3 Gems of Wisdom from an Unknown Investing Genius

The Motley Fool’s mission is to “educate, amuse, and enrich.” I’m not a particularly humourous person, so the ‘amuse’ part of the Fool’s mission is often beyond my reach. But, the ‘educate’ and ‘enrich’ parts are certainly well-within my capabilities – and they are things I love doing.

One great way, in my opinion, to educate and enrich investors in Singapore is to share wisdom and perspectives from great-but-less-known investors from foreign shores. Tom Gayner, the longtime chief investment officer of the U.S.-based specialty insurer, Markel, would be one such investor.

Earlier this year in May, the Wall Street Journal’s Jason Zweig had profiled Gayner and shared details about his impressive track record. Over the past 15 years, Markel’s investment portfolio has achieved annual returns of some 11.3% as a result of Gayner’s leadership. This far exceeds the S&P 500’s comparable 4.2% annual gain.

Below are three great pearls of wisdom I have gleaned from a 2014 meeting that my U.S. colleagues had with Gayner (see here and here).

On having the right incentives

Markel’s investment portfolio is in the billions and yet, its formal investing team is made up of only two: Gayner and his partner. My fellow Fool David Hanson asked Gayner why and how the team was kept so small and this is David’s recount of Gayner’s answer (emphasis mine):

“He presented the hypothetical scenario of an investment analyst being asked to pitch a stock to the rest of the team every week, and week after week, the analyst said, “I don’t have anything.” Eventually, he is going to start feeling the pressure to come up with something to make it look like he’s “doing something” and will pitch a potentially bad idea. By keeping the investing team small at Markel, Gayner is able to control the process and avoid making poor decisions.”

Gayner understands the need to set the right incentives – or at least avoid the poor incentives – at work. If you see a company that routinely rewards its employees for meeting short-term targets that come at the expense of the firm’s long-term health, that’s a risk you may want to be wary of.

On knowing what to invest in

When quizzed about how investors should think about their areas of expertise in investing, Gayner replied (emphasis mine):

“Different people have different skills and abilities. If they happen to be particularly knowledgeable about medical things, or technological things, or entertainment, or sports — anything that’s their skill and their ability — those should be defined by them, rather than thinking, “Somebody else does that, so I should do that too.””

It’s important to know what you are knowledgeable in instead of parroting the knowledge-set of famous investors. Warren Buffett, a well-known billionaire investor, is known for his aversion to technology stocks – he doesn’t understand them. But, that doesn’t mean that you cannot understand the technology sector.

Your circle of competence is self-defined and shouldn’t be affected by how and what others think. That said, it’s crucial too that we do not overestimate our levels of knowledge. Being overconfident can result in us failing to recognise important risks.

On how individual investors can assess management

The following is Gayner’s response to a question on how individual investors may be able to get a better handle on the integrity and ability of a company’s management team (emphasis mine):

“For instance in the course of the last week or two, I don’t remember where I read it, but there was an article that profiled Bill Marriott. I believe he’s roughly 82 years of age, and it was his life story and how he started out working in the root beer stand, but then morphed into the hotel business. It was talking about what Marriott is doing now, with some of the newer designs.

Well, we’re Marriott investors. I’ve never spent any time with Bill Marriott. I don’t think I’ve even had the chance to shake his hand, although I’d very much like to do so. But we’ve owned that stock probably for the better part of 20 years.

I’m a Marriott customer. I can see and understand what they do, as a customer, as well as reading their financial statements and the annual report. So, even though I don’t know him, I can see and taste and touch and feel the product and the service.

I can read the financial statements. I can read profiles about him, and I can get as good a sense as possible without actually having a personal relationship with him, that enables me to make some judgment about the company that would not be wildly different than what any retail investor would have the opportunity to do.

I’m an individual investor too and that means I’m often last in line when it comes to having the opportunity to interact with a company’s top management face to face. But, that does not mean that I can’t get a good handle on the top executives.

Dr. Loo Choon Yong is the co-founder and current executive chairman of healthcare services provider Raffles Medical Group Ltd (SGX: R01). He has expressed in multiple interviews I’ve read that he has built Raffles Medical to be a company that prioritizes care for patients over making profits.

Has he walked the talk? There are signs that show he has. In the 2013 and 2012 Customer Satisfaction Index of Singapore survey carried out by the Institute of Service Excellence, the company’s Raffles Hospital scored first and second spots, respectively, in Customer Satisfaction ratings in the healthcare sector.

Meanwhile, as an example of Loo’s leadership ability, Raffles Medical has turned in much better business performances over the years when compared to its peers. It’s worth noting that the numbers needed to make this conclusion is readily and freely available from the different companies’ earnings releases.

Given what we’ve seen, there’s plenty of truth to Gayner’s statement that individual investors can also have similar opportunities to make the same sort of judgements that he makes for his investments.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Markel and Raffles Medical Group.