Tom Gayner and Growth Variable
There are interesting talks at 'Talk at Google'. So far, I like the two following links:
Howard Marks: https://www.youtube.com/watch?v=6WroiiaVhGo
Tom Gayner: https://www.youtube.com/watch?v=2sG91e1Wh4I
Their views about investing is very close to my view. However, Horward Marks simplified his view to the point that anyone can understand - that is what I does not excel in.
Knowing how Tom Gayner does at Markel's AGM, which I was there last year, he was candid and informal, doing Guy Spier-esque talk. Because of that, I was immensely impressed - in particular, his brief talk about his career and how he viewed Berkshire Hathaway in 1984. I do agree that it is important to spend less than what you can earn. But I was blown when he said that you are rich if you spend less than what you can earn - indeed unique angle, which I never thought of. After this talk, I somehow feel proud to be shareholder of Markel Corporation.
I first heard Markel Corporation online in the value investing community. At that time, I merely short-listed it since my knowledge of insurance industry is not huge. Few years ago, Oliver Mihaljevic suggested Markel to me during short meet up. Gaining much understanding and bought Berkshire Hathaway, I started to analyse seriously. My light bulb appeared when I saw new division in Markel Corporation - Markel Ventures. Somehow, I can see that it is very similar to Berkshire Hathaway in many ways. Today, I am proud shareholder of Berkshire Hathaway and Markel Corporation.
This is not the main focus here. I wanted to talk the growth variable. Tom Gayner is correct that there is no fixed set of quantitative tools to identify winning investments. I may have certain flow of step A to step z in hope of looking at different angles. It is because my habit never change. But I do improvise the habits for better efficiency of discovering new clues. Tom Gayner correctly pointed out that it is hard to quantify the growth. I personally think that reverse engineering discount cash flow formula in order to obtain growth rate is too imprecise and has higher error rate.
Why talk about growth? Benjamin Graham was wary about growth variable - it is clearly evident in earlier editions of Security Analysis book. In the end, his investment in GEICO via his hedge fund made him richer - according to few sources including Tom Gayner, the profit of GEICO investment is much more than the total profit of value investing Graham achieved. It is unfortunate that Benjamin Graham did not discuss this much on the result of his GEICO investment as well as his opinion.
No doubt, I can see myself being embracing compounders in addition to undervalued stocks. It is really much more efficient to compound your wealth by investing in compounders than undervalued stocks. Furthermore, there is no need to spend so much time to hunt new undervalued stocks each time all value investing ideas measure.
I know Tom Gayner didn't talk about compounders directly and exactly. I do feel that the way he describe the stocks as future-growing businesses through his four lenses is very similar to the definition of compounders. Apparently, growth variable is much more qualitative type than quantitative type.
Growth, which are not valued by Mr Market at all, can be assured if it meet to certain following criteria but, I believe, there is few more factors, which I may have missed:
1) management integrity - if the management is comfortable to discuss the current happening and future view of the company consistently over few years, the management's habit will bring good long -term results
2) the choice of actions to deal the company-driven crisis and/or market-driven crisis - I learnt that if the management dealt the disasters like faulty products that hurt the customers quickly and directly, the company will bounce back to even better company than ever. Usually, the act of treating customers during the crisis as if the company care about their health tend to yield better than expected results.
3) the speed to remedy diversion between forecasted figures and actual figures. Japanese and European companies like to publish forecasted key figures publicly. Although it may be seem to be short term, long-term results can be guaranteed by a series of successful short-term results in the form of support. I think it is important to distinguish whether short-term results lead to long-term results as a support mean or short-term results are achieved at the expense of long-term results.
4) company knows what the customers want and produce services/products exactly to the customer needs. Many companies spend money on R&D to develop new feature or new product. Yet, not all companies manage to sell these new feature or new product to customers with much success over a decade. Think of RDRAM, HD-DVD, etc.
5) how the company is financed the growth of the company size - retained earning? debt?
We will evolve as value investors over years as we accumulate interesting insights during our journey.
Howard Marks: https://www.youtube.com/watch?v=6WroiiaVhGo
Tom Gayner: https://www.youtube.com/watch?v=2sG91e1Wh4I
Their views about investing is very close to my view. However, Horward Marks simplified his view to the point that anyone can understand - that is what I does not excel in.
Knowing how Tom Gayner does at Markel's AGM, which I was there last year, he was candid and informal, doing Guy Spier-esque talk. Because of that, I was immensely impressed - in particular, his brief talk about his career and how he viewed Berkshire Hathaway in 1984. I do agree that it is important to spend less than what you can earn. But I was blown when he said that you are rich if you spend less than what you can earn - indeed unique angle, which I never thought of. After this talk, I somehow feel proud to be shareholder of Markel Corporation.
I first heard Markel Corporation online in the value investing community. At that time, I merely short-listed it since my knowledge of insurance industry is not huge. Few years ago, Oliver Mihaljevic suggested Markel to me during short meet up. Gaining much understanding and bought Berkshire Hathaway, I started to analyse seriously. My light bulb appeared when I saw new division in Markel Corporation - Markel Ventures. Somehow, I can see that it is very similar to Berkshire Hathaway in many ways. Today, I am proud shareholder of Berkshire Hathaway and Markel Corporation.
This is not the main focus here. I wanted to talk the growth variable. Tom Gayner is correct that there is no fixed set of quantitative tools to identify winning investments. I may have certain flow of step A to step z in hope of looking at different angles. It is because my habit never change. But I do improvise the habits for better efficiency of discovering new clues. Tom Gayner correctly pointed out that it is hard to quantify the growth. I personally think that reverse engineering discount cash flow formula in order to obtain growth rate is too imprecise and has higher error rate.
Why talk about growth? Benjamin Graham was wary about growth variable - it is clearly evident in earlier editions of Security Analysis book. In the end, his investment in GEICO via his hedge fund made him richer - according to few sources including Tom Gayner, the profit of GEICO investment is much more than the total profit of value investing Graham achieved. It is unfortunate that Benjamin Graham did not discuss this much on the result of his GEICO investment as well as his opinion.
No doubt, I can see myself being embracing compounders in addition to undervalued stocks. It is really much more efficient to compound your wealth by investing in compounders than undervalued stocks. Furthermore, there is no need to spend so much time to hunt new undervalued stocks each time all value investing ideas measure.
I know Tom Gayner didn't talk about compounders directly and exactly. I do feel that the way he describe the stocks as future-growing businesses through his four lenses is very similar to the definition of compounders. Apparently, growth variable is much more qualitative type than quantitative type.
Growth, which are not valued by Mr Market at all, can be assured if it meet to certain following criteria but, I believe, there is few more factors, which I may have missed:
1) management integrity - if the management is comfortable to discuss the current happening and future view of the company consistently over few years, the management's habit will bring good long -term results
2) the choice of actions to deal the company-driven crisis and/or market-driven crisis - I learnt that if the management dealt the disasters like faulty products that hurt the customers quickly and directly, the company will bounce back to even better company than ever. Usually, the act of treating customers during the crisis as if the company care about their health tend to yield better than expected results.
3) the speed to remedy diversion between forecasted figures and actual figures. Japanese and European companies like to publish forecasted key figures publicly. Although it may be seem to be short term, long-term results can be guaranteed by a series of successful short-term results in the form of support. I think it is important to distinguish whether short-term results lead to long-term results as a support mean or short-term results are achieved at the expense of long-term results.
4) company knows what the customers want and produce services/products exactly to the customer needs. Many companies spend money on R&D to develop new feature or new product. Yet, not all companies manage to sell these new feature or new product to customers with much success over a decade. Think of RDRAM, HD-DVD, etc.
5) how the company is financed the growth of the company size - retained earning? debt?
We will evolve as value investors over years as we accumulate interesting insights during our journey.
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