal their own money. They want to steal somebody else's money. S…

AI assessment note: “if you want to make sure you're not buying a business run by a crook”

Q When you think about living a life to deserve what you, what you want and what you should get, what does that mean to you?

A Well, for instance, my father was also a tremendous teacher in, in my life, and really the first and foremost teacher that I had. And there was a situation that came up the other day where someone had sort of tricked me into doing a favor for them, sort of some backdoor moves and whatnot, and I ended up doing a favor for them. And, and I was with a colleague at the time, and we both sort of realized we'd been Hustle a little bit, and I said, you know, my dad used to tell me, anytime, anytime you can do a favor for somebody, do it. Just do it. Because life is long, and you never know how those things come back over time. So I think the idea of just always trying to be helpful, always trying to Add value. Always trying to do favors for people. Always just trying to make them glad they interacted with you somehow or another. That's a pretty good central organizing principle. And if you do that consistently day after day, month after month, year after year, you find that the, the world is kind of rooting for you. And, and Peter Kaufman, for instance, who was a great friend of Munger's and was the editor of poor Charlie's Almanac. You know, he talks about the idea that the universe will do most of the work for you. If you align yourself with its general principles. So I think, you know, there's eight billion people on planet earth. I'm only one. If I can get the other 7.9999 billion…

AI assessment note: “the idea of just always trying to be helpful, always trying to Add value”

Q You've looked at tens of thousands of companies over the years, uh, all their financial statements. Does that become an addiction that people don't walk away from?

A Yeah, I think it does. Um, and, and again, there's an adrenaline rush. I mean, addictions happen because there's a moment of positive reinforcement. I mean, you won the bet, your horse won, you won, your football team won, um, you hit the slot, whatever. Um, so there's a dopamine reinforcement and hit that you get from winning, and it's, um, a disproportionate size. It's an outsized return relative to the equity capital that you, that you laid out there. So, Yeah, that sounds like a fundamentally important component of, uh, addictive type substances, and I think people get hooked on, um, uh, the adrenaline of that. I mean, the phrase deal junkies, and I can think of companies that are run by CEOs that just always seem to be doing the next deal, or, um, that's what, that's what gets them going and, and motivates them, and it's important to have some of that drive, but it needs to be balanced, and again, in, in the right dosage.

AI assessment note: “Yeah, I think it does. Um, and, and again, there's an adrenaline rush.”

Q When you make, uh, decisions, there's a quantitative and qualitative aspect to them. I'm wondering what qualitative aspects do you tend to find the most difficult or the mistakes that you tend to make over and over again that are hard to catch?

A I think Buffett told a story once upon a time, but the, the person who's gonna really fool him and be able to swindle him out of some money is gonna be a guy, you know, driving a used car, wearing khaki pants, being, uh, very modest and humble in his bearing and ways, but at the same time, just be, um, stealing his wallet without Buffett noticing. I would be subject to the same sort of social influence. So my habits tend to be relatively frugal and, and modest and not flashy. So somebody who's flashy and not modest and not frugal, that, that sets off some red flags that cause me to be a little more vigilant and hyper than I otherwise would be. Somebody trying to fool me would engage in the kind of behaviors that That, that I feel more comfortable with, and maybe my guard would be down because, you know, these markers tell me that it, that's fine, when a point of fact it's not. And that's also when the people around you can see and alert you to a blind spot that I might have, uh, to, to be sensitive about that. So far the record's been pretty good. We've, we've not had much of a problem in, in, in that regard, but that would be what I would worry about.

AI assessment note: “I would be subject to the same sort of social influence.”

Q Well, we've talked a little bit about opportunity cost. I'm wondering, are there questions you ask yourself about it? How do you go about thinking about opportunity cost? How would you teach somebody to think about opportunity cost?

A You know, I guess the, the first example that comes to mind is just the, the role of being a parent and then how I tried to teach my children about that. And again, very simple concepts and just at the dinner table when ideas were proposed or plans were being drawn up or requests were being issued. The, the question is that if we do that, what are we not doing? So that, that question seems rather timeless to me. So if somebody says, all right, we're going to hold this stock. My colleagues will say, well, you like this thing over here. Doesn't that mean if we're holding this, that we're not buying that? And discussion, I mean, that's an accurate statement. So we talk about it, and sometimes I say, you know, you're right about that, and this is so much more compelling than that, that we ought to indeed make that shift and make that change. Sometimes it's, it's a lot grayer, a lot more nuanced, and you, you don't know, but that question always of what are we not doing because we're doing this, I don't care whether you're talking to a four-year-old, a forty-year-old, or a ninety-year-old, that's a relevant question. So I think the real learning comes from asking that base level question and participating fully in the conversation with thoughtful, reasonable people. About what the answers are.

AI assessment note: “The, the question is that if we do that, what are we not doing?”

Q Let's talk about Markel a little bit. Markel started in 1930. You joined in 1990. How did you end up there? And talk to me a little bit about the journey from then until until now. You've gone through quite a bit. The 19 nineties, the internet bubble, the great financial crisis, COVID.

A Yeah, I was trying to forget a lot of those, but yeah, you're correct. A lot of water has flowed over the dam. So it's a, it's a, it's a long story in many ways, and again, it ties back to Munger and Buffett. It was 1984 when Carol Loomis wrote that article about Buffett in Fortune, and I read that. I was relatively fresh out of school, and I got graduated from UVA in 1983. So 1984, I wasn't out Uh, very long. And I was working in a small investment firm in Richmond called Davenport and company of Virginia. And, and the scales fell from my eyes and the, the logic and the common sense and how, how much sense it all made to me. And I remember, uh, this is how, how little I knew. I went into the office of the head of the department and, uh, he, he was a bit of a crusty fellow. And I said, Hey Joe, have you ever heard of this guy, Warren Buffet? And, and, and I mean, I literally said that cause I didn't know. And he said, it's, it's, it's Buffett, you idiot. Uh, threw me out of his office, but I, but I read, and by the way, our mutual friend, Morgan Housel, um, he, he told me something within the last year that made me feel much better. He said, you should never criticize someone who mispronounces a word because that means he learned about it by reading. So, uh, I appreciate Morgan's grace in understanding word mispronunciations. So starting there, uh, so, uh, Markel went public in…

AI assessment note: “So starting there, uh, so, uh, Markel went public”

Q That's a great way to explain that. What's the worst part of your job?

A Haven't found it yet. I feel like this is what I was put on earth to do. It's fun. I enjoy it. And again, like we were talking about being at the, uh, keyboard and writing and you feel the joy. I mean, I feel like, uh, remember the movie chariots of fire and Eric little, the runner, and he was a person of deep faith and the Olympics got scheduled such that his race was on Sunday and his sister who shared his faith and his spiritual disciplines of the idea of the Sabbath tried to tell him, you know, don't, don't run. That's the violation. And I can't remember the exact line, but Eric Little responded. He says, you know, God, but God made me fast, and I feel his joy within me when I run. So I have some glimpse and essence of that, and that I think this is what I was put on earth to do, and I enjoy it, and I've been relatively good at it, so I'm gonna keep doing it until I can't run anymore.

AI assessment note: “Haven't found it yet. I feel like this is what I was put on earth to do.”

Q that's as close to a formula as you're going to get for guaranteed investment success, and yet the number of people that follow that formula is incredibly low, in part because they know it works, but they, they want to speed up the natural outcome, and I think of this as a lack of patience often changes the outcome. How do you develop patience? How do you think about that?

A Uh, I guess it's part of that Childhood background of not being the fastest or the strongest or the swiftest or pick first for the teams and stuff. So I just, I just got used to just being steady and, and subtle and appreciating that in the fullness of time it would work out. So again, and getting back to that luxurious position of all the conditions you laid out of being willing to stand alone, to being in the environment where that's, that's acceptable. And I can't remember your third contract, but those sorts of things. I have been gifted with those circumstances, and I've made personal choices which have reinforced that, so it, it all, it all worked, and I recognize not everybody has those same gifts and environmental circumstances that I've been faced with, but these are the ones that I've been available to me and I've just tried to be rational and thoughtful and take advantage of the gifts that were handed to you.

AI assessment note: “I guess it's part of that Childhood background of not being the fastest”

Q What do you think of stock option accounting?

A I don't think it's very good. Um, and in fact, as, uh, as, as sometimes some people will ask me and typically students or younger people, what should they study? What should they, what should they learn to, uh, be a better investor or a better business person? And among the things, and this is my training, I'm, I'm CPA and I was an accountant, uh, by training. I say, well, I think you take the first year of accounting, the one-on-one courses. I think you should take the second year of accounting, which is cost accounting and managerial accounting. It's where that notion of opportunity cost and fully allocating costs get, get loaded in. Beyond that point in the world we find ourselves today, it might be somewhat counterproductive to keep going too much into accounting theory because you, you tend to get lost in the details rather than understand the economic substance underneath what accounting is trying to tell you. Um, there's an old saying, the map is not the territory. So no matter how good your map is, it is only limited in its ability to actually describe the territory that you're talking about. Now you need maps, but don't over rely on maps and don't think that maps contain the entire truth. They contain 70% of the truth, 60%, 80%, I don't know, a good function of it, but, but not all of it. So just always be able to think about economically what it means. So for instance…

AI assessment note: “I don't think it's very good.”

Q I often think Short-term optimal is rarely long-term optimal, but you have to opt out and be willing to look like an idiot to play a long-term game in a short-term world. How do we learn or how do we teach people to think long-term in a way that makes sense? Like, how would you go about teaching somebody to think?

A Well, one of the ways that you do that is you say extreme things and Reductio et absurdum. You reduce things to an absurd level. So for instance, Munger, I believe one of the times he says, you want, you want two great weeks in your life? Start taking heroin. Now they have two great weeks, but you'll ruin your life. But some people do. And some people literally do that. And some people in a, in a sort of meta way, uh, do that. So you, you're constantly faced with that choice of taking a short-term gain at the expense of the long-term or trading. It's, it's, it's deferred gratification. It's the marshmallow test. These, these are not complicated topics. They are a matter of Discipline, thoughtfulness, common sense, long-term perspective. Now, that being said, um, you know, it's easy for me just to say these kinds of things because my life is good. I'm gainfully employed. I'm happily married. I was raised in a nuclear family, just an advantage, great education, advantage after advantage, after advantage, after advantage. And I can remember at one point, my, my oldest daughter was, was a Is a lawyer, and she was essentially practicing as a, um, you know, public defender kind of, kind of practice, and she had done that for a number of years, seven or eight years, and it was time to make a change and do something else because she was a very empathetic person, very caring, and very i…

AI assessment note: “one of the ways that you do that is you say extreme things and Reductio”

Q Can you take the other side of the debt argument? When does it make a lot of sense? When should a company go all in? When should, um, debt be used?

A Well, I'll tell you a story about this. And this probably goes back 15 years or so ago, and I can remember one day coming in the office, and my normal routine is drink a cup of coffee and read a set of newspapers, one of which is the Wall Street Journal. And there was this article in the Wall Street Journal about the Walt Disney Company that had just issued a hundred-year debt, and I think it was at five and five-eighths. And I saw that, and I said, oh man, I'll bet that they're refinancing something that was A hundred-year dead at five and seven-eighths that had a five-year call. And I just instantaneously had that thought. And as I dug into it, that was almost exactly what they were doing. So if you're Walt Disney and you can issue a hundred year debt at those kinds of rates, use all the debt that they will give you. Cause really what the label is debt, that's fixed cost equity. So the labels don't always describe exactly what's going on. So next step is I went in to our chief financial officer at the time. And I, I said, you need to call our bankers and see if we can issue anything like this. And he sort of scoffed at me and whatnot. And I said, no, no, you really need to chase this down. So he did. And he called our bankers and our banker said, well, you know, Walt Disney is a consumer name. It's, it's very well known. And Markel, nobody's ever heard of Markel. Half the tim…

AI assessment note: “if you can issue a hundred year debt at those kinds of rates, use all the debt”

Q Can you give me an example of that?

A Well, I mean, some of these are a little too painful to, to talk about, but it's important to be able to make mistakes. That's important to be able to size the mistakes such that when you learn them, they don't They're non-fatal mistakes, and they're mistakes that you get better and wiser and stronger and faster on account of, but you can't foresee everything and forestall it. I think you should trust your judgment. So for instance, to the extent that, um, you went through some dating process before you got married, that was really a process of getting to know somebody to see if their values overlapped with yours enough that you really thought you could get along together. For decades. That's what dating is all about. In a business, so much of what we do is in effect a dating process. You're doing business with somebody, you're interacting with them, you, you go to the movies, you go to a restaurant, you go to a ballgame, all those kinds of things. It's not so much because you wanted that meal at the restaurant, or you wanted to see that movie, or you wanted to see that ballgame. It's so that you could discern whether this was a person that you really could work together with In all kinds of circumstances over long periods of time. And, and that's what our business is. It's cultivating relationships with customers, trying to do things for them to make their life better. And if …

AI assessment note: “some of these are a little too painful to, to talk about”