Is this Company a 'Little Berkshire Hathaway'? Its CEO Weighs In. | At Barron's
Summary
Company Overview: Markel Group is an insurance-based holding company with a diversified portfolio, including public equity investments and wholly-owned businesses, often compared to Berkshire Hathaway.
Investment Strategy: The company follows a long-term investment approach, inspired by Warren Buffett's playbook, focusing on rational capital allocation and embracing market volatility for higher returns.
Performance Insights: Markel has achieved a 15% annual return since its IPO in 1986, with performance varying across different market conditions and business cycles.
Business Diversification: The company's operations are balanced across insurance, investments, and ventures, providing resilience against sector-specific downturns.
Market Position: Despite a lower P/E ratio compared to tech companies, Markel maintains confidence in its valuation, emphasizing economic earnings over GAAP earnings.
Key Holdings: Markel's significant investments include Berkshire Hathaway, Google, John Deere, Amazon, Apple, and Caterpillar, reflecting a preference for high-quality, long-term holdings.
Leadership Philosophy: CEO Tom Gayner emphasizes learning from successful models like Berkshire Hathaway and focuses on building a great company by doing things for customers and colleagues.
Future Aspirations: Markel aims to continue its growth trajectory, aspiring to be one of the world's great companies, while CEO Tom Gayner plans to remain actively involved in the company's progress.
Transcript
[Music] Hello everyone and welcome to At Barons. I'm Andy Sir and welcome to our guest Tom Gainer, CEO of Markell Group. Tom, great to see you. Thanks for joining us. >> Andy, thanks so much for having me. Good to be here. >> I know this is a question you often get, but please explain to us what Markell Group is exactly. Well, Markeel Group is an insurance-based holding company. Been around since 1930, so we're coming up on a hundred years. Uh we started out in North Virginia insuring uh Jitney transportation devices and taxi cabs of of its day. Uh and and kept in sort of specialty forms of insurance for a long time. We've been uh investors in public equity securities for a very long time. started about 20 years ago. We moved from uh buying publicly traded securities to buying wholly owned businesses. So we have a collection of insurance and investment and non-insurance businesses that comprise the Markell group. >> All right. Well, a lot of people might say that sounds a little bit like Berkshire Hathway. You get that a lot that you're a little Berkshire Hathaway. Is that the case, Tom? And how intentional is that? Well, we've certainly studied the playbook and the example of of what Buffett built at Bergkshire for for many many years. uh in 1986 when Markel went public. I was actually an analyst who lucky enough was assigned to cover when Markel in the IPO process and I had been familiar through the uh work of Carol Lumis and Fortune magazine with Buffett uh from that time and I and I saw indeed a specialty insurance focused holding company business that was willing to invest money longer term and I said to myself right at that point that boy that's the formula by which uh Buffett built Bergkshire. So here was an opportunity to see that recreated or that play run right here in Richmond, Virginia where where I was living at the time. So that made all the sense in the world to me and given the example of how well they've done it, it seems a pretty good playbook to follow. >> Tom, is it really desirable or even possible to emulate Warren Buffett and the late Charlie Mer and what they've done and did do and are still doing at least Buffett in terms of Brookshire Hathway? How realistic is that? >> Yeah. Um I think in terms of achieving what they've achieved, that is a different issue than emulating how they behave and the way they do things. So for instance, uh as a kid, I grew up at the at the era when John Wooden was the coach at UCLA and uh was winning national championship after national championship after national championship. And while I was never going to be good enough to play for UCLA, if it was uh if I was lucky enough to be a basketball coach, I would read everything that Wooden never wrote and I would study his videos and I would observe how he managed to coach that team. And am I going to win 12 national championship if if my memory is correct of of what he won at UCLA? The answer is probably no. But in terms of the techniques and how you build a team and how you go about things, I I think he's an eminently worthy character to study. And oftentimes in the world of sports, you'll hear the phrase coaching tree, whether it's basketball or football, where a coach will be placed in the legacy of he coached under this coach, who coached under that coach. So the the ideas involved in the in the in the coaching trees and learning for people who frankly are better at it than you'll ever be. Uh, I' I'd rather learn about something from somebody who's better than I'll ever be than from somebody who's not. >> Yeah. Um, so it's a continuous process for you. I know you go to the Berkshire Hathaway annual meeting, Tom. How many have you been to? And what do you do there when you're there? >> Well, uh, thank you. Uh, it's it's been 35 years in a in a row that I've I've never missed a meeting since, uh, I guess the first one that I went to was in 1991. And at that point, uh, what I said to Steve Markel, who was the vice chairman of the company at that point, and my the my boss who worked for, I said, instead of trying to get people to come to Richmond, Virginia, let's go to Omaha and meet people because the people who are most likely to understand what we're trying to do are people who already own Berkshire. So, we went starting in 1991 uh, and have never missed a year. and the people we've met, the friendships that have been created, the the learnings that have u happened through that time, the networks that have been built, it's it's just singular. There's no other place like it. >> Yeah. And and Markeel has a great long-term record for investors. You went public in uh what 86 38 years ago, 15% keer since then. Medium-term kind of so so and then recently you've bounced back over the past couple years. explain that performance, those different phases of the moon, if you will, Tom. >> Sure. Uh the 15% is the the correct number for since ' 86, but it's not all been in a straight line. Absolutely not. Different eras, different times, different settings in the financial markets, insurance markets, opportunities, acquisitions that we've done. Um we're we're long-term people around here. Um and we're willing to understand that you can't manufacture artificial smoothness. And in fact, again, a lesson you would learn from from Buffett, I I don't remember the exact numbers he talked about, but it's something along the lines. He'd rather have a lumpy 15 than a smooth 10 in in terms of percentage returns. And and we embrace that idea as well. So, the way we've always run this business is try to make good rational capital allocation decisions. Uh run it to the best of our ability and do it in a long-term fashion. And and again getting back to the idea of of athletics, so many people are involved in the process of sprints. And if you call quarters by quarters by quarters a series of sprints, well that is a very different race than running a marathon. Now a marathon will have splits and times within it than if you're a good marathoner. You should be kind of hitting some marks at the one mile mark, at the five mile mark, at the 10 mile mark, but those are not the final results. And we're we're marathoners, not sprinters. >> As a bit of a long-distance runner myself, Tom, I can definitely uh relate to that analogy. Um, so one thing that's curious to me is the valuations. Oh, first let me ask you, do you benchmark your returns versus Bergkshire and not just the S&P? >> No. Uh, really we do the best we can. So, uh, you know, benchmarking is something that everybody is going to do and and you're going to observe and and know what that data is, but, um, and I can't remember who said this, you should, uh, steer by the stars, not by the lights of each passing ship. So, I think there is a tendency and a temptation that sometimes we lose track of the stars and where the true north stars are because we feel we're in a competitive race against some of the other ships. And I think sometimes you can get off track with that and you can you can lose your focus. It's like driving by looking at the hood ornament of the car rather than the horizon. >> You guys have a little bit of a Rodney Dangerfield problem in the market though because you're trailing 12 month PE is only 14. I should note that Bergkers is only 12. What is it with you and and Warren Buffett? You guys are, you know, hot shot CEOs, but the you know, you don't have an Nvidia PE. Yeah. Well, and we're not going to and and one of the reasons for that is that the E and I I will confess that I started my life out as a CPA. My professional training is that of an accountant. When you're trying to measure the E of Berkshire or ourselves or companies like us that would have some operational aspects to what goes into creating economic value as well as some investment returns and some things that are marktomarket and some things that are not. uh the definition of what the E is is often times something that well-meaning, talented, thoughtful analysts would have a different opinion about. Now, again, because we are long-term owners and we think about long-term ownership of the business, I think we as as well as Buffett and Bergkshire do a pretty good job of telling you what the E is certainly on a on a normalized basis. and let's say the E, let's double it, stand for economic earnings as opposed to gap earnings. When you get that, I think those ratios might be a bit different than than what you suggest. Um, and and we we would be pretty comfortable with the fact that the market over time gets it right with with variability and volatility at any sort of shorter point-to-point kind of estimate. So for instance, he made the statement at the beginning, he pointed out that uh the share price has compounded at roughly 15% a year. Our calculation of what we would consider our intrinsic value to be and the way we would track it over the years has pretty much been that exact same number. Um so the market is efficient over time. it is efficientish in shorter time frames and in any given quarter or even any given year or two it can be pretty inefficient but over time the market gets it right. >> I want to uh ask you about two lines of yours uh Tom I know you're you're a prolific writer again perhaps a little bit like uh the mentor in Omaha. Um one is simple can be harder than complex. That's one of your taglines. Why is that the case? That sounds paradoxical if not contradictory. >> Well, um actually I think that that opens up a very interesting topic and I I do tend to spend a lot of time reading and one of the books I've I've read twice in the last couple of years is um um General Stanley Mcrist's book team of teams. And I think one of the central themes of that book is talking about the difference between complicated and complexity. So things that are complex. Uh and I heard somebody talking about uh Einstein the other day or Einstein at some some point was talking about his work as being the difference between studying a cloud and a clock. A clock can be very complex. There could be a lot of moving parts in there and in and of itself there can be some simplicity that is associated with that clock in that you can take it apart and you can see the cause and effects that are involved. Things that are complex have what what are called wicked feedback loops where you can do the same thing and it'll have a different uh outcome the second time you do it than the first time or you do it the third time it again will have a a different sort of outcome. So the ability to kind of keep in mind things that may get complex, may get complicated and what sorts of wisdom, common sense, rules of thumb, heruristics, whatever you want to call it to to try to keep things as simple as possible so that the human mind can comprehend them but yet still acknowledge the fact that these are complex systems at play. Um, I just find that kind of mental framing useful to make sure that you don't sort of fall in love with things that are complicated and distill things that are complicated into simple moving parts and think that you've solved the problem because you haven't. Um, it's always nice to be able to uh maintain an understanding of the difference between things that are complicated and things that are complex because I think one of the temptations that one can have is that when you take apart things that are complicated, you might think you've just build it down to it's it's accurate simple parts but you have not really understood the system that's involved. But yet we're human beings. We need some rules of thumb, some heruristics, some comments and some some wisdom that gives us guideposts to let us know whether we're on the right track or not. >> And insurance is complicated, which is a key part of your business, right? I mean, and that's been an advantage. Again, I hate to keep bringing Buffett back up in Bergkshire, but it's a similar sort of strategic advantage that it's such a complicated business. You got to have a lot of brain power to be able to navigate your way through it and profit from it. Correct. >> Well, um I would agree with your statement that insurance is a complicated business. Uh the longer I live, the more I appreciate the fact that every business is complicated. Every every relationship is complicated. So, I think it's a it's a mistake to think you found something that's not complicated. But yeah, uh I I'll put insurance in in the complicated bucket along with a lot of other stuff. Now that being said and the techniques and the tools and the disciplines of insurance are are very important and have a lot of technical aspects to them and training in a conceptual level. Uh, insurance is not a complicated business and and one of the ways I would describe it is insurance is a bucket of money and when you buy an insurance policy and you pay a premium, you are putting money into that bucket and you and a lot of other policy holders are chucking money into that bucket. If something bad happens to you and you have a claim, then money comes out of that bucket to to pay your claim. And so if you look at any insurance company, and this is where investment portfolios within insurance companies come from, is they're managing that bucket of money that they hold, and if that bucket starts overfilling with too much money, that tends to put pressure on insurance prices, and rates tend to go down to sort of uh make strike some equilibrium as to how much should be there. And if that bucket gets thin and there's not enough money in it, that often times equates to insurance rates and prices going up just to make sure there's a enough money in the bucket to uh to be able to pay the claims appropriately. So yes, it's complicated if you look at it in the details, but if you look at it from the context of of the forest versus the trees, there is some underlying simplicity to it. >> Got it. Another line of yours, uh this is front and center on your website. It's kind of the maybe mission statement and I'm curious why you chose this of all the mission statements in the ether to pick from. We are building one of the world's great companies. Maybe that's acatic but but why that? >> Well, I think it's a great goal to have. So for instance, getting back to John Wooden and winning all those national championships, uh there were a number of years that he spent call it in the wilderness uh before he got to the point where in in fact even got to a winning record. But I'm sure he always had the goal in mind to be the very best he could. So in that notion of building one of the world's great companies, I just I just think that's something that people can rally around and it it helps you understand what it is we're doing. And one of the things uh and it's it's a some wisdom that a friend of mine pointed out to me is that great companies do things for their customers rather than to their customers. So the first breakdown we would have from building one of the world's great companies is look we want to do things across our insurance and non- insurance businesses that do things for our customers. Secondly, we want to do things for each other as colleagues and associates of this business. And we think if we do those two things well, we'll earn good returns on capital from having done so. And we will uh we will be operating in a sustainable way where kind of the world wants us to win and wants us to continue to be able to operate because we did something for them that they wanted and needed and we did it efficiently and at a good enough price that uh the next time they're faced with a buying decision or uh referring a customer uh they they refer people to us. And um you know, if you look at the long-term record of of compounding the value of this business and and that compound effect applies to pretty much every number you could count around here, whether it's number of customers, number of associates, the stock price, whatever that those have all compounded at good rates for a long period of time. Well, that's because we're we're doing something that the world seems to want and so we want to keep doing that. Tell us about the breakdown of the various of the three business units I guess which is insurance, the investment portfolio and the venture business. How big are each relative to the overall pie um in terms of revenues and profits? >> Yeah. Um so in the course of the last year or so and again I'm just trying to keep numbers in my head rough order of magnitude the total premium volume of the insurance business I think would be roughly $8 billion or so. Uh, our equity portfolio stands at about $12 billion. The total balance sheet stands at about $50 billion. The total revenues of the Marco Venture set of companies were about $5 billion. In terms of profit contributions, I think it would probably be somewhat close to roughly balance third that that's that's the output, not necessarily the strategic design. We just try to do the best we can in in each area of business that we're in. But it does salute the notion that we're somewhat balanced and diversified because there have been years where it's been tough in the insurance business. So, it sure is nice to have investment income coming in or Markeel Ventures income coming in or or vice versa tough here in the investment uh operations which happens from time to time. It's uh it's nice to have other members of the team whether they are in insurance or or ventures uh pulling the ores to to make the boat go forward. >> Yeah, I read actually in Barren that the insurance business had lagged a little bit in recent years. Is that the case? And and why is that so? Then >> we've had some challenges in the insurance business and we've been very candid and and frank about that over the over the last several years. There are some decisions that we made not as as well as what we should have. product lines that we were in that we shouldn't have and we are responding rationally to uh to to those circumstances. We've exited a number of products where we've just found it uh ourselves unable to to run those businesses at a profitable rate. We've made some management changes at very uh senior levels where uh unfortunately we had some people who just did did not prove to be able to execute as well as what we hoped would would be the case and we've got new leaders in place. So, uh, I I fully accept the fact that we have indeed underperformed in the realm of insurance. I think we're on track and we made a lot of good decisions. Now, that being said, if we were doing things perfectly today, which we're not, the way insurance works is that there is a tremendous time lag between the decision you make today and how that ultimately appears in your financial statement, sort of as a minimum of two years. So, so we're in that process. We're we're working at it. I think uh uh look a couple years from now in in hindsight people will be much happier with some of the progress we've made on the insurance side but we got work to do >> on the investment side what are some big names some of your big holdings and how comfortable are you with them right now Tom >> well uh if they're big holdings we're comfortable with them otherwise they wouldn't be big holdings for us our our largest holding happens to be Bergkshire u and that has been the case for for quite some time. Um, and uh, again, lots going on at Berkshire these days, but I'm I'm comfortable that that is a supremely well-run long-term business and has a has a great future in in front of it. We also own big positions in Google and John Deere and Amazon and Apple and Caterpillar Tractor, things of that nature. So, high quality businesses that we tend to be able to buy and hold on to for long periods of time. And you're comfortable with the succession uh plan that's going on right now unfolding at Bergkshire Hathway? >> Uh indeed so and I think if you look at the history uh two two names I I'll cite just from uh commercial history of the United States over long periods of time. Um, I grew up in the Delaware Valley and the Dupont Company was sort of the towering colossus of that uh area when when I I was a kid. Now, the Dupont Company is a different thing today than what it was when I was a kid and there have been some split offs and some reorganizations, but uh I also went to the University of Virginia and there there are records of dinners out at Montichello in Charlottesville between Thomas Jefferson and Mr. Ei Dupont himself. So for 200 and some years that was a company that made good decisions and was run by various people named DuPont and ultimately people not named DuPont. So uh I would guess if you had to make a a list out of memory of people who were successful CEOs of the Dupont company, you couldn't do it if you become names that that uh are not well known in the public sphere in the way that Mr. guy Dupont himself might have been that the company was named after. I would also cite Exxon Exon Mobile and its uh its predecessors. I think most people know that John D. Rockefeller started that company, but I would guess that most people can't name more than three or four people who have been the CEO of that company for 150 years since John do John D. Rockefeller was no longer there. But yet it has managed to continue to be a su successful business. Uh so Bergkshire obviously Buffett deserves every bit of credit and acclaim for what he has done but also part of what he designed and part of what he was doing all the way along was to design Berkshire in such a way that it would be able to persist beyond his personal tenure there and that's what we're seeing now. I know you're a bottoms up investor, um, but do you ever look top down, Tom, and have macro thoughts about the stock market or the economy that impact what you're doing in one of your three business units? um it would be absolutely impossible and and and frankly irresponsible not to be somewhat thoughtful about what you observe in the macro environment and what's uh going on in a top down environment. That said, that tends to be the sort of thing over which you don't have any control. So, you're thoughtful, you look at things, you think about some of the pluses and minuses, you think about the riskreward. I mean, this is a fundamental nature of the way we run every single one of our businesses and it's inherent to the discipline of insurance that you think about the risk you're taking and the reward you're receiving in exchange for that risk. And that that's as basic as it gets. But that being said, you then need to make specific decisions which come from the bottom up. And one of the people who I've who I've learned from and and studied again and this goes back 40 or 50 years and this was a book given to me by my grandmother when I might have been uh in in seventh or eighth grade but it was by John Train who was a great financial writer if you recall him and one of John Train's comments was investing is the art of the specific. So there is a specific company, a specific idea, a specific price and you make a decision about that. Uh so you don't ignore what's going on from the top down. What you're actually going to do for everybody, even if they're a macrobased investor, is what you do from the bottom up in a specific decisions. >> And final question, Tom, um your market capitalization, I think I have this right, is about 25 billion. Bergkshire is about 1 trillion. And that means they're 40 times bigger. Is is that an opportunity for you? Would you love to would you aspire to get, you know, build one of the world's greatest companies? You're going to be shooting for that part A and part B. Are you going to be sticking around many years more to try to accomplish that? >> Well, the answer to the second one is is yes to the best of my ability. So, I' I've been here 35 years now and love coming to work here. of being part of this company and I would like to continue to be able to do that as long as humanly possible. Uh in terms of the question a about those specific numbers, I'm going to go back to we're going to do the very very best we can. Um and at the at the time that Markeel went public, I think the market capitalization was $30 million. Uh the time I joined four years later, maybe it was roughly $40 million. At this point, it's gone from $40 million to 25 billion. So so far so good. Uh none of those numbers were ever a specific target. They are just what happened along the way as the result of doing the best we could and and that being at a pretty good level. So we'll just try to keep doing that. >> Well, I like that. So far so good. Tom Gayner, CEO of Markell Group, thank you so much for your time. >> Thank you. >> This is at Barren. I'm Andy Sir. We'll catch you next time.
Is this Company a 'Little Berkshire Hathaway'? Its CEO Weighs In. | At Barron's
Summary
Transcript
[Music] Hello everyone and welcome to At Barons. I'm Andy Sir and welcome to our guest Tom Gainer, CEO of Markell Group. Tom, great to see you. Thanks for joining us. >> Andy, thanks so much for having me. Good to be here. >> I know this is a question you often get, but please explain to us what Markell Group is exactly. Well, Markeel Group is an insurance-based holding company. Been around since 1930, so we're coming up on a hundred years. Uh we started out in North Virginia insuring uh Jitney transportation devices and taxi cabs of of its day. Uh and and kept in sort of specialty forms of insurance for a long time. We've been uh investors in public equity securities for a very long time. started about 20 years ago. We moved from uh buying publicly traded securities to buying wholly owned businesses. So we have a collection of insurance and investment and non-insurance businesses that comprise the Markell group. >> All right. Well, a lot of people might say that sounds a little bit like Berkshire Hathway. You get that a lot that you're a little Berkshire Hathaway. Is that the case, Tom? And how intentional is that? Well, we've certainly studied the playbook and the example of of what Buffett built at Bergkshire for for many many years. uh in 1986 when Markel went public. I was actually an analyst who lucky enough was assigned to cover when Markel in the IPO process and I had been familiar through the uh work of Carol Lumis and Fortune magazine with Buffett uh from that time and I and I saw indeed a specialty insurance focused holding company business that was willing to invest money longer term and I said to myself right at that point that boy that's the formula by which uh Buffett built Bergkshire. So here was an opportunity to see that recreated or that play run right here in Richmond, Virginia where where I was living at the time. So that made all the sense in the world to me and given the example of how well they've done it, it seems a pretty good playbook to follow. >> Tom, is it really desirable or even possible to emulate Warren Buffett and the late Charlie Mer and what they've done and did do and are still doing at least Buffett in terms of Brookshire Hathway? How realistic is that? >> Yeah. Um I think in terms of achieving what they've achieved, that is a different issue than emulating how they behave and the way they do things. So for instance, uh as a kid, I grew up at the at the era when John Wooden was the coach at UCLA and uh was winning national championship after national championship after national championship. And while I was never going to be good enough to play for UCLA, if it was uh if I was lucky enough to be a basketball coach, I would read everything that Wooden never wrote and I would study his videos and I would observe how he managed to coach that team. And am I going to win 12 national championship if if my memory is correct of of what he won at UCLA? The answer is probably no. But in terms of the techniques and how you build a team and how you go about things, I I think he's an eminently worthy character to study. And oftentimes in the world of sports, you'll hear the phrase coaching tree, whether it's basketball or football, where a coach will be placed in the legacy of he coached under this coach, who coached under that coach. So the the ideas involved in the in the in the coaching trees and learning for people who frankly are better at it than you'll ever be. Uh, I' I'd rather learn about something from somebody who's better than I'll ever be than from somebody who's not. >> Yeah. Um, so it's a continuous process for you. I know you go to the Berkshire Hathaway annual meeting, Tom. How many have you been to? And what do you do there when you're there? >> Well, uh, thank you. Uh, it's it's been 35 years in a in a row that I've I've never missed a meeting since, uh, I guess the first one that I went to was in 1991. And at that point, uh, what I said to Steve Markel, who was the vice chairman of the company at that point, and my the my boss who worked for, I said, instead of trying to get people to come to Richmond, Virginia, let's go to Omaha and meet people because the people who are most likely to understand what we're trying to do are people who already own Berkshire. So, we went starting in 1991 uh, and have never missed a year. and the people we've met, the friendships that have been created, the the learnings that have u happened through that time, the networks that have been built, it's it's just singular. There's no other place like it. >> Yeah. And and Markeel has a great long-term record for investors. You went public in uh what 86 38 years ago, 15% keer since then. Medium-term kind of so so and then recently you've bounced back over the past couple years. explain that performance, those different phases of the moon, if you will, Tom. >> Sure. Uh the 15% is the the correct number for since ' 86, but it's not all been in a straight line. Absolutely not. Different eras, different times, different settings in the financial markets, insurance markets, opportunities, acquisitions that we've done. Um we're we're long-term people around here. Um and we're willing to understand that you can't manufacture artificial smoothness. And in fact, again, a lesson you would learn from from Buffett, I I don't remember the exact numbers he talked about, but it's something along the lines. He'd rather have a lumpy 15 than a smooth 10 in in terms of percentage returns. And and we embrace that idea as well. So, the way we've always run this business is try to make good rational capital allocation decisions. Uh run it to the best of our ability and do it in a long-term fashion. And and again getting back to the idea of of athletics, so many people are involved in the process of sprints. And if you call quarters by quarters by quarters a series of sprints, well that is a very different race than running a marathon. Now a marathon will have splits and times within it than if you're a good marathoner. You should be kind of hitting some marks at the one mile mark, at the five mile mark, at the 10 mile mark, but those are not the final results. And we're we're marathoners, not sprinters. >> As a bit of a long-distance runner myself, Tom, I can definitely uh relate to that analogy. Um, so one thing that's curious to me is the valuations. Oh, first let me ask you, do you benchmark your returns versus Bergkshire and not just the S&P? >> No. Uh, really we do the best we can. So, uh, you know, benchmarking is something that everybody is going to do and and you're going to observe and and know what that data is, but, um, and I can't remember who said this, you should, uh, steer by the stars, not by the lights of each passing ship. So, I think there is a tendency and a temptation that sometimes we lose track of the stars and where the true north stars are because we feel we're in a competitive race against some of the other ships. And I think sometimes you can get off track with that and you can you can lose your focus. It's like driving by looking at the hood ornament of the car rather than the horizon. >> You guys have a little bit of a Rodney Dangerfield problem in the market though because you're trailing 12 month PE is only 14. I should note that Bergkers is only 12. What is it with you and and Warren Buffett? You guys are, you know, hot shot CEOs, but the you know, you don't have an Nvidia PE. Yeah. Well, and we're not going to and and one of the reasons for that is that the E and I I will confess that I started my life out as a CPA. My professional training is that of an accountant. When you're trying to measure the E of Berkshire or ourselves or companies like us that would have some operational aspects to what goes into creating economic value as well as some investment returns and some things that are marktomarket and some things that are not. uh the definition of what the E is is often times something that well-meaning, talented, thoughtful analysts would have a different opinion about. Now, again, because we are long-term owners and we think about long-term ownership of the business, I think we as as well as Buffett and Bergkshire do a pretty good job of telling you what the E is certainly on a on a normalized basis. and let's say the E, let's double it, stand for economic earnings as opposed to gap earnings. When you get that, I think those ratios might be a bit different than than what you suggest. Um, and and we we would be pretty comfortable with the fact that the market over time gets it right with with variability and volatility at any sort of shorter point-to-point kind of estimate. So for instance, he made the statement at the beginning, he pointed out that uh the share price has compounded at roughly 15% a year. Our calculation of what we would consider our intrinsic value to be and the way we would track it over the years has pretty much been that exact same number. Um so the market is efficient over time. it is efficientish in shorter time frames and in any given quarter or even any given year or two it can be pretty inefficient but over time the market gets it right. >> I want to uh ask you about two lines of yours uh Tom I know you're you're a prolific writer again perhaps a little bit like uh the mentor in Omaha. Um one is simple can be harder than complex. That's one of your taglines. Why is that the case? That sounds paradoxical if not contradictory. >> Well, um actually I think that that opens up a very interesting topic and I I do tend to spend a lot of time reading and one of the books I've I've read twice in the last couple of years is um um General Stanley Mcrist's book team of teams. And I think one of the central themes of that book is talking about the difference between complicated and complexity. So things that are complex. Uh and I heard somebody talking about uh Einstein the other day or Einstein at some some point was talking about his work as being the difference between studying a cloud and a clock. A clock can be very complex. There could be a lot of moving parts in there and in and of itself there can be some simplicity that is associated with that clock in that you can take it apart and you can see the cause and effects that are involved. Things that are complex have what what are called wicked feedback loops where you can do the same thing and it'll have a different uh outcome the second time you do it than the first time or you do it the third time it again will have a a different sort of outcome. So the ability to kind of keep in mind things that may get complex, may get complicated and what sorts of wisdom, common sense, rules of thumb, heruristics, whatever you want to call it to to try to keep things as simple as possible so that the human mind can comprehend them but yet still acknowledge the fact that these are complex systems at play. Um, I just find that kind of mental framing useful to make sure that you don't sort of fall in love with things that are complicated and distill things that are complicated into simple moving parts and think that you've solved the problem because you haven't. Um, it's always nice to be able to uh maintain an understanding of the difference between things that are complicated and things that are complex because I think one of the temptations that one can have is that when you take apart things that are complicated, you might think you've just build it down to it's it's accurate simple parts but you have not really understood the system that's involved. But yet we're human beings. We need some rules of thumb, some heruristics, some comments and some some wisdom that gives us guideposts to let us know whether we're on the right track or not. >> And insurance is complicated, which is a key part of your business, right? I mean, and that's been an advantage. Again, I hate to keep bringing Buffett back up in Bergkshire, but it's a similar sort of strategic advantage that it's such a complicated business. You got to have a lot of brain power to be able to navigate your way through it and profit from it. Correct. >> Well, um I would agree with your statement that insurance is a complicated business. Uh the longer I live, the more I appreciate the fact that every business is complicated. Every every relationship is complicated. So, I think it's a it's a mistake to think you found something that's not complicated. But yeah, uh I I'll put insurance in in the complicated bucket along with a lot of other stuff. Now that being said and the techniques and the tools and the disciplines of insurance are are very important and have a lot of technical aspects to them and training in a conceptual level. Uh, insurance is not a complicated business and and one of the ways I would describe it is insurance is a bucket of money and when you buy an insurance policy and you pay a premium, you are putting money into that bucket and you and a lot of other policy holders are chucking money into that bucket. If something bad happens to you and you have a claim, then money comes out of that bucket to to pay your claim. And so if you look at any insurance company, and this is where investment portfolios within insurance companies come from, is they're managing that bucket of money that they hold, and if that bucket starts overfilling with too much money, that tends to put pressure on insurance prices, and rates tend to go down to sort of uh make strike some equilibrium as to how much should be there. And if that bucket gets thin and there's not enough money in it, that often times equates to insurance rates and prices going up just to make sure there's a enough money in the bucket to uh to be able to pay the claims appropriately. So yes, it's complicated if you look at it in the details, but if you look at it from the context of of the forest versus the trees, there is some underlying simplicity to it. >> Got it. Another line of yours, uh this is front and center on your website. It's kind of the maybe mission statement and I'm curious why you chose this of all the mission statements in the ether to pick from. We are building one of the world's great companies. Maybe that's acatic but but why that? >> Well, I think it's a great goal to have. So for instance, getting back to John Wooden and winning all those national championships, uh there were a number of years that he spent call it in the wilderness uh before he got to the point where in in fact even got to a winning record. But I'm sure he always had the goal in mind to be the very best he could. So in that notion of building one of the world's great companies, I just I just think that's something that people can rally around and it it helps you understand what it is we're doing. And one of the things uh and it's it's a some wisdom that a friend of mine pointed out to me is that great companies do things for their customers rather than to their customers. So the first breakdown we would have from building one of the world's great companies is look we want to do things across our insurance and non- insurance businesses that do things for our customers. Secondly, we want to do things for each other as colleagues and associates of this business. And we think if we do those two things well, we'll earn good returns on capital from having done so. And we will uh we will be operating in a sustainable way where kind of the world wants us to win and wants us to continue to be able to operate because we did something for them that they wanted and needed and we did it efficiently and at a good enough price that uh the next time they're faced with a buying decision or uh referring a customer uh they they refer people to us. And um you know, if you look at the long-term record of of compounding the value of this business and and that compound effect applies to pretty much every number you could count around here, whether it's number of customers, number of associates, the stock price, whatever that those have all compounded at good rates for a long period of time. Well, that's because we're we're doing something that the world seems to want and so we want to keep doing that. Tell us about the breakdown of the various of the three business units I guess which is insurance, the investment portfolio and the venture business. How big are each relative to the overall pie um in terms of revenues and profits? >> Yeah. Um so in the course of the last year or so and again I'm just trying to keep numbers in my head rough order of magnitude the total premium volume of the insurance business I think would be roughly $8 billion or so. Uh, our equity portfolio stands at about $12 billion. The total balance sheet stands at about $50 billion. The total revenues of the Marco Venture set of companies were about $5 billion. In terms of profit contributions, I think it would probably be somewhat close to roughly balance third that that's that's the output, not necessarily the strategic design. We just try to do the best we can in in each area of business that we're in. But it does salute the notion that we're somewhat balanced and diversified because there have been years where it's been tough in the insurance business. So, it sure is nice to have investment income coming in or Markeel Ventures income coming in or or vice versa tough here in the investment uh operations which happens from time to time. It's uh it's nice to have other members of the team whether they are in insurance or or ventures uh pulling the ores to to make the boat go forward. >> Yeah, I read actually in Barren that the insurance business had lagged a little bit in recent years. Is that the case? And and why is that so? Then >> we've had some challenges in the insurance business and we've been very candid and and frank about that over the over the last several years. There are some decisions that we made not as as well as what we should have. product lines that we were in that we shouldn't have and we are responding rationally to uh to to those circumstances. We've exited a number of products where we've just found it uh ourselves unable to to run those businesses at a profitable rate. We've made some management changes at very uh senior levels where uh unfortunately we had some people who just did did not prove to be able to execute as well as what we hoped would would be the case and we've got new leaders in place. So, uh, I I fully accept the fact that we have indeed underperformed in the realm of insurance. I think we're on track and we made a lot of good decisions. Now, that being said, if we were doing things perfectly today, which we're not, the way insurance works is that there is a tremendous time lag between the decision you make today and how that ultimately appears in your financial statement, sort of as a minimum of two years. So, so we're in that process. We're we're working at it. I think uh uh look a couple years from now in in hindsight people will be much happier with some of the progress we've made on the insurance side but we got work to do >> on the investment side what are some big names some of your big holdings and how comfortable are you with them right now Tom >> well uh if they're big holdings we're comfortable with them otherwise they wouldn't be big holdings for us our our largest holding happens to be Bergkshire u and that has been the case for for quite some time. Um, and uh, again, lots going on at Berkshire these days, but I'm I'm comfortable that that is a supremely well-run long-term business and has a has a great future in in front of it. We also own big positions in Google and John Deere and Amazon and Apple and Caterpillar Tractor, things of that nature. So, high quality businesses that we tend to be able to buy and hold on to for long periods of time. And you're comfortable with the succession uh plan that's going on right now unfolding at Bergkshire Hathway? >> Uh indeed so and I think if you look at the history uh two two names I I'll cite just from uh commercial history of the United States over long periods of time. Um, I grew up in the Delaware Valley and the Dupont Company was sort of the towering colossus of that uh area when when I I was a kid. Now, the Dupont Company is a different thing today than what it was when I was a kid and there have been some split offs and some reorganizations, but uh I also went to the University of Virginia and there there are records of dinners out at Montichello in Charlottesville between Thomas Jefferson and Mr. Ei Dupont himself. So for 200 and some years that was a company that made good decisions and was run by various people named DuPont and ultimately people not named DuPont. So uh I would guess if you had to make a a list out of memory of people who were successful CEOs of the Dupont company, you couldn't do it if you become names that that uh are not well known in the public sphere in the way that Mr. guy Dupont himself might have been that the company was named after. I would also cite Exxon Exon Mobile and its uh its predecessors. I think most people know that John D. Rockefeller started that company, but I would guess that most people can't name more than three or four people who have been the CEO of that company for 150 years since John do John D. Rockefeller was no longer there. But yet it has managed to continue to be a su successful business. Uh so Bergkshire obviously Buffett deserves every bit of credit and acclaim for what he has done but also part of what he designed and part of what he was doing all the way along was to design Berkshire in such a way that it would be able to persist beyond his personal tenure there and that's what we're seeing now. I know you're a bottoms up investor, um, but do you ever look top down, Tom, and have macro thoughts about the stock market or the economy that impact what you're doing in one of your three business units? um it would be absolutely impossible and and and frankly irresponsible not to be somewhat thoughtful about what you observe in the macro environment and what's uh going on in a top down environment. That said, that tends to be the sort of thing over which you don't have any control. So, you're thoughtful, you look at things, you think about some of the pluses and minuses, you think about the riskreward. I mean, this is a fundamental nature of the way we run every single one of our businesses and it's inherent to the discipline of insurance that you think about the risk you're taking and the reward you're receiving in exchange for that risk. And that that's as basic as it gets. But that being said, you then need to make specific decisions which come from the bottom up. And one of the people who I've who I've learned from and and studied again and this goes back 40 or 50 years and this was a book given to me by my grandmother when I might have been uh in in seventh or eighth grade but it was by John Train who was a great financial writer if you recall him and one of John Train's comments was investing is the art of the specific. So there is a specific company, a specific idea, a specific price and you make a decision about that. Uh so you don't ignore what's going on from the top down. What you're actually going to do for everybody, even if they're a macrobased investor, is what you do from the bottom up in a specific decisions. >> And final question, Tom, um your market capitalization, I think I have this right, is about 25 billion. Bergkshire is about 1 trillion. And that means they're 40 times bigger. Is is that an opportunity for you? Would you love to would you aspire to get, you know, build one of the world's greatest companies? You're going to be shooting for that part A and part B. Are you going to be sticking around many years more to try to accomplish that? >> Well, the answer to the second one is is yes to the best of my ability. So, I' I've been here 35 years now and love coming to work here. of being part of this company and I would like to continue to be able to do that as long as humanly possible. Uh in terms of the question a about those specific numbers, I'm going to go back to we're going to do the very very best we can. Um and at the at the time that Markeel went public, I think the market capitalization was $30 million. Uh the time I joined four years later, maybe it was roughly $40 million. At this point, it's gone from $40 million to 25 billion. So so far so good. Uh none of those numbers were ever a specific target. They are just what happened along the way as the result of doing the best we could and and that being at a pretty good level. So we'll just try to keep doing that. >> Well, I like that. So far so good. Tom Gayner, CEO of Markell Group, thank you so much for your time. >> Thank you. >> This is at Barren. I'm Andy Sir. We'll catch you next time.