Markel's Tom Gayner on successes and mistakes in investing.

Thank you. Thank you. Delighted to be here.

Well, indeed so, and I know one of the cultural features of being a Scotsman is to be brief. So, I hope you will indulge me that I have some longer stories to tell and that's one of them. But before I even begin starting to tell that long story, thank you Russell for the idea behind the facility and the warm welcome. And as he said, you've had some of the world's great investors here. Well, tonight would not be one of those nights. And I was wondering and I spoke with Caroline and let me introduce my colleague Caroline Paul and Tyler Brown. Please stand and recognize they work with me in Richmond and Henry Gardner who is in London with Markel is here visiting. So Caroline's been it seems you've been there forever but it's been a year or so and I mean that in the most positive way. So I was trying to decide how much to speak and how open to be and some boldness and you know Peter has been sort of hyping this Russell said great investors and whatnot. So, I know there's some wonderful investors here who know a lot of characters through the financial world. By show of hands, does anybody know who Lee Cooperman is in New York. So, good. I'm glad some people will know who Lee Cooperman is. And I hope you will accept my apology in advance for telling you a story that Lee Cooperman told.

So, Lee Cooperman is from Brooklyn. He is one of the world's great investors. Done spectacularly well. And one time he was introduced and I said, 'That's the best joke I've ever heard.' So Lee Cooperman in his New York Jewish Brooklyn way had been sort of puffed up in the introduction and he said, 'Well, before you get too far carried away, this reminds me of the Scottish professor of medicine who was lecturing his class on human anatomy at one point and he posed the question. He said, "Under what conditions of proper stimulation, what organ will reach four times its normal size."' And he looked around a bit and nobody was doing anything. And so he finally, as a professor could do, called on somebody and said, 'Miss McGilly.' And she says, 'Professor, I cannot say.' And he says, 'The answer is the pupil of the human eye.' Now, Miss McGilly, I have three things to say to you. One, you had not been doing your homework. Two, you have a dirty mind. And three, you are doomed to a life of unfulfilled expectations.'

So, Caroline encouraged me to go ahead and be bold, and I did want to at least blame Lee Cooperman a little bit before we went too far down that path. But I do very much enjoy being here. And I hope your expectations are not too high. I have been to Edinburgh and Scotland I think about eight or 10 times. And as we were walking over here, you talked about how sort of when you were just starting out, the idea of going to Boston, Massachusetts and becoming an investor there was something that in your youthful passions might have been a goal of yours. I will tell you as an American, as someone who lives in Virginia, I have been to Edinburgh and Scotland more times professionally than I've been to Boston.

Since we're in the Library of Mistakes in the spirit of sort of inquiry and trying to always wonder why what would have driven that, what I would say is that the culture of investing that has historically existed in this city is unique in the global stage. It is singular and it is very different than Boston and frankly from the way I think about things. I remember the very first time I heard about Ed and the investing culture. I happened to be at a conference outside of Burlington, Vermont. And I don't know the gentleman's name. I don't know what firm he was. This was 91 or 92 or something like that. And in the context of a two or three day conference, this guy got up and he showed pictures of sheep and he spoke softly and quietly and without a hurry and he talked about his investing career here and his way of thinking about things and that just immediately resonated with me and then someone was asking me where you and I first met and I don't remember when that was whether it was here whether it was in Omaha or Richmond I don't remember but it's been roughly 30 years plus or minus a year or two so the idea and the culture of long-term ownership that is centered in this town that has just always resonated with me. So I started coming and have come several times since. I thought this particular time when this trip was coming together, the idea that I would come in November was meant to be an act of sincerity because the weather should be miserable in Edinburgh. And I just wanted to show that I wasn't just here to play golf. I was here for serious business. But the weather is such that we should have scheduled some golf today. Again, thank you very much for the warm introduction and being here and the culture which you represent because our company fits that as well and it is the way we think about things and do things. So we're not all the same but there's resonance and rhyme. So starting to answer your question 1990...

Thank you. You remember in 1984 I was working as a had two hats. I worked for a firm and someone was telling me the story when we came over something that got started in 1863 here. What firm got started in 1863 or whatever it doesn't matter. The firm in Richmond that I was working for at that time started in 1863 as well. And it was called Davenport Company of Virginia. I had two hats. I was an analyst who covered companies and wrote reports research for the firm as well. And I was a broker who had individual clients. And in 1984, I was reading Fortune magazine just randomly and I read Carol Loomis' article about Buffett at that time. And the scales fell from my eyes. It just made epic common sense in every way that you could imagine. And I remember going into the head of the department and asking him, 'Hey, hey Joe, have you ever heard of this guy, Warren Buffett?' And he said, 'He's sort of a crusty fellow.' And he threw me out. He says, 'It's Buffett, you idiot.' But I saw that and then in 1986, Markel went public.

Now, Markel was headquartered in Richmond, Virginia. I had never heard of it. Didn't know a thing about it, even though I lived in Richmond for a couple of years. And it was this specialty insurance company. And back in 1986 in studying financial history and by the way I watched one of your talks and you talked about the value of reading financial history in order to try to get a wholesome contextualized picture of what's going on in ways that you cannot do through spreadsheets or mathematical analysis and you couldn't be more right about that. But so the idea of Markel they were the specialty insurance company and that was a time when interest rates were just coming off their extraordinarily you know once in a lifetime peaks of 18, 17% they were starting to come down but they were still very high. So in insurance you know the idea of a combined ratio which means for every dollar coming in how much is going back out in the forms of expenses of running the company and claims. So for every dollar that came in, it was a relatively common practice that a dollar three, dollar four, dollar eight would go out. But that was fine because you were holding the money the premiums and you would earn so much just from interest income that you could have not wonderful returns on capital but reasonable returns on capital from doing so.

Markel had the history and we can talk more about this in another question. They do things other people won't do. If I'm at a cocktail party and somebody asks what kind of insurance do you do? you know, which happens in cocktail parties all the time. I say, 'Well, if there's a form of insurance that you can get easily and quickly, we probably don't do that. We do stuff that somebody says, "Oh, no." Or, "How could I get coverage for that?"' So different things. So Steve Markel, who's the gentleman that hired me, who's third generation member of the Markel family, he would say because of the things that we do, we are bringing expertise and intellectual capital, not just financial capital to the table. So we should be paid for that. We're doing something of value in that way. So they had the discipline even when other insurance companies would happily operate at 103, 104, whatnot, it had to be 99 or better, which meant they were profitable from an insurance point of view. And he was willing to take that penny or two of underwriting profits and invest it longer term, i.e. in equity securities at the time. Well, that was 1986.

That was a dot being connected in my mind immediately that this company I'd never heard of but I was assigned as the analyst to go cover them. I saw they wanted to make an underwriting profit and they were willing to invest those underwriting profits longer term. That is exactly the formula by which Buffett built Berkshire. So here it was. So recommended the company, recommended the stock. I actually it's the only time in my life I've ever bought shares on an IPO. I bought 100 shares of Markel at $8 a share, which I still own those shares, which were $2,000 at some point earlier today. We'll see where the day ends. So 86 through 90, I became a friend of Steve. He became a client, started to do business together, and then February 14th, Valentine's Day, 1990, Drexel Burnham went bankrupt. And for those of you who are financial historians or of the age when you remember Drexel Burnham and what they did Michael Milken that was the junk bond era and the financing of the first wave that these days they've gentrified and they call it private equity. Those days they called them LBOs. So he was the king of that sort of thing. So they went bankrupt February 1990 and the junk bond market really collapsed that day.

So the fellow who I worked with and the two of us were partners and we would talk all day long. We just said and we're equity guys. We said if we were ever going to buy a bond today is the day to do it. And in fact we didn't even call them bonds. We called them SIDS which is an acronym that stood for stocks in drag. So in our very unsophisticated way of thinking about things, we thought of the companies that are out there that have been taken over in these LBOs which one is probably the most creditworthy and we decided at that point in time it was RJR Nabisco and so I'm an accountant by training worked for Coopers and Lybrand and now PricewaterhouseCoopers and just looked at the capital stack and what was going on and noticed that there were some zero coupon bonds that were trading at that point at about 30 cents on the dollar. Our rough estimate swag was in a bankruptcy we thought they were worth 70. So, you know, 50 cents on the dollar kind of thing, but trading at 30 cents. And they had this provision that in 1994, four years later, they had to be refinanced at a rate that they traded at par, which sort of the higher the rate, the more credit concerns one would have. So it was just this really weird tricky security, but I thought it was the fulcrum security to the whole deal. So that was the one that I wanted to buy.

So the tax laws in the US had just changed. There was this thing called TEFRA, which meant that if you bought, and by the way, nothing is new. That's the whole point of Library of Mistakes. You should study things because nothing is new. And given elections and concerns and government circumstances, the idea of tax laws changing, i.e. tax rates going up, I don't think that's a new phenomena. So we're dealing with that. So that was an episode in an era where that was taking place. So in this particular tax law, if you bought a bond at a deep discount, you had to accrete the accreted interest income even though you didn't have cash to do it. So you would have a tax liability if you bought something like that. So most people wouldn't buy them because you didn't know about the credit and you did have to take money out of your pocket to pay the tax liability along the way. So all right, that's a dead end. Can't just call people and start selling them that for tax deferred retirement accounts and things like that. You would be sort of at the edge of your fiduciary duty and these were gamey securities. But I just happened to know that Steve Markel along with his cousins had borrowed money. And this is part of the culture of why Markel is the way it is. They had borrowed the money to buy their equity stakes from the second generation. And they had interest expense which was non-deductible because the way the tax law had changed, you could only deduct interest expense to the extent you had interest income. So again, this is just one of these dots connecting the mind. I called Steve up and I said, 'You're the one person in the world who this makes sense for because you can accept the accreted interest income without a tax cost from doing so. And I think it's a good investment.' So he agreed to do it. That was February 14th. By December, 10 months later, those bonds were paid off at par because they were indeed the fulcrum security. RJR could not operate without refinancing that. So that might have been December 1st. I think by December 2nd I was working at Markel.

Again, saluting the spirit of the Library of Mistakes. In addition to learning from mistakes, you should learn from things that go well. There is that side of the coin as well. You know, sometimes these things work. And I can't think of a better example of a spectacular well-run company that would be much better than what Berkshire's been over the last 50 years. So, I've consciously studied that and tried to learn from the things that go well as well as things go poorly. And again, this is a 25-year-old story, but one time some analyst was coming through and they were looking at Markel and they were doing their due diligence and asking all sorts of questions. And at the end of the day, the fellow said, 'You know, the problem with you guys is you're trying to be just like Berkshire.' And I said, 'Who would you rather us be like?' I'm flattered by that question and the comparison. Not offended by it at all. Now sometimes people I don't like the word clone. That despite being the land of Dolly the sheep, if I remember that correctly, that implies not thinking and not being thoughtful. And I think the things that we try to learn from Berkshire do involve thought and things that are appropriate and perhaps not appropriate. And it stuns me. I think the more interesting question is why are there so few people who do adopt that model and try to do what he does? That's a more interesting question to me.

Yeah, sure. I think there's a variety of reasons to it. One of the things that I observe and I've gone to the Berkshire meeting for 35 years in a row and again just trying to been there it stuns me each and every year and Buffett was 62 the first year that I went and you know he's now he's 95 and inevitably there would be somebody who was I'm guessing 22 or maybe 25 but certainly in their 20s and the guise of asking Buffett a question in effect criticizing him and telling him what he's doing wrong and how he, you know, is not keeping up or got something wrong or so on and so forth. So, I say I think one of my professional goals is to be second-guessed like Warren Buffett. The guy gets second guessed every single year that I've ever gone to that meeting about what he's gotten wrong or missed or been passed by. But look at that record. It certainly seems pretty good. So for some reason there just seems to be this human nature revulsion to the simplicity the deep simplicity that it has. Number one.

Number two and again I'm sure there are many books on these shelves that would be helpful in the sensation of this is when you are doing something different and he has and it's singular. You are not protected by the crowd. You are not operating with the comfort of psychological safety by if you're wrong about something and you can say well we were all wrong that absolves you of personal responsibility. When you take a position and it is not a consensus position and you're doing it in a singular way, in a way that people in general are not doing it, you've exposed yourself to career risk if nothing else. Isolation it's like the comedian one time was talking about Copernicus and Copernicus you know deciding that the sun is the center of the universe as opposed to earth and him just sort of imagining the other people around Copernicus in his town thinking well yeah you might be right but you think Copernicus got invited to any more cocktail parties. To be different requires effort and it is effort that none of us as human beings can endure completely. The idea that we need social relationships and personal relationships and friendships. I don't care how introverted you are, you need some of it, different doses. But I think those are the two fundamental things. The acceptance of personal responsibility and being different are psychologically incredibly hard. So you look at what Berkshire's done. You look at what Buffett's done. It's kind of easy to say. It's simple to say. It's not a complicated formula, but it is way way way way harder to do than it is to say or articulate.

Absolutely. And I can remember going there the very first meeting that I went to. So I was I guess I was 29 and I had small children at the time. And I was there and went by myself and I was laughing. I was having such a good time. So I remember calling my wife and I said, 'You need to come to this with me. This would be so much fun for you to say.' And obviously she was a working mom with three kids and she said, 'What are you nuts?' It's pretty difficult to extract Susan from her schedule, but I said because these guys are hilarious. It's like seeing Mark Twain when he's still alive. And don't wait because they are old. And at that point, Buffett was younger than I am right now. So, the humor, the charm, the fun, the joy, the evil. So fortunately many me this would have been 2007 I was recruited and invited to join the board of the Washington Post company and that was a great highlight moment in my life I absolutely want to do there's all kinds of stories I can tell about that and Buffett was on the board at that particular point and I can remember the very first meeting so we have some meetings and then Don Graham had dinner in his house for just the board members and this was just spectacular Buffett sitting right next to me at the table and I did start life as an accountant so I was sort of slotted to be on the audit committee and the chairman of the audit committee and puts his arm around me says that's our version of hazing but so the dinner takes place and meeting and whatnot and by this time let's call it it's 9:30 or 10 o'clock at night and I'm sitting with my friend Chris Davis who's one of my great friends and Warren said come on back to the room if you would because there's some stuff I want to ask you guys about. So, we go to his room and it's Chris and myself and Warren there. So, I mean, Warren Buffett is my hero. He is my hero. And I'm sitting here just talking to him in his hotel room. And he just goes on and on and on and on. Question this, question that. And finally about at 12:30 at night, I'm sort of having toothpicks to open my eyes. And I said, 'Warren, this is the coolest thing I've ever been involved in in my life, but I'm exhausted. I have to go to bed.' So I excuse myself, but at that point he was I don't know late 70s, something like that. So his energy level and here's one of the things that's very underappreciated about Buffett. That guy is an athlete. He is an athlete. The physical stamina it takes to work at the pace and frenzy and energy level that he works at that I've observed firsthand for years and years and years. People underestimate how much athleticism is involved in that along with the mind. Charlie's a bit calmer and doesn't fidget as much as Buffett did, but nonetheless, absolutely the role models.

I would even admit that Warren's on a different scale and that energy level and intensity, but he has been he was extraordinarily well served by his partnership with Charlie because one of the things and again and I know our focus is on investing tonight as opposed to the management and executive role but I think they are inextricably linked in many dimensions and in my role as a manager often times Sometimes if I observe or see somebody who might be struggling a little bit and I'm trying to help them. Among the things I will ask them is I will say who do you have in your life that can tell you you're wrong and that you continue to respect? And I would say in the first tier of that for myself my partner Mike Heaton is the COO of Markel one time when I first sort of drafted him down the hall to help me on a project and 20 years later he's now my number two and COO of the company and has been for time at one point he asked me so why did you ask me to help you with that and I'd known him a bit and I said well Mike you have this uncanny ability to tell me that I have my head up my... But I still like you and that's an unusual skill to be able to do that. So Mike plays that very important role in my life. My wife Susan does as well. And in addition to being spouse and partner, she is the CEO of one of our businesses. So has professional chops as well and she's extraordinarily helpful. And Chris Davis, you know, who's just been a close personal friend for 35 years that has that kind of relationship. So, I hope and pray for you that if someone asked you that question, you'd be able to have at least two or three names. Not 20, not 12, maybe five or six, more than one. So, for me, that number is three. But that notion is what Charlie did for Warren because one of the things that Warren would be challenged by and we all have this and again this ties to the notion of mistakes is often I'll tell this story. So one time there was a company that came up and it was a possible acquisition target and Steve Markel sent me out to go visit this company and visit the CEO and take the first pass at looking at it for whether it was something Markel should think about buying or not. So I go out and I visit the guy and I come back and Steve said, 'Well, how was it?' And I said, 'If that guy is half as smart as he thinks he is, that's the smartest person I've ever met in my life.' And he was smart. We did not do that deal because one of my underwriting sensations was he's not as smart as what he thinks he is and that's dangerous. So people who are very very intelligent and generally speaking the IQ levels of people in the investment business who've been there for a little while they're pretty high. It's an above average IQ profession, but you need to recognize that you don't know everything and you're not as smart as what you think you are. And you need partners who can counsel and help you and tell you that, but do it in such a way that you will listen to them tomorrow and the next day because it's very hard not to take those kinds of things personally. We're human beings and we do take them personally. But can you be mature enough to be grateful for constructive criticism as opposed to being offended by it?

Well, copycat seems dangerously close to cloning. I don't know whether those IQ points on display there was designed to trick me with that question or not, but I'll have you got a thoughtful answer?

So, again, and you had asked me earlier about the size of our staff and that it's for 17 years it was just me and Steve is a part of he was doing other things as well. And one of the responses I would make people say, 'Well, how do you do that?' I said, 'Well, look at a list of our shareholders.' And again, this is why I've been to Edinburgh a number of times in my life. If you look at the list of our top 20 shareholders, and by the way, this is something perhaps worth talking about because it is different in today's world than what it was 20 years ago, and who knows what the cyclicality and the way that that might turn is, but 20 years ago, if you had printed out a list of our top 20 shareholders, I would have told you that I know 14 of them. Four of them are computers and two of them I don't know yet but I will. So there were relationships that were formed with our investors, many of whom were very good investors. And I would always tell them, I said, you know, we all file our holdings publicly with some time lag, but it's public what we all do. And I say, here's the ironic thing. You are smarter than I am, but I am managing money for you in the context of the Markel investment portfolio. So, if you see me doing something that's stupid, tell me. I'll listen. And if there's something you think I ought to do that I'm not doing, tell me and I'll listen. And it is actually in your best interest to do that. And I'm not talking about insider trading because if you're an investment professional and you have a good idea, you should do it for your clients first. Absolutely. But after you've established your position and bought it and done everything that's your fiduciary duty to do, your best interest is to tell me about it because if I agree with it and add it, it's actually adding to the weight of that idea in your portfolio through the indirect ownership of Markel. So those kinds of relationships have been very important over the years to have idea flow and conversation. Now what's different about that today and perhaps we might be at the apex of that and we can talk about this because I think this is an important topic of those top 20 holders I know seven and nine of them are computers and then I'm never really going to develop that close relationship with and four people I don't know yet but that I hope to know in the fullness of time.

Between five and 10. Yeah.

Well, a couple points of that one. And again Buffett's an interesting role model and example here. He talks a lot about paying taxes and Berkshire's tax bill and whatnot, but he doesn't like to pay them. So you know if you and who does and again the reasons I've been to Scotland are because either I connected to this investment culture or I'm drinking whiskey or I'm playing golf and there's a lot of interconnection between all of those things. And if you think about the whiskey business and the tax collection mechanism of what's involved in that and the desire of the Scots not to pay taxes if they don't have to. I mean there's some heritage of that which by the way when it came to America and there's a great book called Born Fighting by James Webb the Scots-Irish discussion of the in Virginia and whatnot. So moonshining in the US is a direct lineal descendant of the heritage both of the distillation techniques and the desire not to pay taxes on it. So, it has not been our greatest investment recently, but it is an investment we've had for some time, and I think it's a worthy investment. Diageo. Well, one of Diageo's lead products is Johnny Walker Scotch. And I've been to the Cardhu Distillery and sat in Johnny Walker's library and whatnot, and a bottle of Johnny Walker red, not black, but red, says since 1820 on it. And we think about AI and all the things that have changed. Well, think of all the things that have changed since 1820. I don't know, railroads, cars, airplanes, telephones, harnessing electricity, and yet it's still a relevant brand. And Johnny Walker himself was a pharmacist in Glasgow, I believe, and apparently he was an honorable person. So, if you're making bootleg whiskey, sometimes that's not very good. Sometimes you can go blind by drinking that. Johnny Walker was trusted because he was honorable. So you had the sense that you were buying a quality product that would not make you go blind and that was the basis for a brand that is still of value since 1820. Well, if you have something that can endure those sorts of technological changes that have happened and continue to happen and it's based on trust, mutual people win, I mean they win by selling it at a fair price where they make a profit and you win because you get a good whiskey at a fair price and you don't go blind. So that's a win-win deal. And to the extent you can buy and hold things like that, you defer the tax liability. So for instance, when you look at Markel's numbers right now, as of our most recent 10-Q, we were closing on an equity portfolio of $13 billion, the cost of which is about $4 billion. So almost $9 billion of unrealized gain on that portfolio at a 25%ish tax rate that would prevail in the US right now. That's over $2 billion dollars of in essence zero cost financing on our balance sheet that we get to invest and earn the gross return but only have net sort of $7 billion of capital against that because of the deferred tax liability. So if you can find things like that it makes great sense to do.

Now Peter made reference to my grandmother and I have told this story many times. So my grandmother was a very interesting woman. She went to a school called Swarthmore, which is a Quaker school outside of Philadelphia in the 1920s and not a whole lot of women were going to university in the 1920s. She did and she became a school teacher. She spent her very first paycheck on a fur coat. Just trying to paint some picture of the eclectic nature of my grandmother. In her 80s, she got a burn on her leg from riding on the back of someone's motorcycle. Let's get the picture here. My grandfather died when she would have been in her mid-60s or so. And despite the fact that she was educated, a working woman, eclectic interest, a voracious reader, read the Wall Street Journal, watched a TV show called Wall Street Week with Louis Rukeyser, and as an unsuccessful person trying to get a date on Friday night, there was more than one Friday night when I would sit with my grandmother and we would watch that TV show. Well, so all this action and all this thought and yet when my grandfather died, she was a widow who never made another decision. She lived in the same house. His suits hung in the closet. His shoes were on the floor. And in that era and again, it ties to indexing and some of the other stuff we've been talking about. I mean, he might have had 12 stocks because he was a small town businessman. And small town business people did things like that and they would go to the diner and they would drink coffee and they would talk to their buddies about what they owned and what not part of their life. So she owned those 12 stocks for the rest of her life. Now fortunately among the 12 two of them one was Lockheed Martin and the other and it does kill me because you know I'm on the Coke board one of them was Pepsi. But those two did so well it kept my grandmother in a pleasant upper middle class lifestyle for the rest of her life. And when she died, actually I received an inheritance of $25,000. It's the only inheritance I ever received from my grandmother. $25,000. At that time, Markel stock was trading for $25 a share. I bought a thousand shares of Markel with that, which I still hold on to today, which is worth a bit more than that. So, yes, I've had some vivid examples and again connect you back that first guy...

from Edinburgh who I encountered in Virgin's Vermont told stories like that which resonated with me.

I'd be happy to do so. Maybe that's why I was giving such long answers earlier, trying to crowd out the time because Peter had prepped a little bit and through Caroline sent some backdoor messages about mistakes and I suggested one or two stories and I heard well what about another one? What about another one? What about another one? And it reminds me of the time when Susan, we got married while we were in school and that was '82 and '83 and interest rates were 18, 20% at the time and she was a chemical engineer and it was a miserable job market and I was an accountant and fortunately the job market was better so I got a job easily. Susan struggled a bit to get her first job. And one of her first interviews before she learned how to interview a little bit better was Exxon and it was the classic and women were not common as chemical engineers at that time. And Susan's a pretty introverted shy woman to begin with. So the classic tell me about your strengths, tell me about your weaknesses and what not. So he gets the weakness and she knew that question was coming. So she had an answer and the guy said, 'Well, what about another one?' And she's trying to be compliant. So she came up with another weakness. And the guy said, 'Well, what about another one?' And I'm just trying to answer the question here. Came up with another one. He said, 'What about another one?' And she finally said, 'I think that's about it.' So, I'm prepared for a few of them, but there will come a time when I say that's about it.

The first one, and you know, mistakes come in categories. They could be mistakes of omission or mistakes of commission. And mistakes of commission are things that you do that you shouldn't have done. And generally speaking, those mistakes are a lot smaller and easier to recover from and just are not as big a deal as mistakes of omission. It's like the comedian who talked about this was a comedian who became very famous, very rich, and got himself in all kinds of drug problems and everything. He says, 'I was so much better off when I was broke because I could only get $20 messed up.' And you know there's a sort of a natural limits to only have $20. The mistakes of commission are like that because there's a feedback loop that says you were wrong and you can learn from them. So those are tiny. Mistakes of omission are way worse. Way worse. And there's multiple levels as to why they're worse because a mistake of omission is something you didn't do. So you don't have to tell anybody. And if you don't tell anybody and you don't talk about mistakes of omission, the person you're really going to tell about it is yourself and that takes away your ability to learn.

So I'll answer the question. The biggest financial mistake I ever made in my entire life was in 1984 reading that article about Berkshire and going into the head of the department and getting thrown out and going out and looking it up. The cutting edge technology in 1984, pre Bloomberg terminals and Yahoo Finance or whatever, was something called the S&P tear sheets. They were little odd sheets of paper and I looked at the S&P tear sheet for Berkshire. And I'm an accountant by training. I'm not an idiot. Those numbers were great. But I thought no stock could possibly be worth that much. So I didn't buy it.

Something like that. Yeah. It was I mean it's a little painful to remember, but

Exactly. Yes. Yeah. So I didn't buy any. In 1990 when I joined Markel, Steve twisted my arm and that was the first thing we bought for the Markel investment program. So, it's worked out. But again, I'm still not making a mistake about that because I bought that Berkshire stake in 1990. Then until '97 or '98, I did not buy any more of it. Was keeping track of it, monitoring it, you know, year after year after year. And what happened was in the late 90s, that was dotcom 1.0. And I got I mean from '90 through '96 I did great, white hot, got a lot of credibility, got you know the confidence of the Markel board to manage the money. But starting in the late 90s my record started to diverge and it really got was the biggest professional gap I'd ever had in my entire life. And because I couldn't pencil out numbers having the ugly habit of still being an accountant and trying to have things add up. The only thing I could find that was sort of making sense to me was Berkshire. So really ended up buying a slug of Berkshire in the late 90s. Not because I was brilliant, but because by default that's the only thing I could find to invest in. So that was a mistake of omission. I've made a lot more.

Correct.

Well I think the story remains to be told about Nvidia. So I might be wrong. I might be completely wrong. They certainly have been wrong so far. Anybody keeping score of the ball game so far would say you've missed it and they may be right. I have spent my entire career and you were very kind to point out that we've sort of done better than the S&P 500 for a long period of time and I think all of us as professionals know that's pretty hard to do. So there would be some credibility that would come about that statement. I have never been a cool kid. I've never owned a hot stock. Not once ever. And I can recall all of them and being sort of on the outside with my nose pressed to the glass looking in. So if I go back to the 1990s, that particular era, when I first went in, America had a banking regime where and my family, my uncle Dick was the president of the local bank, you know, there were thousands of local banks all around and banks started consolidating and adding together. So owning bank stocks and having the next one that would be taken over was kind of the hot thing to do for a while. Then drug companies were the hot thing for a while. So Merck, I can't remember the name of the drug that they had which was just the thing at that point and it was known as St. Merck. And then Pfizer came out with their

The Pfizer Riser as it was known colloquially at the time and I didn't own any of that and so and then the dotcom era came. I have never owned any of them because my bias, wiring and things that I really need to be conscious and keep myself from making a mistake on this is I get suspicious about the cool kids. I wasn't invited to the parties when I was a kid, so I feel like I should be careful as an adult. Sometimes, you know, party seems like it should be phrased, you and your wallet are cordially invited to this particular event. It's a bias. So, we will see. And if you look at the market cap of Nvidia, I heard the other day, it is equal to the GDP of Germany now. And if you gave me the choice, what would you rather own? The entirety of Germany or Nvidia? I'm going to go with Germany. I just am.

Or down.

Correct.

You don't know until hindsight and the shortest statement I can make and I can remember that time I can remember saying this. I said I am in a race between being right and being fired. Number one. Number two, Steve Markel exhibited one of the great feats of management and leadership that I've ever witnessed in that particular time. And here's what he did. So his office was right next to mine. And again, I start off that period with credibility because I'd had six or seven really good years before that started. And every month, I mean, Steve's office was next to mine, so I talked to him all day every day and just normal casual conversations. But we did have one formal monthly meeting where I would have the portfolio and generally speaking doing triage of some of the largest holdings and we would talk about any developments, any new products, any new management sales, just fundamental things about some of the largest things we owned. Well, because I recognized that just the world seemed to be off its rocker and different. In addition to talking about the top five things that we owned, I would come in and I would talk about the top five things going on in the news that we didn't own. So, the dotcom stuff that was going nuts and talk about the same sort of thing, sales, earnings, or lack thereof, and management behaviors and all sorts of things. And Steve would listen. And at the end of every meeting for about 18 months when this was going on, he concluded the meeting by saying, 'I understand what you are doing and why you're doing it. And I understand what you are not doing and why you're not doing it. See you next month.' That's stunning. It's stunning. So to have clients like that be able to have that kind of discussion, that kind of relationship with is singular. I mean it just doesn't happen.

So, and then the last thing I'll say and again it ties I think to some degree about some of the things I feel are sensed today with the indexing and the carrying on. The last real bear market we had was '08, '09. And you know in 2020 with COVID, yeah prices went down but it was so short in its duration and it was so external it was not anything that you did wrong. You would not have a sense of personal responsibility about how you screwed up because the market, this worldwide pandemic happened. So what could you do about that? So it was really '08, '09 the last time we had a bear market of any size and duration. Well, I do see some gray hairs and some no hairs in the room, but do the math here. So that's 17, 18 years ago. If you're 20 or 25 and you live through '08, '09, maybe you had a little trouble getting a job, but you're just starting out and you don't have that much skin in the game. You don't have that much to lose. If you're 30, well, maybe you own a house now and you're starting to accumulate a little bit, but not so much. If you're 40 and you have a mortgage and you have three kids in private school for which you're paying tuition and some bit of a nest egg, a bear market hurts. It hurts you in a visceral way. That again to your point in the talk that you made, you can read everything you want. You can write everything down. You can put every number through that. But until you feel that, you don't know what it is. And the '08, '09 experience given the time lag it's been, you have to be in your late 50s to have a visceral memory of that at this point and think of how many people you deal with on a daily basis who are younger than 57. It grows every day.

Mistakes are presumably triggered a lot of that reappraisal. As Mike Katon who I cited earlier, my partner, he has an interesting phrase. He says, you know what it feels like when you're making a mistake? It feels great. Because otherwise you wouldn't be doing it. So I live with the same amount of terror and paranoia in my mind today that frankly it's either a blessing or a curse. There's just a certain dosage of that like Andy Grove wrote that book Only the Paranoid Survive. He's right about that. So, you want the amount of paranoia that drives you to excellence and diligence and concern without tipping over into psychosis. So, I'm just trying to keep that balance somewhat intact.

Well, let me give you some of the historical context for why that would have been the case. So, Prem, Fairfax, the original name of Fairfax was Markel of Canada. That was our Canadian office which had some challenges and Prem's first acquisition was of that office. So that was a relationship that predated me being there that he had managed that money.