Markel CEO Tom Gayner Talks Berkshire at Omaha Brunch
Many imitate Buffett's folksiness and simplicity, but few do it better than Gayner
I’ve been down for the count with Covid over the past few days. 🤒
On the bright side, though, it finally gave me the chance to catch up on some of the panels and discussions from the Berkshire Hathaway AGM back in May.
So many great minds congregate in one place that weekend and freely share their wit and wisdom with anyone hoping to learn a little bit more about the money game.
One of these hidden gems is the Markel Omaha Brunch.
This year, CEO Tom Gayner conducted a lengthy Q&A session second only to Warren Buffett’s from the day before. Not only does Markel share a very similar philosophy and culture to that of Berkshire, but Gayner possesses a downright Buffett-like way with words and innate ability to distill complex concepts down into simple terms.
Many imitate that Buffett folksiness and simplicity, but few do it better than Gayner.
The brunch also allows top Markel brass to make the case for their company to an audience of like-minded investors.
“The people who are most likely to understand what we’re doing are people who are already in Berkshire,” Gayner told Bloomberg Radio in 2021. “If you own Berkshire, you’re already qualified [to be a Markel shareholder].”
And, making this year’s Omaha Brunch all the better, Gayner spent a decent amount of time on Berkshire-related topics — as well as his personal friendship with Warren Buffett and the late Charlie Munger.
Berkshire Hathaway bought more than 467,000 shares of Markel in the first half of 2022, before abruptly reversing course and exiting the position by year-end 2023. Not quite a TSMC “blink and you’ll miss it” situation, but rather un-Berkshire-like nonetheless.
“I found out about [Berkshire] purchasing Markel in the same way that you did — by the release of the 13F,” said Tom Gayner. “That was a good day. It’s cool [to have Berkshire invest in you].”
He called it a “Good Housekeeping Seal of Endorsement” for Markel.
About Berkshire’s eventual sale of the 3.5% position in his company, Gayner added cryptically, “There are other things going on that I’m not at liberty to talk about.” Your guess is as good as mine on that one.
“We enjoyed Berkshire’s presence in Markel stock [and] we regret its absence,” said Gayner, “but that’s in their control, not ours.”
But, despite the sale, Gayner and Warren Buffett’s relationship remains strong. One that dates back to their time together on the Washington Post board of directors and those early Berkshire annual meetings when attendees could still get face-time with Buffett and Munger.
“He continues to have a very warm relationship with me personally and with Markel,” said Gayner, “so he has his own reasons for doing what he does.”
Markel — like Berkshire Hathaway — is only as good as its employees and managerial talent. I’ve always thought that Warren Buffett’s secret sauce is his uncanny ability to acquire excellent companies and then convince their newly-rich founders to keep working as hard as ever under the Berkshire umbrella.
Tom Gayner noted that one of the best ways to attract talented employees is to “treat the people who are already here very well”.
To illustrate that point, he referred back to that fateful day in the mid-1980s when Warren Buffett met Ajit Jain and hired him to help out with Berkshire’s insurance operations. A decision that looks better and better with each passing year.
Jain only walked into Buffett’s office that day thanks to a recommendation from Mike Goldberg — who had previously worked with Jain at McKinsey & Co.
“Because Mike Goldberg had done well and was trusted and valued as a person — whose voice would be heard and listened to by Buffett — when an opportunity came up, [he] said, ‘Hey, I know a guy,’” said Gayner. “And that’s how Ajit got to Berkshire.”
(Buffett started calling Goldberg “Saint Mike” for bringing Ajit on board.)
“We try to do much the same thing,” said Gayner. “If we treat the people who are already part of the family well, they will refer friends, family, and smart people that they [know]. I’ve seen it happen over and over and over and over and over again.”
Understatement alert: Charlie Munger had a lot of strong opinions. And, when expressing them, he rarely minced words or pulled punches. Two of his favorite punching bags were EBITDA and compensation consultants.
Why, one questioner asked Tom Gayner, does Markel dabble in both areas if Munger was so dead-set against them?
✨ The EBITDA question came up last year and Gayner gave much the same answer this time, too. Markel does not take EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) at face value, but cannot afford to ignore it, either.
Charlie Munger — who often referred to EBITDA as “bullshit earnings” — could play the game on his own terms in a way that Markel cannot.
“When we’re looking at businesses with Markel Ventures,” said Gayner, “many of the sellers of these businesses think in terms of EBITDA — and certainly their investment bankers do. We would not be serving your interests if we went in to the seller and said, ‘Look, I know this is how you look at your business, but let me explain how you should look at it differently.’ They’re [already moving] on to the next buyer.”
“Our job is to take the number they give us and say, ‘What is it really?’ We look at that number, we look at EBITDA, and we adjust that to what we think the real earnings are, the real cash flows, the real depreciation, and what the [real] amortization is.”
✨ Markel COO Mike Heaton took the compensation consultant question — and agreed with Charlie that these consultants often play a “pretend game” of paying lip service to fair management compensation, but instead act like “pawns” to boost exec compensation higher and higher.
“That is not how our compensation committee uses the consultants,” said Heaton. “They are there to provide data which is necessary and useful in the decisions that they make, but it doesn’t go beyond that.”
As such, Markel is not afraid to buck the recommendations of these consultants — like when it recently overhauled executive compensation to better align management with long-term shareholders. In effect, any stock-based compensation changed from a 3-year hold to an 8-year hold (even post-retirement).
“The comp consultants said, ‘You can’t do that. Nobody else does that. That’s a bad idea. You’re not going to be able to recruit talent.’ We said, ‘Thanks for the data and [for] letting us know how other companies behave — but that’s not how we behave. We’re in a long-term game and we’re going to go ahead and do it anyway.’”
More Munger: Just before the Omaha Brunch ended, Tom Gayner shared a couple of book-related memories of the late Charlie Munger.
On one occasion, Gayner was having dinner over at Charlie’s house and mentioned a book that he recently finished, Genghis Khan and the Making of the Modern World. And, as so often happened, Charlie already knew all about it. “That book is so good that I don’t even know if it’s true,” he said.
Another time, Charlie gifted a book to Berkshire Hathaway director Chris Davis and jotted a short note inside the front cover: “I hope you like this book. If you don’t, give it to a smarter friend.” 🤣
“There are other things going on that I’m not at liberty to talk about.” Your guess is as good as mine on that one.
That is a very interesting statement to say the least!
It’s one thing to use EBITDA in negotiations for acquisitions, but Markel also uses it in its presentations to Markel investors which has always seemed unnecessary to me, and so I don’t find the explanation entirely satisfactory. But Markel, overall, is closer to the Berkshire ethos than many other mini-Berkshires and I wish them well.