Tom Gayner Talks at Google, Part III

This is the last part of my posts about Tom Gayner’s talk at Google. See here for part I and here for part II.

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The Q&A session in Tom Gayner’s talk at Google starts at 26.36 and last for about half an hour. Below is the first question about how to evaluate management.

Question #1 – Evaluating Management

“So you mentioned evaluating management, you think about character and integrity. First question is, how do you actually, specifically evaluate that? And for us that can actually interact with management of companies, and we just look at prices and stuff like that, how do we actually go about figuring that out?”

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Answer #1 – Evaluating Management

“Well again, I’m looking around the room and I’m seeing that I’m older than you, but I’m married, and I’ve been married a long time. Just by show of hands, some of the people who are married? A bunch of you. How did you decide who you’re going to marry? You dated. And what’s the point of dating? It’s not really to see a movie, or go to a restaurant or ballgame or roller skating, or whatever you did. It’s really to spend time with somebody, to see if their values overlap enough with yours, that you’ll be able to get along for a long period of time. That’s the whole point of dating.

And with management teams, and people running businesses, in effect, what I’m doing, is analogous to the idea of dating. It’s trying to find people running these businesses where our values, at least in the worlds of commerce, overlap enough that I’m happy for them to have the responsibility and authority to run that business as they see fit.

Now you mentioned a limitation, that you suggest that I’m able to get an appointment and see people who run business and interact with the managers, and to some degree, that’s true. But at the same time, I really spend a lot more time reading about people, and using the exact same resources that you would have access to as well. So I read the annual reports. I read the proxy statements. I read magazine articles. And I try to think and just sort of look, and get a gut feel and make some judgement and discernment about whether these people are acting in a way that’s reasonable and makes sense to me.

And your calibration is going to be somewhat different than mine. You’re just different. All of us are going to set those things that we think are important and where we think the bounds of behavior should be differently. Because we’re all different, but you have them. And I encourage you to think about things in that dimension, because one of the things you’ll find is, you’ll make a judgement. Your judgement will not be perfect, but by virtue of the times you get it wrong, when make an error, you’ll learn something. It’s like, ooh, I don’t like that so much. And that will be a marker to you, that the next time you see it, you will be sensitized to it and it will help you make better judgements.

In looking at you guys, when I first started in the investment business, I have a wonderful mentor namned Ned Reynolds. And this was a gentleman who’s probably 70 years old and I was brand new in the investment business. And he was a very interesting character, and it’s not like he was formally my mentor, he was nice. He was kind and he was just helpful to people. And one day I happened to be standing next to him on a hot, summer day in Richmond, Virginia. And not much was going on. We were just sort of, market was open, and in those days, you didn’t have the CNBC with the ticker tape, but you actually had a physical ticker tape in a brokerage office, so it would create this sort of hum and drone of this tape going by. And he was standing there. And he had his arms folded like this, and he really wasn’t engaged in conversation with me. He was standing by my side, was not making eye contact, but I had been in the business for three months at this point. And he said, Tom, the secret to success in the investing is lasting the first 30 years.”

There are a few more question, all worth listening to. Click image below to listen.

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