By Andy Serwer

Tom Gayner is a folksy, but sophisticated chief executive officer who runs a diversified holding company far from Wall Street that has an insurance operation and an investment portfolio.

If this sounds like someone else you know (ahem, Berkshire Hathaway CEO Warren Buffett) that's no coincidence.

Gayner is a long-time disciple of Buffett's and Berkshire -- and as such, has modeled Markel Group, the firm he oversees, to a degree after that company. Gayner joined Markel in 1990, became co-CEO in 2016, and was named sole CEO in 2023. (In June, my colleague Andrew Bary wrote about Markel as a Berkshire Hathaway wannabe.)

I spoke with Gayner recently about Markel, its origin story, its holdings, and Berkshire's succession plan as part of our At Barron's interview series. The interview below has been edited and condensed for clarity.

Barron's : Please explain to us what Markel is exactly.

Markel Group is an insurance-based holding company -- been around since 1930, so we're coming up on 100 years. We started out in Norfolk, Virginia, insuring jitney transportation devices and taxi cabs of its day and kept in sort of specialty forms of insurance for a long time.

We've been investors in public equity securities for a very long time, it started about 20 years ago. We moved from 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 Markel Group.

Well, a lot of people might say that sounds a little bit like Berkshire Hathaway. 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 what [Warren] Buffett built at Berkshire for many, many years. In 1986 when Markel went public, I was actually an analyst who, lucky enough, was assigned to cover Markel in the IPO process, and I had been familiar through the work of Carol Loomis in Fortune magazine with Buffett from that time.

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 Buffett built Berkshire.'

So here was an opportunity to see that recreated or that play run right here in Richmond, Virginia, 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 [Berkshire has] done, it seems a pretty good playbook to follow.

How many Berkshire annual meetings have you been to, and what do you do there?

It's been 35 years in a row that I've never missed a meeting -- I guess the first one I went to was in 1991. At that point, what I said to Steve Markel, who was the vice chairman of the company at that point and my boss [...] '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.' [...] The people we've met, the friendships that have been created, the learnings that have happened through that time, the networks that have been built, it's just singular.

There's no other place like it.

Markel has a great long-term record for investors. You went public in what, '86, 38 years ago. Fifteen percent [compound annual growth rate] since then. Medium term, kind of so-so, and then recently you bounced back over the past couple of years. Explain that performance -- those different phases of the moon if you will, Tom.

Sure. The 15% is 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 and insurance markets, opportunities, acquisitions that we've done. We're long-term people around here, and we're willing to understand that you can't manufacture artificial smoothness.

And in fact, again, a lesson you would learn from Buffett. 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 terms of percentage returns, and we embrace that idea, as well.

So, the way we've always run this business is try to make make good, rational capital allocation decisions, run it to the best of our ability, and do it in a long-term fashion [...] So many people are involved in the process of sprints. 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, that if you're a good marathoner you should be kind of hitting some marks at the 1-mile mark, at the 5-mile mark, at the 10-mile mark. But those are not the final results. And we're marathoners, not sprinters.

Do you benchmark your returns versus Berkshire, and not just the S&P [500]?

No, really, we do the best we can. So benchmarking is something that everybody is going to do [...] and I can't remember who said this, 'You should 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 -- 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 lose your focus. It's like driving by looking at the hood ornament of the car rather than the horizon.

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 and Berkshire, 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, I would agree with your statement that insurance is a complicated business. The longer I live, the more I appreciate the fact that every business is complicated. Every relationship is complicated. So, I think it's a mistake to think you found something that's not complicated. [...] The techniques, tools, and the disciplines of insurance are very important and have a lot of technical aspects to them in training.

In a conceptual level, insurance is not a complicated business. 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 policyholders 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 pay your claim. And so, you look at any insurance company [...] 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 [...] and if that bucket gets thin and there's not enough money in it, that oftentimes equates to insurance rates and prices going up just to make sure there's enough money in the bucket 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 the forest versus the trees, there is some underlying simplicity to it.

I read -- actually in Barron's -- that the insurance business had lagged in recent years. Is that the case, and why is that so then?

We've had some challenges in the insurance business, and we've been very candid and frank about that over the last several years. There were some decisions that we made not as well what we should have, some product lines that we were in that we shouldn't have, and we are responding rationally to those circumstances.

We've exited a number of products where we've just found ourselves unable to run those businesses at a profitable rate. We've made some management changes at some very senior levels where, unfortunately, we had some people who just did not prove to be able to execute as well as what we hoped would be the case, and we've got new leaders in place.

So I fully accept the fact that we have indeed underperformed in the realm of insurance. I think we're on track and made a lot of good decisions. But 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 is a minimum of two years.

So we're in that process. We're working at it. I think -- look a couple years from now, in hindsight people will be much happier with some of the progress we have 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 if they're big holdings, we're comfortable with them, otherwise they wouldn't be big holdings for us.

Our largest holding happens to be Berkshire, and that has been the case for quite some time. Again lots going on at Berkshire these days, but I'm comfortable that that is a supremely well-run, long-term business and has a great feature 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 plan that's going on right now -- unfolding at Berkshire Hathaway?

Indeed so. And I think if you look at the history [...] two names I'll cite just from commercial history of the United States over long periods of time.

I grew up in the Delaware Valley, and the DuPont company was sort of the towering Colossus of that area when 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 reorganization, but I also went to the University of Virginia, and there are records of dinners out at Monticello in Charlottesville between Thomas Jefferson and Mr. E.I. du Pont himself.

So for 200 and some years, that was a company that made good decisions and was run by various people named du Pont, and ultimately people not named du Pont.

[...] I would also cite Exxon -- ExxonMobil and 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 D. Rockefeller was no longer there, but yet it has managed to continue to be a successful business.

So Berkshire 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, 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?

It would be absolutely impossible and frankly irresponsible not to be somewhat thoughtful about what you observe in the macro environment and what's 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 risk-reward. [...] 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 learned from 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 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. So, you don't ignore what's going on from the top down, but what you're actually going to do -- for everybody, even if they're a macro-based investor -- is what you do from the bottom up in the specific decisions.

Your market capitalization -- I think I have this right -- is about $25 billion. Berkshire is about $1 trillion. That means they're 40 times bigger. Is that an opportunity for you? Would you love to -- would you aspire to [...] build one of the world's greatest companies, you're gonna 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 yes, to the best of my ability. So I've been here 35 years now, and love coming to work here, love being part of this company, and I would like to continue to be able to do that as long as humanly possible.

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. And at the time that Markel went public, I think the market capitalization was $30 million. 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. 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 that being at a pretty good level. So we'll just try to keep doing that.

Write to Andy Serwer at andy.serwer@barrons.com

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