[00:02:55] William Green: It’s a real pleasure. You have a terrific record of beating the market by a mile over the last 33 years. But when you started out in the investment business as a trainee stockbroker back in 1980. I think it’s fair to say that you didn’t necessarily seem destined for massive success as an investor and I’m wondering if you could tell us how you stumbled into the profession, and my sense is that there was nothing in your background suggest that it was a particularly great choice for you.

[00:03:26] Peter Keefe: No, I was stumbling around Washington, D. C. after having graduated from College of Washington and Lee University in 1978. I sort of had a dim view that I would work on Capitol Hill for a couple of years and then maybe go to law school. Then maybe become a country lawyer and then as I spent more time in Washington, I saw these 40-year-old lawyers who just looked absolutely miserable.

[00:03:53] Peter Keefe: I said, well, I don’t want to be 40 years old and miserable, so maybe I’ll think about doing something else. And I was working as a gopher boy for a think tank in Washington, not even on Capitol Hill and I literally mean Gopher Boy. And I said, well, this isn’t for me. And you know, I don’t know what I want to do.

[00:04:09] Peter Keefe: So, I waited tables in Old Town Alexandria for a period of time. There was a customer there. We thought that maybe I might be useful in the brokerage business, and I had absolutely no idea what the brokerage business was about, but it sounded like a high-class job that might actually pay me a decent income.

[00:04:27] Peter Keefe: So, he had me interview with his firm, which was Base and Company at the time. I didn’t get a second call back from them, but sort of the seed had been sown, and I saw an ad in the newspaper, and a firm in Virginia hired me, trained me, and I was then recruited by Johnston Lemon Company in 1980.

[00:04:50] Peter Keefe: And they, at the time, were a significant regional presence. They had taken Geico Public, for example, Marriott, Washington Gas, Electric, Potomac Electric, and some others and so, they were well known in D. C. and so they had a bunch of people from my alma mater working for them. including its president and so they asked me to come interview and you might be surprised at who interviewed me, but the branch manager of the Alexandria, Virginia office, a guy named Chuck Akre. So, Chuck took a look at my resume, and he had done a couple of years of my alma mater. And so, he. recognize that, and he offered me a job with Johnston Lemon.

[00:05:31] Peter Keefe: I took it. Not long afterwards, he became the firm’s director of research. But before then, we had connected, at least philosophically, on the idea of value creation. Now, let me back up just a little bit. I got into the business just as the market was entering a significant downturn. I think I made my very first trade when the Dow closed over a thousand.

[00:05:56] Peter Keefe: In 1980, I think it was, and it was on its way to 775 or something like that. So, it was about a 25% decline, and I was what they used to call a bleeder. I mean, I would just, I couldn’t understand why these businesses were declining in value. I had this wonderful research in my hands. I said, it was going up not down, and gave all the reasons why, but inexorably day after day, these businesses declined in value, and I didn’t understand why, and one of them even went bankrupt, and so, I was, I had a full head of hair then, and I was tearing it out, so. I got on a bus, went up to the local community college, bought a stack of accounting books, taught myself accounting, and that permitted me to understand financial statements.

[00:06:45] Peter Keefe: My firm was kind enough to let me do my own work. By this time, Chuck and I had developed a rapport with regard to How the investment process works. I think we were both exploring how it worked and feeling our way into how the value creation process really unfolded. And he became the director of research at this firm.

[00:07:08] Peter Keefe: He left to form his own firm, the eponymous Akre Capital Management, and in 1990 or thereabouts, and I succeeded him as the director of research. I hadn’t been a great success as a stockbroker. I was okay, but I didn’t think that these businesses should be sold to people. I thought that the conflict that a broker had of living on commission and transactions was something that I found abhorrent.

[00:07:38] Peter Keefe: It was a hindrance to my career, so I knew from fairly early on that I wanted to land on the buy side of the business, and in not long after becoming Johnston Monuments Director of Research, I ran into a gentleman named Charlie Makle. Charlie had started Avenir Corporation.

[00:07:59] William Green: You know, we’ll get to that in a bit, because that’s really the second leg of your journey, and I want to keep focusing a little bit on some of the lessons of this first period. Because in a way it was a really good introduction to a lot of the things that were wrong with the profession, right? Because notwithstanding the fact that you lucked out and you started to form this lifelong friendship with Chuck Akre, who’s one of the, one of the great long-term investors you we’re not impressed with the quality of research there when you went, right?

[00:08:26] William Green: And you we’re not impressed with the conflict of interest. And can you talk a little bit more about, what you learned about what was wrong there, because you mentioned to me when we chatted a few weeks ago, you were talking about how one of the most fundamental problems in the industry the principal agent conflict is.

[00:08:45] William Green: Can you talk about that and what you learned about that, because I think that’s one of the most enduring issues that we all have to face as investors.

[00:08:55] Peter Keefe: Sure, so this was the early 1980s and your listeners might not be aware that in 1975 the SEC allowed commissions to be negotiated as opposed to fixed, which is how the business had worked forever.

[00:09:09] Peter Keefe: And that meant that there was going to be competition for commissions and that gave rise to the discount shops like Schwab and TD Ameritrade and Fidelity and others who could compete solely on commissions. And that was really shell shocked. A lot of people in the business, some of the old timers who are accustomed to going out and selling a couple hundred shares in local utility preferred stock and being on the first tee by 3 o’clock in the afternoon.

[00:09:39] Peter Keefe: You know, suddenly it turned into a cutthroat business, and those of you, your listeners who have seen the movie Wall Street understand what I’m talking about, so, I just wasn’t going out for that. I mean, I just wasn’t emotionally prepared to do the things that you had to do to be successful in the business.

[00:09:59] Peter Keefe: So, I sort of muddled along and for a decade, all the while I’m trying to hone my talents as an investor, I understood intuitively that value is not created by experience. The flickering electrons on the screen or by news, as most of my brokerage colleagues did and I knew something else was going on, but there had to be an organic process underway at businesses that answered the philosophical question, how does a dollar become more than a dollar or less than a dollar?

[00:10:33] Peter Keefe: And how does this happen on a unit basis? Unit being a share of stock. So, these were all philosophical questions that I endeavored to answer by going through this process of teaching myself accounting, and then trying to apply the small lessons that I learned on a daily basis to the org of investing.

[00:10:54] Peter Keefe: You know whether it was my own money or other people’s money, it just, it was an, you know, the entire industry was undergoing this radical change as a function of Mayday. I remember some of the brokers who were holdovers for that period of time, and like I said, they’re just, they’re walked around in a daze.

[00:11:12] Peter Keefe: I mean, they were shell shocked. Because most of them, and they were all men, unfortunately, were of a different age and different era, and they didn’t want to compete, and they couldn’t compete in this environment where you had to come up with some razzle dazzle story to sell a stock, or you had to have the emotional and perhaps ethical indifference to sell a mutual fund with a seven and a half percent front end load, which meant that in an average year, your investor was giving away at least one year’s worth of return before they even broke even, you know, another popular deal. Invest in product as they call them, by the way they’re calling somebody’s money a product just like chewing aluminum foil for me.

[00:11:56] William Green: Do you think Peter, because you came from a background where you didn’t have a lot of money that it kind of upset you even more, in a way, because I remember you saying to me that when you were growing up, like, to go to McDonald’s once a month was kind of a big deal. So, I mean, how did you react when you saw people having their money invested in products like that?

[00:12:18] Peter Keefe: Yeah, we weren’t poor, but you know, we, my parents were both children of the depression. My mother was essentially an orphan when she was quite young. My father was fortunate enough to go to college, but there just wasn’t a ton of money, there was enough for kids through private college, but the idea, these are depression era people that I grew up around, and the idea of entrusting your money to someone else, giving them discretion, as we call it, It was just anathema.

[00:12:47] Peter Keefe: And you simply didn’t do that and to this day, I still have some deep part of my reptilian brain that says, wait, what? People are handing their money over to someone else, whether it’s an institution or an individual, to let somebody else call the shots. That just is not the type of environment in which I grew up.

[00:13:06] Peter Keefe: And I didn’t know anybody who owned stock. I think there was a couple of shares of some utility stock that was in my parent’s safe deposit box. I don’t know how they acquired it. I also have, I’m looking at some gold company that my great-grandfather invested in that disappeared. But I framed the certificates that got them on the wall here as a reminder of what can happen.

[00:13:27] William Green: And you also, you came out of Washington and Lee, right? Which is the same school coincidentally, that Bill Miller went to, and I remember when we spoke last, you said that also had a kind of formative influence on your mindset towards these things. Can you talk a little bit about how that shaped you and your sense that maybe you should try to behave in a relatively honorable way, despite the profession you’ve landed in.

[00:13:50] Peter Keefe: Well, Washington and Lee have a long-standing tradition called the bar code, whereby you didn’t lie, cheat, or steal. So, if you embraced it, it was a place for you. If you didn’t, it was not the place for you.

[00:14:05] Peter Keefe: And there was a single sanction, and that was expulsion. So, we all bought into it and at least if you’re going to stay there, you bought into it and so it’s something that I think most of its alumni carry forward into their professional lives. And it’s formed a bond among the alumni that I think is exceptionally strong.

[00:14:23] Peter Keefe: But, you know, going back to the environment in which I grew up, Anthony Deaton refers to money as irreplaceable capital. And we don’t think about it these days, but as to a certain generation, money was not plentiful, and it was irreplaceable. So, you were incredibly careful with it.

[00:14:43] William Green: Yeah, I had this this discussion with Marty Whitman when I was, interviewing him I guess in the last few years of his life, and I he was always a really wonderful guy to interview and was a brilliant investor and brilliant mind, but he had managed money for my mother at a certain point, I’d introduced him and he ran a separate account for her, he and his team, and they ended up kind of doing a terrible job during the financial crisis, and when I asked him about it, and I sort of said, you know, Why didn’t you know, how come you got whacked so badly by the financial crisis and then didn’t take advantage of it when everything fell apart?

[00:15:18] William Green: And he said, well, as I got older and richer, I kind of got lazier. And he’s like, I knew in 2007 I should have sold some of those stocks. I just never really got around to it. And he’s like, but what’s the difference, you know, if I give charity, you know, like tens of millions of dollars less and my kids’ tens of millions of dollars less.

[00:15:34] William Green: And I was, I really didn’t have the heart to say to him, dude, my mother is affected by this. And I, it really sorts of rankled with me. And I was thinking about it this morning, like that’s, I’m wondering like, you know, should I have been a repressed Englishman and not mentioned it? Or should I have sort of said, you know, look, you violated your fiduciary responsibility to my mother and she’s paying the price for it?

[00:15:58] Peter Keefe: Right. Well, I won’t tell you whether you should or shouldn’t have, but I’m reminded of the old discount broker commercial where the couple comes in and sits in front of his desk and says, do you have any retirement plans? And the broker says, yeah, I’m going to buy a yacht and I’m going to travel around the world, and they go no, wait a minute. We’re determined plans for us. The point is its clearly Marty should have been thinking differently about your situation, particularly since it’s your mother’s money. As one of my filtering mechanisms, just thinking about investments as though my mother’s money is going into this.

[00:16:33] Peter Keefe: Buffett talks about writing his letters for his sister. I think about it, my mother, who’s no longer with us, but didn’t know anything about investing, but, you know, is this a business that my mother should be invested in, is one of my thresholds.

[00:16:49] William Green: Also, one of the reasons why I ended up wanting to interview you was because our mutual friend, Saurabh Madan, who used to host the talks at Google on investing and now runs his own investment firm, Manveen, having previously worked as Tom Gayner’s Deputy Chief Investment Officer. He said to me, you know, you really got to talk to Peter because he’s not only a great investor, but he really regards investing as a calling.

[00:17:13] William Green: And one of the things that Saurabh quoted to me that had a big impact on him was he said, do you always ask this question of you would say you’re serving someone, the question is who? Can you talk about that? Because that seems to me such an important insight.

[00:17:30] Peter Keefe: Well, look, you know, a lot of what you write about in your book and in your podcasts, people are, you know, one of the things you’re really good at, William, is getting people to open up about what really makes them tick.

[00:17:43] Peter Keefe: And I think if you, opened up the minds of a lot of people in this business. You discover that their motivations may not be exactly what they think they are. And I think money is an incredibly powerful motivator and people may not be willing to admit just how powerful of a motivator it is. And I think it was Henry Kissinger who said money’s the ultimate aphrodisiac and it just can accomplish all kinds of things.

[00:18:11] Peter Keefe: And I think we all know that subconsciously. And so, and of course, am I interested in the rewards, the financial rewards of this business? Absolutely. I don’t know anybody in this business who isn’t, and I’d worry about you a little bit if you said that you weren’t, but having said that, This business is a calling and I think that when I’m talking to people about why they want to be in this business or when I’m mentoring younger investors, I do, this is sort of, it’s sort of an ominous statement says we’re all think that we’re in service to others.

[00:18:50] Peter Keefe: But sometimes you’re serving yourself. So, I sort of ask this question, it’s gently, you’re serving someone, but who are you serving? Make sure you understand who you’re serving. So, you know, we’re all in service to others, but. Make sure you understand who you’re serving.

[00:19:07] William Green: I wonder if it changes as we get older, because I often find when I interview great investors, it seems like early in their lives, there’s a sort of, I have no factual basis for this, it’s more impressionistic, but I have this sense that there’s a real hunger, often, for money, a kind of ill-defined hunger for money, whether it’s to get out of straightened circumstances, if you’re someone like Bill Miller or Mario Gabelli who grew up with nothing or desire to sort of impress people and get, you know, be noticed, you know, which I think, you know, if you were someone like Bill Ackman, who came from a very successful family, you know, you needed to make your mark. And then at a certain point, it shifts, maybe one, at least for a lot of people. I don’t know.

[00:19:54] William Green: And then also there’s a sense of just loving the game, right? I remember you, one thing that I heard you would ask the people you were interviewing for jobs was you would say to them, would you do this on a teacher’s salary for five years? And I think that’s a really important issue as well. Like, you know, actually having to enjoy the game enough the actual craft. Sorry, I’m going on. Well, do you have any thoughts?

[00:20:17] Peter Keefe: You’ve got to enjoy the game, but you’ve really got to appreciate the craft, and you do have to, the reason I asked that question, would you do this on a teacher’s salary it’s serious, but it’s also a trick question, because anybody who’s good at this is not going to have to live on a teacher’s salary for very long.

[00:20:34] Peter Keefe: I don’t want to be involved professionally with people who are doing this solely for the money. You are serving someone, and you should be serving those who need your skills. If you are good at this business, then you have an obligation to give those skills to those who need it. And they’re desperately needed.

[00:20:57] Peter Keefe: They’re desperately needed by hospitals, schools, retirees, poor people. Wealthy people who simply don’t care about investing, so the need is enormous, so I think it’s important to approach this business from a standpoint of service, and if you’re any good at it, you know, the money is going to rain down upon you more money than you ever imagined and more money than you’re ever going to need.

[00:21:23] Peter Keefe: So, you need to take the money out of the equation. Cause if you’re any good, you’re going to make a lot of it. If you’re not, you still might make a lot of it, but I think the principal motivation has to be to serve. Now, when you’re a young man, young woman, you know, we’ve all been there. You just want to go out and slay the world.

[00:21:41] Peter Keefe: I think that’s just part of the natural deal of you know, being young and moving to a new city like I did and wanting to do something. I mean, I tell people I had no idea what I wanted to do, but I wanted to do something, and I wanted to make an impact on people’s lives, a favorable impact on people’s lives.

[00:21:59] Peter Keefe: I’m not sure I even cared about making a favorable impact. I think I wanted to be noticed and I wanted my life to amount to something. You know, there was just a sort of ill-defined desire, this yearning to make some kind of mark. It was very ego filled, definitely. I think we’re saying exactly the same thing.

[00:22:18] Peter Keefe: I mean, I think that over time, my objectives evolved. Yeah. You know, on day one, you’ve got to pay the rent. You know, on day two, you know, you’re thinking about building a family. Day three, you’re thinking about the legacy. So, your way you approach your life evolves over time. And but yeah, I mean, I just, like I said, I got here in DC and I thought I was going to be a lawyer and then decided that was a really bad idea and I just wanted to do something, you know, I had a lot of energy and I was curious about everything, you know, which can be a problem because if you’re curious about everything, it’s hard to focus on one thing.

[00:22:56] William Green: And you got lucky, I guess, that after what probably the best part of a decade in the investment business, then you, well, I guess you’d become director of research at your brokerage firm and then kind of leveraging the fact that you had that new title, you went off and started to look to join a buy side firm having sensed that the sell side was slightly conflicted and unholy and not the place to be.

[00:23:21] William Green: And so, you ended up at Avenir in 1991. And you were very lucky, I think, to meet Charlie Mackall, whose name you mentioned before I rudely interrupted you about 15 minutes ago. Can you tell us about Charlie, because clearly, he had a really important role in your life, and this is a guy who, I think he’s now about 86, 87, and you worked with him for 22 years at Avenir, and he was obviously a terrific investor. Who was he, and what was he creating at Avenir, and what did you learn from him?

[00:23:55] Peter Keefe: Yeah, I learned a lot from him, and by the way, before I forget to mention it you and I have something in common, you know, when I was in college, I never set foot inside a business or an accounting classroom.

[00:24:06] William Green: You made up for it in the long run, though, whereas I never became proficient at studying accounting statements.

[00:24:13] Peter Keefe: One of my great compliments in my career was when a guy who runs a forensic accounting firm that advises hedge funds and short sales offered me a job, despite the fact that I had zero formal training in accounting, but obviously I turned it down, but going back to Avenir, so I just happened to run into Charlie.

[00:24:35] Peter Keefe: He had someone who was assisting him at the time, and we’re both in the CFA class. He said, you know, the guy who I work for is in his mid-fifties. He’s got this little investment management firm. He’s concerned about succession, and I said, well, that’s interesting. I said, I was sort of down the road with a large firm in New York to go up there and run their research department, but that would have been an intermediate step for me.

[00:25:06] Peter Keefe: But so. This fella introduced me to Charlie Mackall. Charlie and I got along instantly. He had formed Avenir in 1980 by background, Charlie graduated from Princeton with a degree in chemistry. And he was a chemist for a couple of years afterwards. And then he went to the Darden School of Business at the University of Virginia, where he got his MBA, and then he became a banker. So, he was a successful banker and ran the commercial lending unit of the local bank here in D. C. that’s now been merged three or four times, but he’d always had an interest in investing. and invested his own money and some of his family’s money over the years, and he’d been successful at it, and a banking client of his said, well, listen, my family has some substantial resources, and why don’t you just leave the bank and come run our family’s investments?

[00:26:11] Peter Keefe: Charlie said that sounded like a good idea, and so he formed Avenir to do that. So, while the term wasn’t in common usage at the time, Avenir was. For all intents and purposes, a family office, you know, with eight or nine million dollars under management, wanted to open up its doors, which back in 1980 was a lot of money.

[00:26:31] Peter Keefe: And by 1991, when that rolled around the assets had swelled to 18 million dollars, and Charlie was in his mid-fifties. And have an ear to hand if you get registered with the SEC because it had a sufficient number of clients. You know, Charlie having accumulated his friends, relatives, and some other portfolios because he established a reputation as a pretty good stock picker.

[00:26:57] Peter Keefe: But Charlie’s an interesting guy. He’s not, he’s quiet, thoughtful, extremely intelligent. And he’s wired to understand how businesses work, and he’s an extremely quick study. And so, he was just a natural born stock picker. You mentioned Marty Whitman earlier, I’d like to put him in that camp. He could see value in a lot of different types of business, a lot of different types of industries.

[00:27:26] Peter Keefe: But we were both, we were rooted in things like the Intelligent Investor, Graham and Don, and Buffett. And so, we throw in together and because I saw an opportunity to commercialize what had essentially been just a small internally operated family office. And Charlie had a succession problem to solve, so scratched both itches, my entrepreneurial itch and Charlie’s need to get a successor, but it wouldn’t have worked if we weren’t intellectually compatible.

[00:28:00] Peter Keefe: We were different enough so that we had approaches that could complement each other but the Venn diagram overlapped enough so that we could work together and, in fact, enhance each other’s processes.

[00:28:12] William Green: It seems like the principles on which Avenir’s success has been built are pretty simple and pretty timeless in many ways.

[00:28:20] William Green: I mean, you have this fantastic record. I think when I last checked, it was over 13 percent a year for the last 33 or 34 years, something like that. So, bit in the market by a long distance. And yet the principles are kind of timeless, these ironclad truths, as you put it. And I’m wondering, A, whether those have changed over the years, but B, if you could summarize what the essence of it was, both then and now, because it seems like you were kind of distilling the core of Buffett and Munger and Graham.

[00:28:54] Peter Keefe: Yeah, now, you know, there’s a million people out there who speak fluent Buffett, but they don’t invest particularly well. I think it was in your book, Qais Zakaria said that the. In fact, I wrote this down, so if you’ll permit me to refer to some of my notes.

[00:29:16] William Green: Yeah, thank you.

[00:29:18] Peter Keefe: He said articulating this stuff is easy, internalizing it is not.

[00:29:23] William Green: Yeah, that was Nick, I think, Nick Sleep said that. Yeah, and that’s true, you can, there’s this huge gap between being able to talk, as you said, fluent Buffett and Mungerese, but actually doing it, boy, is that hard.

[00:29:37] Peter Keefe: Yeah, so I underlined that in the book about five times, because you know, early on, I think we got extremely lucky, Charlie and I throwing together, one of the dynamics that made us work was, you know, he was the, to use your term, elder statesman, and I was the young guy with the fire in the belly, and I think that kind of economy sort of resonated, and it was great in terms of our relationship, but I think it also appealed externally for some reason there’s a fire and ice thing going on there, but, In any event, we had a terrific results early on.

[00:30:14] Peter Keefe: The markets were roaring and so we had the wind at our backs, and we got lucky in a handful of businesses. Like I said, I devoured everything that Warren and Charlie and all the others. All the other greats of the age we’re seeing, but that doesn’t mean that we really knew how to implement it, doesn’t mean we know how to implement it today.

[00:30:35] Peter Keefe: We wound up buying a handful of concentrated businesses that treated us extremely well, particularly early on. Near right, you know, we’re a couple of 300 above the S& T over three decades. It’s disproportionately early on in the first 15 20 years that record was achieved. I think we’ve been more market-ish for the last decade.

[00:30:58] Peter Keefe: But whether it’s because we applied the Buffett and Munger principles, which we were assiduously trying to do, or got lucky, we wound up buying a handful of businesses that simply turned out to be really great businesses that compounded for many years. And then one of my biggest mistakes was cutting back some of those businesses.

[00:31:20] Peter Keefe: I don’t think I had ever read Warren or Charlie’s admonition to not to cut flowers and water the weeds and I did a fair amount of flower cutting and weed watering in those first 15 or 20 years, but nonetheless, we’re able to hang on to enough of these great businesses that we wound up building together a pretty good track record then in 1998 and brought Jim Roney into the business and the rest is history.

[00:31:49] William Green: Yeah, I wanted to dwell for a moment on that idea of the biggest mistakes you’ve made, because you said recently that my biggest mistakes have been early sales of great businesses, and you described that as the silent killer, where you sell compounders too soon, and while we’re dwelling on your mistakes, can I cause you heart palpitations by asking you about Pool Corp, which is a pretty good example of this.

[00:32:14] Peter Keefe: Sure. Yeah. I think Pool Corporation’s the biggest mistake I’ve ever made in my investment career. And like you said, you know, selling early is the high blood pressure of the investment business. It’s a silent killer. And you know, people will always talk about the business they bought that went to zero, or the one that went down 50% or 75%.

[00:32:32] Peter Keefe: Yes, that’s bad. You want to avoid that but the business that you sold too early, that went on the compound tenfold, or 20-fold after that in my career, has been a real killer. I bought Pool Corp at the right price. Interesting story that I tell you about going down to visit management in Covington, Louisiana, which is not exactly a business mecca, but in any event, you know, it checked all our boxes.

[00:32:58] Peter Keefe: Manny Perez de la Mesa, who was still the chairman of the board, I think, was the CEO then, he’d been in GE, he had a great background, he was, understood capital allocation beautifully, and Pool Corp was a terrific business, and for those of your listeners who aren’t familiar with it, I’ll tell them in a breath.

[00:33:18] Peter Keefe: It’s a distributor of pool supplies and equipment, and it gets margins in the mid-single digits, most distributors, margins in the low single digits, but Pool Corp has this unique franchise that permits it to get these ridiculously high returns for a distributor. And those ridiculously high returns multiplied by frequent inventory turnover mean they get huge returns on capital and do everything that you want a compounder to do.

[00:33:50] Peter Keefe: Well, I bought it right and sold it after depreciating four or five times. In our portfolio, because I allowed some thinking about erroneous thinking about evaluation and probably about the economy didn’t creep into my thinking and full construction is somewhat like to the construction cycle. And so, I probably let all these things influence my thinking and went up selling the position in its entirety and having made, like I said, four or five times our capital on the business. Well, I think it’s appreciated about tenfold since then. So, what that taught me was that you either have to be an investor or an economist. Not many people can be both, and I don’t know any wealthy economists, so I’d rather be an investor.

[00:34:38] Peter Keefe: And I, so I just try to tune out some of this economic stuff that can infect your thinking unusually negatively.

[00:34:46] William Green: Yeah, I was reading your letters to shareholders yesterday, and there was one from, I guess, August 2020, so in the middle of the COVID pandemic, and you wrote, We have no predictions about the direction of the economy or markets, and certainly not the virus.

[00:35:01] William Green: The trajectory of the virus and its ultimate duration and impact on the economy are unknowable. What is knowable? is that on occasion the unthinkable happens, unforeseen acts of terrorism occur, real estate bubbles burst, or a pandemic emerges. This means we must own businesses with both bulletproof balance sheets and outstanding and durable business models that can withstand unthinkable economic hardship, which are run by ethical managers whom we can trust to act in our best interests.

[00:35:26] William Green: And that strikes me as such an important insight that you, I mean, in a way it gets back to stoicism, right? It’s like controlling what we can control and letting go of what we can’t control and just recognizing the fact that the direction of the economy and the market and viruses and stuff is just not really knowable unless maybe you’re Soros or Druckenmiller or someone like that, I don’t know. And so just that recognition, having the humility to recognize that’s not knowable strikes me as a really important first step-in long-term investment success.

[00:35:58] Peter Keefe: Yeah, so I, one of the things I tell young investors when I’m mentoring them is, make a choice, you’re either an economist or an investor, unless you’re one of those five people you mentioned.

[00:36:10] Peter Keefe: And I just rhetorically say there’s probably five people on the planet who can consistently tell you what the dollar is going to do, what the price of gypsum is going to be, what oil might be, or the price of money. I know none of those things, and I simply don’t have enough mental bandwidth to be able to allocate any room at all to these things.

[00:36:30] Peter Keefe: I do my best to invest in a manner where those things are ultimately going to be unimportant. And this leads to a real important point that you made in your book. And Howard Marks talks about if you were out of the market for, you know, what, 44 months out of the last. 7,000 months or something like that.

[00:36:48] Peter Keefe: You know, you miss a hundred percent of the market return and sometimes even if you miss a few days. You miss almost all of the market return and Dr. Hendrick Messer at the University of Arizona put a fine point on this when he. In his study, which is also referenced at some point in your book that since 1926, 4 percent of all public companies have accounted for 100% of the return in excess of the 5-year treasury.

[00:37:19] Peter Keefe: That means the other 96% cumulatively added up to return from the 5-year treasury. So that puts a real fine point on how difficult this business is. You know, when 96 percent of the businesses at which you’re going to look are not going to add value and help you justify your fees.

[00:37:36] William Green: You had a very interesting exchange with Bessembinder that you shared with me that I think is, it gets at a really central conundrum in the challenge of being a successful long-term investor.

[00:37:48] William Green: So, for people who don’t know, Hendrik Bessembinder is this Arizona State University professor. And as Peter said, he did this really important study where he goes back, I think, from 1926 to 2016, and he ends up saying, okay, so basically 4. 3 percent of stocks created all of the net gains in the U.S. market, and so forth. My friend Jason Zweig wrote a characteristically smart and insightful article about this saying, well, this shows that searching for the next super stocks is like hunting for a few needles in an immense field of haystacks. And so, people like Bessembinder would say, well, so, okay, so this is why most active strategies fail, right? Because people, fund managers aren’t diversified enough, and so they miss out on owning those few stocks that actually accounted for all of the gains, like the Amazons and the Apples and the Home Depots and the like. But you came to another conclusion, which I think is also a really important way to read it. Can you explain your slightly subversive reading of Bessembinder’s study?

[00:38:50] Peter Keefe: Yeah, I love your characterizing of subversive because I think that’s exactly what it is. But I said, hallelujah, this means someone who’s got the ability to figure out what those 4% are going to kill him. And, you know, if you’re going to be in this business, I think you have to have internal belief that, yeah, I can find those great businesses after all, what are we all doing every day?

[00:39:13] Peter Keefe: I mean, most of the people that I know and respect in this business are doing nothing but looking for those 4%. And so, yeah, I said, this is really good news. This means someone who’s got a quality bent and a concentrated portfolio is going to win. Supports, in one sense, the Bogle argument, which Warren and Charlie endorsed, that most people ought to be in index funds but for those few active managers who are good enough to identify the great businesses and buy them in quantity, I thought Bessembinder’s study was really good news.

[00:39:47] William Green: Yeah, I sort of interpreted it both ways, personally. I mean, I guess, I guess intuitively I’d done this a long time ago, because I’ve always owned a couple of index funds, and I always put my wife’s money and my kids money in index funds, because I thought they shouldn’t pay for my delusions in thinking that I could beat the market.

[00:40:04] William Green: But then with my own money, typically… I, although I do have a couple of index funds, I’ve tended to own very concentrated funds run by people I trust, because, so, you know, one of them has maybe 10 stocks, another has most of its money in about 8 or 10 stocks, but probably owns about 20 stocks, and so I do think there’s You can interpret the data in different ways, but there is a really strong argument for saying that you want to concentrate, but then that’s kind of disastrous if you’re not good.

[00:40:37] Peter Keefe: Yeah, I completely agree with your assessment, but for the investing community, it means you ought to put your money in an index fund. But for the people who are on the other side or in the investment community itself, it means, well, if you’re good and you can find those businesses that are going to compound and create above average value over a long period of time and buy them right, it’s good news. So, it’s got two interpretations.

[00:40:59] William Green: And your view of concentration was also very much influenced by Mason Hawkins, who I interviewed many years ago, not that many years ago, but for the Great Minds Investing book that I wrote. Can you talk about your epiphany that came from listening to Mason talk about concentration?

[00:41:17] Peter Keefe: Yeah, sure. I was in some conference up in New York and I can’t even remember what it was, but I remember the moment like it was yesterday. Again, you know, there’s this person, you know, who’s trying to form an investment philosophy and You know, reading Buffett and Munger and saying, yeah, that makes sense, but you know, how do you apply this?

[00:41:35] Peter Keefe: And I heard Mason say in his speech to an investment group, why own your 40th best idea? And I said, aha, yes. That’s some of the wisdom that I have been searching for. What is the point of owning your 40th best idea? Let’s say it’s an equally distributed 40 businesses in a portfolio. If you’re lucky enough to have that business double in value, it will add exactly two and half percentage points to your portfolio. Who is smart enough? To find 40 businesses that are that good. Well, I’m certainly not one of them, so I figured, well, what’s a manageable number? And I said, well, 20 sounds like a lot, 15 sounds okay, 10 sounds even better because, you know, I just can’t keep the financial details of 15 businesses in my head with any with any depth.

[00:42:32] Peter Keefe: So, you know, I just always felt comfortable owning 10 or 12 businesses that I thought I could know well enough to. Risk sizable amounts of investor capital and my own capital and it’s worth noting that you also tend to hold them for a long time. So these are businesses that you know very well But I also I mean I was my math is not great But I was counting up your holdings on the back of an envelope the other day and it looked to me like you have About 35 percent of your portfolio in your top three holdings and maybe 60 or so in your top ten So it is a pretty concentrated portfolio with long term An emphasis on long-term holdings that are businesses that you regard as really superior, that could be part of that 4%. Yeah. There’s a lot of clutter at our 13F if you look at it but you’re essentially right. You know, I think that our top three businesses are at least 30 to five to 40% our assets. And the top 10 are easily 75 or 80% of our assets and there’s a, you know, small farm team above and beyond the core holdings.

[00:43:39] William Green: So the top three, I think, when I looked, we’re Microsoft, which I think you bought initially about 10 years ago, I think in 2013, and American Tower Corp, which you’ve owned for well over 20 years and has been a 100 bagger, I think, and Markel, which you’ve owned for a long time and I wonder if you could talk about a couple of those as a kind of illustration of what it is you’re looking for when you’re looking for these great businesses, the 4% of great businesses that make all the difference. How does a company like Microsoft, for example, embody what it is you’re looking for?

[00:44:19] Peter Keefe: You know, each of those three businesses illustrates a distinct path to getting to investing. So, when we bought Microsoft, Bulmer was still in charge there and nobody liked him. Nobody liked Microsoft. It was a technology dinosaur.

[00:44:38] Peter Keefe: They had announced that they were going to buy Nokia, and which is a cell phone company back then that nobody cares about today, at least from the standpoint of cell phones. And I think Microsoft agreed to pay something on the order of 810 billion for it. The market valuation went down by that amount, by the purchase price.

[00:45:01] Peter Keefe: Literally when they made the announcement, so the stock market wrote off the entire purchase price of Nokia in 30 seconds. We had been looking at some of the old technology businesses like Microsoft and eBay and some others. And we came up with some simple arithmetic that the Microsoft Outlook business alone, you know, that is your email, your PowerPoint, your Excel, and your word, and that was in virtually every office.

[00:45:33] Peter Keefe: In the United States and mostly around the world and it was worth about 1. 80 per share in terms of free cash flow. And so, the stock price was under 30 at the time. And so, we said, well, you know, we’re paying mid to high teams multiple for the outlook business. There’s everything else on top of that, you know, whether it’s a server business the Windows business, all the other software businesses that Microsoft owns, I said, we may not understand those, but our moment of epiphany came when my colleague Jim Roney and I were looking at our office window, the building in Pennsylvania Avenue in D.C., and we looked out over the Edward Murrow Park at the World Bank and the International Monetary Fund, and there’s probably a Two or three hundred glass windows on these buildings that we can view just from our vantage point, and we made the observation of every single, behind every single one of those windows is a computer, and that computer probably has Microsoft operating software on it, and the Outlook business is probably on every single one of those, and it isn’t gone anywhere for a long time.

[00:46:51] Peter Keefe: So, we’re willing to pay 15, 16, 17 times free cash flow for that business and maybe something good will happen to the rest. Well, what the rest is history. You know, Satya came along, and we know what he’s done with the business since then. So, we thought our margin of safety was a modest multiple. We thought we were paying for what we considered to be the most important and understandable part of the business.

[00:47:18] Peter Keefe: And, of course, they had a great balance sheet and they’re buying back stock. I think Steve Ballmer gets a bad rep. He may not have been the Hall of Fame CEO, but he also came in when the stock was extremely high priced. And if you look at his tenure as CEO, free cash flow and earnings and all the important stuff were compounded nicely.

[00:47:39] Peter Keefe: Returns on capital were nice, were good. They made some mistakes, and I think they lost style points because of his personal approach to the business. But you know, he couldn’t control. The fact that he came in with an extraordinarily high stock price with a, you know, 30 or 40 multiples on it and, but, you know, ultimately Satya came in and has done just incredible things for the business.

[00:48:04] Peter Keefe: He didn’t happen to just come in with a stock price, so he came in and did magnificent things from a capital allocation standpoint, you know, whether Azure. to many of the other things that he’s done, but so that’s the path to Microsoft. We’re simply at a margin of safety, and we’re buying a great business, the Outlook business that is, at a discounted price.

[00:48:28] William Green: It also seems like, Peter, there’s a common theme which I’d like to explore as well with American Tower, but which also applies to Microsoft, which is that you’re always looking for these simple, secular tailwinds and can you talk about that both with, Microsoft and with American Tower where there’s a sense that you’re, which I also see with your, you have several investments in the automotive business. It seems like you’re always looking for something where there’s a long secular runway that to mix metaphors.

[00:49:01] Peter Keefe: Yeah, every mega compounder we’ve owned had a long secular tailwind behind it, and of course we didn’t know that at the time we bought Microsoft, but it was there, but in the case of American Terror, which is an interesting story, I discovered it in I think 1998 when it was part of a predecessor company called American Radio Systems.

[00:49:23] Peter Keefe: A lot of people don’t realize that American Tower was spun off from American Radio in the late 1990s. American Radio was run by the late Steve Dodge, who was a fabulous CEO, a great value creator. Another guy who didn’t have, you know, the analog path into this business. He was an English major at Yale.

[00:49:44] Peter Keefe: I think he might have gotten an MBA somewhere, but he didn’t let that hurt him. And he’s just a serial value creator and a great guy about which I could tell you some wonderful stories. He died tragically a few years ago in a bicycling accident down in Florida but he was running American Radio Systems, which itself was a terrific business.

[00:50:04] Peter Keefe: It was terrestrial radio, which, until the internet came along, was a fabulous business. Because, you know, if you own the dominant radio station in town you know, if you own WNEW in New York, you had no choice but to advertise with them and it cost nothing except for a small amount of money for content to run a radio station.

[00:50:24] Peter Keefe: And, you know, after the Telecom Act of 1996, I think it was, you know, paved the way for digital communications, after the explosion of digital communications Steve began to get some calls from people who wanted to hang digital cell phone antennas on his radio towers. Digital communications require a much denser network of cell sites than the old analog.

[00:50:53] Peter Keefe: Because the signal propagation characteristics, which means the distance of the signal, will carry a much lower, so you need a lot more cell sites. So, people wanted to hang cell sites, or put cell sites on Steve’s towers. So, he gets the idea, well maybe we can start aggregating these towers into a business.

[00:51:12] Peter Keefe: There is a footnote in one of American Tower’s SEC filings. I made a reference to a separate stock option program for the employees of something called American Tower Systems. That’s all it was. It was a single sentence. But I read it, and I called up Steve, with whom I had a great relationship. And, you know, we talked about the radio business and other businesses and other things for a long time.

[00:51:39] Peter Keefe: Well, you would have thought I called you know, the Defense Intelligence Agency in Fort Reed, Maryland, and then asked uncomfortable questions. Steve basically hung up on me. So, I knew that there was something here at which to look that required further inquiry. When we figured out that it was a cell tower business and we got some sense for is it bigger than a bread box type economics, we understood that they were good and so we started to buy, we already had a huge position in American radio, but we bought more American radio because we figured that this business was going to be externalized in one way, shape or form. That’s why they had a separate stock option program for it. So sure enough, they did. They wound up spinning it off and it went to 44 bucks a share.

[00:52:27] Peter Keefe: Remember, there’s a one issued market. Even before it was spun off, people started to get really excited about it. It went to 18 or 20 bucks in the one issued market, then went to 44 a share after people figured out what a great business, a sell to our business was, you know, where you operate and cost you 10,000 a year.

[00:52:45] Peter Keefe: Your rents might be over 100,000 a year and anybody can do the math and all you had, the only assumption that you had to make, was where digital communications going to grow or not? And this is long before the iPhone, so we’re really talking about voice. And so that was the pillar assumption that you had to make.

[00:53:08] Peter Keefe: Are digital communications going to expand or not? And we made the assumption that they were, so we bought a lot of it and as you probably know the American tariff got caught up in the land grab when people figured out the sell tariff business and the carriers like AT& T and back then GTE and

[00:53:30] Peter Keefe: others were selling their carrier, their tariff portfolios because the carriers had to figure out whether they wanted to sell service. Or being a real estate business. And of course, the network of towers and cell sites had to expand dramatically to accommodate the growth in wireless communications combined with the lower propagation characteristics of the digital capable frequencies.

[00:53:58] Peter Keefe: So, the point is, I mean, the number of cell sites and cell towers had to grow exponentially for a long period of time. People figured this out and they bid up these stocks to really unsustainable prices during the dot com boom, which helped further fuel the rise of these stocks. Well, American Tower got over levered, and like all of the people in the cell tower business did, and they almost had to because there was a land rush.

[00:54:22] Peter Keefe: You know, you don’t get a second chance to buy a cell tower. You know, once it’s bought, it’s gone. And so that was a mistake. And so, the stock went from 44 bucks a share to under 80 cents a share in a fairly short period of time.

[00:54:39] William Green: And you and Chuck Ackre, as I remember, who was also a very early believer in American Tower, actually went to visit Steve Dodge and this kind of illustrates an important point, which is that throughout your career, you’re really betting on the individual, the quality of the individual. Can you tell us about that meeting with Steve Dodge, the founder and CEO, at this moment where he’s just been crushed, his stock has gone from 44 to 80 something cents, and it’s partly because of his mistakes.

[00:55:08] Peter Keefe: Yeah, well, in you know, businesses are like people, they make mistakes, and they have hard times, and so American Tower had its hard time and its big mistake, which was getting over levered, the dotcom bust. There are also some adjacent businesses, there’s a teleport business but they were trying to boot up at the same time.

[00:55:27] Peter Keefe: They were just knitting off a lot more than they could chew and they got over levered in the process and so Steve agreed to see me and Chuck and so some of us went up to visit with Steve and he said, I’m going to give you an hour. He said, you understand I have a business that I’m trying to save that requires my full time and attention, but you guys were here early on. You’re like my business partners, like renters of a stock and so, you know, we’ll give you an hour. So, we went up to Boston and visit with them and. Steve, who was ordinarily a smart, laid-back guy. He was still smart, but he certainly wasn’t laid back. He was action faced, and he was quite grave.

[00:56:08] Peter Keefe: And he said again, give me an hour, I got a business to fix. I’ll answer whatever questions you have to the extent it’s legal for me to do so, so have at it, and then I got to go see if I can fix this business. And he held his hand up, not literally, but rhetorically and figuratively, and said, this is my fault I did it. Nobody else is responsible. It’s the worst thing that’s ever happened to me. In my business career, I think I can fix it, but I’m, but there’s no certainty here. And so, by the way, your listeners might be interested. The problem was a 200 million bond maturity that was looming, that during the go years of the dotcom stuff, some investment banker had foisted upon them, and it was payable either in cash or in shares of stock at the company’s election.

[00:57:06] Peter Keefe: But if the company could not come up with cash, they had to come up with stock. So, in 2002, nobody who was in this business, and American Tower at that time was sort of considered a telecom stock because of who its tenants were, even though it was a real estate business, but it was banked on the telecom side.

[00:57:24] Peter Keefe: So, the telecom bankers were instructed to shrink their plugs. There’s no 200 million available to take care of this bond and so the arbitrageurs figured out well, they’re going to pay it off by stock. So, the thing to do, is store as much stock as you can, buy the bond and short the stock because if you drive down the price, they have to deliver theoretically an infinite number of shares to satisfy a $200 million bond. So, you could own the whole business if you own the bond. So, they bought as much of the bond as they could and short stock against it.

[00:58:02] Peter Keefe: And but that strategy didn’t work out. Steve was able to find 200 million, but by going to the private equity community, satisfied that obligation. And stock since went from as high as 305 a share. Within the past 18 months. It’s down a lot since then, but the point behind that story, William, is that Steve acted honorably.

[00:58:27] Peter Keefe: He accepted full responsibility for what he did, and Steve did not do this alone. He had some great people around him. Because Steve was an honorable good guy, he had honorable good people around him, not the least of which was Brad Singer, his chief financial officer. And I’ll segue into a brief story about Brad.

[00:58:50] Peter Keefe: I was going to some conference up in New York, and I saw him on the other side of the street, dragging a suitcase. And so, I crossed the street to join him. I said, it’s a hot day in New York. What are you, why are you dragging your suitcase? And he said, well, you know, firm needs to save money. He didn’t have anybody with him at the time.

[00:59:08] Peter Keefe: So, he wasn’t being watched. So, he was saving money. He was doing the right thing when people weren’t watching, which is, you know, one definition of, I love integrity. Doing the right thing when people aren’t looking.

[00:59:19] William Green: So, I seem to remember he was the guy also who told you once when you asked him what was the single biggest destroyer of capital? And didn’t he say boredom? That it was managers deciding they just couldn’t sit on their hands.

[00:59:32] Peter Keefe: Management boredom. So, I asked Brad, what’s the biggest destroyer value among public companies? And I didn’t even get the question up before he said management boredom, which means they go out and they get some money, and they go spend it on something stupid. You know, boards of directors can’t sit on their hands and be like, we’re getting paid fees for something, right?

[00:59:50] William Green: Which has also been a crucial lesson for you in terms of overcoming your addiction to trimming things like American Tower over the years, right? Because you came out of that meeting with Steve Dodge, I think, and tripled your position and then it just kind of shot to the moon, right? I mean, it went up over a hundredfold over the years. And so, trimming that was kind of always a mistake, right?

[01:00:12] Peter Keefe: Yeah, you know, in every, yeah, it was a mistake and it went up over 300 fold at one point and it’s now up still up 200 fold at its current price, but it’s like Microsoft, which has been public since the early 1980s or sometime in the 1980s.

[01:00:29] Peter Keefe: Well, I think it reached an all-time high within the past two weeks, which means in the 000 days, it’s been a public company, there’s been 10 days of which it was a good time to sell Microsoft.

[01:00:41] William Green: Well, there was that long period where it kind of went nowhere, right?

[01:00:45] Peter Keefe: That’s true. So, my point is a rhetorical one, but you get the idea.

[01:00:49] William Green: Yeah.

[01:00:51] Peter Keefe: And this goes back to, you know, Bessembinder’s study that 4% of the stocks are account for a hundred percent of the return. If you can find one of those 4% and believe you own one of those 4%. It will only take a really super convincing argument to get out of them. You know, nobody has a good answer for this because nobody knows where the old time forever top is in a business, you know, Chuck somewhat [Inaudible] says, you know, they let them compound until they stop compounding.

[01:01:20] Peter Keefe: And I don’t have a better answer than that. But I do know that these businesses are scarce and once you own one, you want to hold on to it for forever. That’s the best I can come up with.

[01:01:31] William Green: You’ve also raised another important point about this this whole issue of judging the integrity and the quality of the management, which I think is consistent with Satya Nadella at Microsoft, who came in, much to your good fortune, about a year after you bought the stock.

[01:01:48] William Green: Tom Gayner, a friend of yours and mine, who’s the CEO of Markel, which obviously has been a huge position for you, and also Steve Dodge at American Tower. And this raises a really important question, because you’ve said in the past that investing with CEOs you like and admire is essential, but how the hell do you go about it?

[01:02:07] William Green: I mean, what are you actually doing when you go visit a company or you’re assessing their financial statements? actually to assess whether they’re a good person that you’re willing to partner with over the long run.

[01:02:20] Peter Keefe: Yeah, that’s incredibly hard and it’s almost impossible to do and ultimately you have to go by your gut. You know, particularly these days when I think CEOs feel so constrained by Sarbanes Oxley and Dodd Frank. You know, they’re so scripted. There’s a lawyer in the room every time that they’re giving a conference call or talking to investors or an investor relations person taking notes. So, knocking them off the script is really important, but it’s a nice segue.

[01:02:52] Peter Keefe: Yes, the free, we talked about the 3 top positions. Microsoft played old fashioned value. It was a great business at a distressed price for the wrong reasons. Path number one. Path number two. American Tower was simply a great business, great managers. We were able to buy it at the right price because I was one of your previous interviewees.

[01:03:15] Peter Keefe: Christopher Beck pointed out there were some clouds, not necessarily negative clouds, at the original time of purchase. But people simply didn’t understand the business. It was buried inside a larger business. So that’s path number two. Great business, great managers. Path three to Markel. Markel is not necessarily a great business with all due respect to my many friends there.

[01:03:38] Peter Keefe: But insurance by its nature, property and casualty insurance by its nature is not a great business. It can be a very good business, but you can wipe out years of earnings in one day, in one catastrophe. And so, it doesn’t fit the characteristic that we seek, which is inherently superior business. But Markeo is populated by people that we believe are not only excellent capital allocators, but I mean, thoughtful people who understand the primacy of their obligation to the owners of the business.

[01:04:17] Peter Keefe: And not only that they think deeply about the relationship with the owners of the business. Express their, all their communications for the shareholders, whether it’s an SEC filing or an earnings report are expressed directly in a straightforward, managed manner. There are very few adjectives that tell you like it is.

[01:04:40] Peter Keefe: In fact, their policy of reserving conservatively extends to the way they report to their shareholders. You know, they have this mantra of more likely redundant than deficient, which are insurance terms, so redundancy means you have excess reserves. Deficient is exactly what it sounds like.

[01:05:00] Peter Keefe: You don’t have enough reserves, so the mantra is more likely redundant than deficient. So, I think it’s echoed in the way they report the results to their owners of their business. I remember a few years ago, you know, their earnings came out, you know, they looked like they didn’t compare well to the previous year or the previous quarter or something like that.

[01:05:24] Peter Keefe: But if you looked in the 10Q. The reason was they had taken an accrual for additional earn out payments to a business that they had bought in Markel Ventures. That’s good. You want the people in Markel Ventures to be earning to be get their earning up for superior performance but of course, you’ve got to expense that.

[01:05:48] Peter Keefe: So that’s why the earnings didn’t look as good. There was none of this nonsense about, well, adjusted earnings would have been higher were it not for this accrual for an earning. They just told you exactly like it was and gave their shareholders enough credit for being intelligent enough to figure out what the truth was on their own.

[01:06:05] Peter Keefe: Without being led by the nose and certainly without being given all this nonsense about adjusted this or the next and in one of your podcasts, you said Charlie Munger calls it like it is. And it’s a word that begins with B and ends in T. Yeah, but he’s right. He’s absolutely, totally right and if there are any CEOs or investor relations people listening to this podcast, stop doing that now. There were two things I loved about it. You read it as a sermon.

[01:06:35] William Green: Yeah. Well, there were a couple of things that I, before we move on from this subject of evaluating the quality of management, which is clearly hugely important. A couple of things I wanted to mention that you’ve said in the past, because I think they’re really worth our listeners bearing in mind.

[01:06:50] William Green: So, the first is, you once said, I have a quick test, which is, would I be happy to introduce this CEO to a group of my investors at a cocktail party? Yeah. Would he or she fit in? Would they sense that this person is a partner, or would I worry about my investors getting a whiff of a two for me, one for your kind of person? That seems to me a really valuable insight, and a practical insight.

[01:07:13] Peter Keefe: Like, this is ultimately a social business. By that I don’t mean, you know, have a drink with your friends kind of social business, but, You know, we’re reevaluating people as social animals, and that’s part of the reason why we sit down and talk to people and try to get a sense for what makes them tick and get them off the IR script, because we want to find out if they have a sense of how they’re going to relate to their shareholders and potential shareholders.

[01:07:42] Peter Keefe: Do they view them as partners? Or do they view them as a constituency? Do they view them as people who are simply going to vote on a compensation package? And once you leave the meeting and the door closed, do they go back to being a purely self-serving people who are trying to extract as much in the form of equity compensation from their shareholders?

[01:08:05] Peter Keefe: So, you know, this goes back to the Mark Hill story which I shouldn’t tell you in a breath. And I originally met with the company shortly after it went public in the mid-1980s, and I think I was with the Johnston Lemon research team at the time. And I met with Steve Mark Hill. And at that time, they had this huge bump of equine mortality.

[01:08:26] Peter Keefe: I didn’t know anything about horses, except I was scared to death of them. And I’m thinking equine mortality. Does that mean barn fire? Does that mean equine encephalitis? I mean, this sounds like something I can’t understand, but turns out that equine mortality is actually a pretty good line of business to write.

[01:08:44] Peter Keefe: It can bite you, and I hate to, no pun intended or mixed metaphor intended, but you know, it’s, I stepped away from it because I, you know, as a cell site analyst. I had this nightmare about the headlines saying, you know, equine encephalitis sweeps through Kentucky, Mark Hill broke, and of course that wasn’t true.

[01:09:05] Peter Keefe: That wasn’t going to happen. I mean, they had reinsured a bunch of it, and it just happens to be a pretty good line of business, but that’s why I didn’t get involved. On the first visit, and I went back years later, and in the early 1990s, mid 1990s, the stock was many multiples of the IPO price, and many multiples of the value when I first visited them, but the book of business had diversified sufficiently, and I knew a little bit more about these different lines of business, and when we got involved then, but it was, The reason we’re able to bend a little bit on the inherent difficult nature of the business was because we’re enamored of the people who ran it and we thought that they could run it the way Buffett had run National Indemnity and the other insurance businesses and generate an underwriting profit and build something up and by this time Tom was with the business and he had a good story to tell and a good record, so we got a lot of them that were killed purely because of the people. [Crosstalk]

[01:10:03] William Green: And that’s been how many years now, Peter?

[01:10:06] Peter Keefe: Since the mid-1990s.

[01:10:09] William Green: So, this willingness to partner with high quality people, an ability to stay put and sit on your hands for a long time, these are clearly important. And then just on this question of values and character assessment, I just wanted to quote the other.

[01:10:24] William Green: The other line that I really like that I picked up from some of your writings somewhere where you said businesses will attract magnetically people who share similar values. We see this all the time. Talented people with good values find each other, whether it’s a church, whether it’s on the baseball team, whether it’s in the corporation, they find each other.

[01:10:42] William Green: And the people who have less attractive values find themselves and they organize themselves in the businesses sometime. It’s a very interesting insight to me, this idea that there’s something It sort of reminds me of David Hawkins talking about these attractor fields, you know, where a particular level of consciousness, you know, people are trying to be truthful, they attract other people who are trying to be truthful, and I have no idea if what you said is actually empirically provable, but it seems like there are these cults that form around Markel, or that form around Berkshire where people who really value you. Good behavior, integrity, truthfulness, and an alignment of interests and service and the like. It’s really striking how there are these ecosystems that form around certain values.

[01:11:28] Peter Keefe: Well, isn’t it true in your life that you associate with people of similar values and spiritual beliefs and mindfulness and so on? I just, you know, businesses are just collections of people who are organized around an idea.

[01:11:41] William Green: Yeah, I was also, I was talking to Saurabh Madan about this last night, because we were chatting in advance of our interview, because I was asking what I should talk to you about, and I was asking him about another investor, and we were discussing exactly this question of how you also use your ecosystem, as Tom Gainer would say, thinking of himself as a node in a neural network, that when you have this kind of web of mutual trust. You can ask the people in your networks, is this person honorable? Are they decent? Are they going to screw me? Or are they and so that’s really valuable as well.

[01:12:13] Peter Keefe: Yeah. You know, there’s some people and you’ve interviewed some people who don’t think that it’s valuable to visit management or to meet management, or they’ve had to change their mind about that.

[01:12:23] Peter Keefe: And I understand that because very, there’s no, very few managements are going to lead with the bad news. So, some of them think it’s their job to charm shareholders. And we’re infallible human beings. I mean, I’m prone to being charmed by the charismatic CEO. It’s happened to me before, and it may happen again.

[01:12:45] Peter Keefe: I hope to think that I get better at this as I go along and I’m less charmable, but you know, it happens. I can’t remember who it was, whether it was on your podcast or somebody else’s, but they said, you know, run away from the charismatic CEO. No, it wasn’t that. It was the guy who used to run Medtronic, his name will come to me in a second.

[01:13:08] Peter Keefe: Chris Davis said to me recently, he quoted something Munger had said, I have Chris Davis coming on the podcast soon. Munger talked about avoiding CEOs with a good head of hair. I love that. And you and I talked the other, you know, not long ago about like the danger of very slick, charming investment bankers who are really good glad handers, but that doesn’t really make sense.

[01:13:31] Peter Keefe: But good investors. I mean, there, there is a role for people with a good head of hair, but it’s kind of dangerous in the investment business.

[01:13:39] Peter Keefe: Well, I’m the least qualified person to judge someone based on their head of hair. You know, the point is you’ve got to be able to look, you know, if you’re going to be in this business for a long time, if you’re either going to make investments or you’re going to manage your own business, you better be a decent judge of people and human beings. And you’ve got to be willing to be skeptical and because a CEO, first of all, can’t tell you everything that he knows. And they can’t give you a wink and a nod, but they’ve got to do what Don told us in this meeting 20 years ago, 20 plus years ago. They’ve got to tell you what they can, and you know, and just give it to you straight on.

[01:14:25] Peter Keefe: And you’ve got to make an assessment whether that person is telling you the truth or not, whether he’s telling you all the truth or whether he’s shading something or nuancing something or withholding something. It’s hard to do. It’s very hard to do. But there are some people. For which you can get in an intuitive sense, yeah, I like this guy and I really think that I wouldn’t mind the people who entrust capital to me to meet this person because they would come away with a sincere belief that this person is sharing their risk, that there’s a seamlessness of risk between the owner of the Capitol, me, Peter Keefe out near the intermediary, and the person of whom I’m outsourcing your Capitol, who’s Tom Gayner, or Steve Dodge, or Satya Nadala.

[01:15:14] Peter Keefe: We’ll organize ourselves according to our values. I mean, your values wind up is showing up in the long run. I have another saying is that there are no secrets. By that I mean you might be able to conceal something from someone today, but it’s going to come out eventually. Who you are and what you are and what your values are.

[01:15:31] William Green: Yeah, and also, I do think I think I talked with Tom Gayner about this on the podcast that he, he obviously is very good at assessing people’s personalities. And he’s like, look, one, one of the, you can see their behavior in the past, but, and there’s usually a tell from their behavior in the past.

[01:15:46] William Green: People don’t change their motorcycle brand a lot. But then also there’s obviously the financial incentives, the way they’ve structured their financial incentives. And so that’s pretty key, right? Just seeing, you know, seeing the fact that Tom Gayner’s compensation is long term, it’s based on long term performance or seeing, you know, how you charge for your separate accounts.

[01:16:06] William Green: It’s different than the way that you charged back at Johnson Lemon when it was transaction based and there was an incentive to have more transactions. So, I do think you need, so some of it is intuitive, but some of it is actually understanding the way incentives are structured.

[01:16:21] Peter Keefe: Yeah, and you have to understand business realities as well. You know, when Markel was a small and sure, I mean, they had no equity compensation at all, man, but there’s now a business with tens of thousands of employees. They’ve had to migrate towards a compensation plan that includes equity. And so that’s not because there’s been a philosophical shift, but it’s just a business reality.

[01:16:45] Peter Keefe: But if you ask them about it, they’ll explain it to you. Tom and Steve and Tony and the late Alan Kirschner will explain it to you, this is simply about business reality, it doesn’t necessarily, it’s a reality that emanates from being a larger as opposed to a smaller business.

[01:17:03] William Green: I asked Tom yesterday what I should ask you about and Tom wrote slightly cryptically to me that I should ask you about your farm outside Lexington, Virginia and what you’ve learned from that experience and likewise Saurabh said to me, I should ask you about your cabin in the woods and your farm outside Lexington, Virginia, because there’s something, there, there is something rich that you and I have discussed before about this what you can learn as an investor from farming, what you can learn from being out in the wild, from hiking, hunting, observing nature, and I wonder if you could unpack this a little for us, because it’s clearly an important part of your life that I think you’ve drawn lessons from farming and the world of nature that really apply quite deeply to investing success.

[01:17:52] Peter Keefe: Yeah, to be clear, it’s not a farm and I’m not a farmer. It’s a lot of raw land, mountainous lands, and it’s quite remote. I don’t own a tractor, but I have always felt comfortable in the outdoors. It’s a great place to cleanse your thinking. It’s not just a matter of getting away from the ringing phones. I think it’s a way of being alone with your thoughts.

[01:18:22] Peter Keefe: I think it was again I can’t remember which one of your podcasts it was. Forrest mentioned it, Tom Combs can do quite well, I think, with somewhere between zero and three people helping him run this gigantic portfolio, plus a bunch of operating businesses, including GEICO. I think when you’re alone in the woods with a view of the mountains, it can inspire in you an understanding that there are timeless things.

[01:18:55] Peter Keefe: The mountains don’t change, not at least in ways that we are observable over short periods of time. You can see A marketplace is taking place on the floor of the forest. There’s competition for resources. There are winners and there’s losers. So, we see echoes of what we’re doing in our business life every day.

[01:19:17] Peter Keefe: I mean, they’re in the forest. There are good business models and there’s bad business models. And there’s also in one of your podcasts, a very recent one, there was some discussion, someone mentioned Munger’s admonition to be a spear fisherman and to, you know, wait until that big fat salmon comes along.

[01:19:38] Peter Keefe: My analogy that I learned from a lifetime in the woods is apex predators hunt rarely, but when they do, they take down big game. I mean, lions sleep or lie around. 22 or 23 hours a day, and they don’t feed often, but when they do, they feed big, and so I try to… Apply that analogy to the investment process. We don’t feed often, but we try to feed big when we do.

[01:20:04] William Green: That’s a really important insight and I want to sort of dwell on that because you’ve said to me before that you have to have a bit of a predatory instinct and to be wired emotionally so that in these moments when most people are paralyzed and think the world’s ending, you’re ready to pounce because the hunting is easier.

[01:20:22] William Green: And it seems like over the last 33 years or so, most of your really hugely successful investments have been made, or at least many of them, during very difficult times. So, can you elaborate on that? Because this image of the predatory hunter who’s very calm, waiting until the prey is right there in front of you, and other people are fearful, it seems like such an important image and idea to me.

[01:20:47] Peter Keefe: Yeah, it is important, and I’ll just finish out the analogy that I was starting with is I put coyotes on my place. They don’t hunt unless they have an enormous, overwhelming advantage. So, they’re an example of a good business model. That’s how you ought to invest, is when you have an enormous, overwhelming advantage and the audit. Those opportunities come along infrequently. So, I think that clearly our best investments have been made in periods of great, extreme market distress. Our very first one, COVID, that we haven’t talked about, is, occurred in 1991 during the initial Iran conflict. We wound up accumulating 6% of a company called Microsystems, which you and your listeners use every day.

[01:21:36] Peter Keefe: They’re the little cash register you see at Starbucks and other places. It’s a point of sale, but the real value, that’s the tip of the iceberg, the real value of the business. is the hospitality IT and software that runs hotels, restaurants, casinos, cruise ships, got sold to Oracle in 2016, I believe it was, for over 5 billion.

[01:22:01] Peter Keefe: But we were able to buy it as a net in 1991, because their EMEA office, which happened to be in Kuwait, was shut down by the initial Iraq invasion. and which caused a temporary interruption in their earnings. And the stock literally declined from a literally debt free, profitable business to a net.

[01:22:26] Peter Keefe: Those things no longer exist. But during that period of time, and subsequently, we accumulated a 6% position in the business. And it turned out to be, you know, the necessary piece of software for the hospitality industry. So that’s example one. Example two was American Tower. During the dotcom bust. Microsoft wasn’t up during a period of marketing term oil boaters when everybody hates if we hated the stock.

[01:22:57] William Green: So, to go back to micro systems as well, that’s a really, you know, we were talking about farming and the like, and I remember that Lou Brown, the founder of that company, who I think you’ve remained friends with.

[01:23:08] William Green: He again was someone who grew up on a farm, right? And there’s something. There’s something relevant here that I wonder if you could unpack for us, because you’ve said to me before that kind of farm boy ethic is also a really helpful thing to bring into the investment and business world.

[01:23:29] Peter Keefe: Yeah nobody’s heard of Lou Brown, but that’s because he’s never needed anybody else’s capital because he’s been a private investor most of his life, only wrote a couple of public companies, but he’s got an extraordinary, you know, 5 decade or 5 or 6 decade career compounding capital at extremely high rates.

[01:23:48] Peter Keefe: And he’s extremely smart, incredibly hardworking, very funny, and he’s got all the tools, and he’s also a decent human being. He’s not in it for the money. I have a better car and a fancier house, despite the fact that I’m just an ant in his world of value creation. He makes it and he gives it away, makes it and gives it away.

[01:24:12] Peter Keefe: He’s a deeply spiritual person. And I think it’s easy to give it away also if you know you can make it, but he can’t. He just has the gift of capital allocation. When he was running Micros, and I’ll get back to his origin story in a minute, they made one significant acquisition during the entire life of the company.

[01:24:31] Peter Keefe: It was a small German software company called Fidelio. He pounced that it wasn’t done on a predatory basis. It was done on a favorable basis. They were willing sellers. They didn’t have to sell but they did. And Lube saw their future in terms of hotel management software, and that helped fuel decades worth of growth.

[01:24:53] Peter Keefe: At Microsystems, and to this day, I’m sure it’s an important part of the company’s success. Although, yeah, it’s inside Oracle, but it’s a mouse inside the Oracle elephant. We don’t know exactly how well it’s doing, but I presume it’s still doing well, but Lou grew up on a farm. In Maryland with a dirt road running out in front, you know, they’d go out and kill a chicken for dinner.

[01:25:16] Peter Keefe: I mean, it’s that kind of farm. Not a gentleman’s farm by any stretch of the imagination. And Lou was the first one off the farm, and he knew he was going to get off the farm. In fact, I think he told me there was a… Dispute with his father when he was stacking hay in a barn in a hot summer day and, you know, there’s all the dust floating around and, you know, it’s just hard, brutal work.

[01:25:42] Peter Keefe: And he’s, I think he told his father, he said, you know, I’m going to have a job in an air-conditioned office someday. I don’t think his father liked that too much because he took it as an insult to farming, which it was not. But the point is all his ancestors had grown up on this farm. Well, he went to Johns Hopkins on a full ride, got a degree in electrical engineering, knew exactly what he wanted to do afterwards.

[01:26:03] Peter Keefe: He knew within his glittering personality he could be a good salesperson, so he became a salesperson first for Armco Steel and then for Hewlett Packard. The first Intel microprocessor came out at some point, and he just realized that he could probably, to use his words, do some damage with one of these things, but wasn’t certain how.

[01:26:23] Peter Keefe: Sangee and some friends saw that you know the mechanical cash register business, which really had one participant, National Cash Register, was ripe for disintermediation by a digital product. And so, they effectively put NCR out of the National Cash Register out of the cash register business. Over the next three decades, and National Cash for NCR had to buy its way back into the cash register business after Micros effectively took all of their market share.

[01:26:55] Peter Keefe: Well, Micros actually started the digital industry that created other participants but eventually took all of NCR’s share, but so he started this business practically in his garage where they had small, unexceptional quarters in Beltsville, Maryland, but they built it into the behemoth of the industry.

[01:27:15] Peter Keefe: And it was through shrewd capital allocation. and putting your head down and doing the right thing every day. And like I said you know, Lou’s got that sense of responsibility that comes from growing up on a farm. Now, when you grow up on a farm, you always want, you’re always thinking, who’s going to take care of the animals?

[01:27:33] Peter Keefe: What happens if I’m not there? So, it’s not an obsessive, compulsive desire to control the business. It’s just an overwhelming sense of responsibility for what happens. Because on a farm, if something goes wrong, there’s only one figure to point, and that’s you. You can’t control the weather, you can’t control disease, you can’t control anything else, but you can control your effort.

[01:27:59] Peter Keefe: So, that’s the lesson that I learned from Lou, which is to be like a forward-thinking technologist that he is, but also make sure that you’ve got a plan B, make sure the animals are taken care of. Make sure that something is not going to destroy what you worked so carefully to build. So, it’s this combination of, you know, farm boy ethic and technologist that I think has created a unique character in this terrific capital allocator.

[01:28:32] William Green: Yeah, you gave me this great sentence a few weeks ago and I was asking you why farming was a good analogy for investing and you said there are no small mistakes on a farm. You said if you stop paying attention, you lose an arm.

[01:28:46] Peter Keefe: That’s exactly right and that’s why I wouldn’t be a good farmer. By the way, Bavmier’s founder, Charlie Meikle, is a good farmer.

[01:28:54] William Green: Ah, that’s it.

[01:28:55] Peter Keefe: Probably at this moment, I hope he’s on his tractor out in his place in the Plains, Virginia, where he’s most comfortable. And but, Yeah, that’s exactly correct. There are no small mistakes. And so that’s why I’d be an awful farmer if I were a farmer. I’d want to cut my leg off with a chainsaw or something like that.

[01:29:15] Peter Keefe: You have to be focused and pay attention. The farmer is the original preservation, preservationist of capital because they can’t make mistakes because mistakes are always catastrophic. So, people like Lowe and other farmers that I know are wired to think about what. can go wrong. And what do I need to do to scotch the wagon against this type of catastrophe?

[01:29:41] William Green: It’s interesting that someone like Lou, who’s obviously extraordinary, but nobody has heard of him. I mean, I was trying to read about him yesterday and there’s just nothing on him. I mean, like a few paragraphs here and there. He’s kept under the radar. You have this great record. You kept very much under the radar.

[01:29:58] William Green: There’s, you know, very few interviews with you over the years or articles about you, despite how strong your performance is. And I know that humility is kind of really important to you that it’s something you emphasize over and over. And the one of the great dangers really with investment success is, you know, falling into you know, master of the universe syndrome where you start to actually think you’re incredibly good.

[01:30:23] William Green: And you get caught out by hubris and complacency and like, can you talk about the importance of humility and there’s a wonderful quote of yours that you often use about humility that I’d love you to share with us if you can figure out what it is.

[01:30:36] Peter Keefe: Well, you’re probably talking about, sir, there’s only two kinds of people in the investment business. There are people who are humble and people who are about to get humble. Yeah, you know, the endorphins start flowing when you’re, You know, stocks are doing better than everybody else’s, and, you know, when that happens for a period of years, it can make you think that you’re smart, or we all like to feel good about what we’re doing, and we all like having a better batting average than the next person, but you know, that can be fleeting in this business, and, you know, we’re all humans, and we’re going to make mistakes, and virtually all of us, and I’m sure this applies to you, it certainly applies to me, too, We’re the beneficiaries of an enormous amount of luck, and we probably don’t realize quite how lucky we’ve been to borrow Buffett’s line, you know, if you’re born in the United States, you’re a male and you’re white, you’ve already hit the genetic lottery.

[01:31:33] Peter Keefe: And I explain this to my kids, you know, that you’ve been born, if not on third base, you’ve been born on second base, so that has nothing to do with money, it just happens to do with circumstance, and you need to understand that. And so, I have no physical disabilities, so I don’t think I have any crippling mental disabilities.

[01:31:55] Peter Keefe: I had incredibly good parents, good siblings, wonderful people with whom I worked, great mentors, and people who took an interest in me. And so, if you understand these things and believe them, you will be humble. And you also, just as a practical matter, need to understand there’s Probably tens of thousands of people who are smarter than you are, who are doing exactly the same thing, and they’re reading exactly the same stuff, and how are you going to have an edge over that?

[01:32:25] Peter Keefe: So, you better stay humble in this, in life than in business. But I don’t know of any people of great hubris. who didn’t wind up squandering their reputations eventually. Maybe Churchill’s the exception, but there aren’t too many others.

[01:32:41] William Green: You mentioned your children, and I think if I’m right in remembering you have four adult children and when we were emailing a while back, you were saying I view investing as simply a part of the woof and warp of living.

[01:32:53] William Green: I tell my four kids that they’re investing and competing every day, whether they’re aware of it in the moment or not. And I wondered if you could talk a little bit more about the kind of advice that you’re drawing from your career in investing in business and sharing with your own kids, because there is this beautiful intersection of investing and worldly wisdom that I think people like Charlie obviously have tapped into very deeply.

[01:33:19] Peter Keefe: Well, I just point out to all young people You are competing whether you understand it or not, you know, whether you’re a barista at Starbucks, or an investment manager, or a lawyer, or a doctor, or whatever you do, whether you sweep floors or not, you’re competing, and so you might as well be aware of that and do your absolute best regardless of what your task is, however menial it is. And let me just segue here for a moment. You had your interview with Arnold Van Den Berg a few weeks ago. One thing I have in common, probably the only thing that I have in common with Arnold is that I was a garbage man for a couple of years.

[01:34:06] Peter Keefe: That’s the term we used to use, but I did it when I was in college and one thing I learned from that job, which was actually a great job. By the way, it’s great summer job to share, you know, it’s you don’t get an internship credit for it, but it was a lot of fun in some ways. But what I understood was I wasn’t going to do that forever.

[01:34:27] Peter Keefe: There were guys in a truck for whom this was the, their employment apex. But I understood that because of my parents, sure, because those were born to good health, or. You know, had enough intellectual capability to go to college that I was going to go down a different path, but I understood even back then that was just pure blind luck.

[01:34:51] Peter Keefe: And so, Arthur, or Arnold and I have that in common. Regardless, I, what you’re doing, you want to give them a hundred and ten percent, you know, when you toed up the scoreboard and I am a Christian and I believe Christian values and when I meet my maker, I mean, there’s going to be an accounting and I want to tell the people that I work for, invest for, that they got a hundred and ten percent.

[01:35:26] Peter Keefe: I want my kids to know that they should give 110%. I want to give 110 percent to them. And I want to give 110 percent to my wife, you know, who enables much of what I do from a business standpoint.

[01:35:38] William Green: I was thinking about that book of Clayton Christensen’s who obviously, as most of our listeners know, was this legendary management thinker, also a devout Mormon, who gave this famous commencement speech at Harvard Business School in 2010, and then wrote this book, How Will You Measure Your Life?

[01:35:56] William Green: And I was wondering on this question of What for you really does constitute a successful and well lived life when you think about looking back? I mean, you’re only 66 at the moment, but when you think of looking back in 20, 30, 40 years, hopefully, how do you answer that question of how you measure a successful life? What you think will actually have giving you most satisfaction if you do this right.

[01:36:22] Peter Keefe: The most satisfaction if I do this right would be found in the values that my children hold. And that if there have values that direct them to serve others before themselves, then try to understand their obligations to the rest of the human race.

[01:36:42] Peter Keefe: I think that I will be able to consider myself a successful father and that’s certainly the most important job that I’ve got on this planet. I try to communicate investment values to them because I think there’s a seamlessness of your personal values and your business values. And I try to communicate this to my children.

[01:37:03] Peter Keefe: You don’t ever have to do anything that’s unethical. Now, they live in the Washington, D. C. area. They go to school with people who are lobbyists and politicians, and so they are talking to people and hanging out with people all the time who aren’t telling the truth, and they know they’re not telling the truth.

[01:37:26] Peter Keefe: I tell them, you never have to do that. I mean, some of them are paid not to tell the truth. And I say, you don’t ever have to do that. And in my business, one of the wonderful things about this business, and one of the unappreciated things about this business, but one of the things you learn having come up through the brokerage side of the business, you never have to do anything. That’s wrong. No one’s forcing you in this business to do something wrong. No one’s forcing you to buy a crummy business. No one’s forcing you to buy a business with unethical managers. So, these are the things that I try to communicate to my kids. But, you know, it does emanate from my Christian faith.

[01:38:10] Peter Keefe: You know, it’s loved the Lord, the God with all their heart and all their soul and love their neighbors as thy self. You know, and I think that in, in one of your, in your book, there’s a wonderful quote from, I can’t remember if it was a Jewish theologian, but I’m going to ask you to help me with this, William. He said, he was asked to repeat the Old Testament while standing on one foot.

[01:38:35] William Green: Yeah, this is Hillel. Yeah, it’s Hillel, who is a great sage who, around the time of Jesus, about 2, 000 years ago, was asked to sum up the meaning of the Old Testament, the message of the Old Testament, while standing on one leg and he said, basically, do not do to others what you wouldn’t have them do to you. So, the golden rule.

[01:38:56] Peter Keefe: Yeah, I mean, what better message could you give to your children?

[01:38:59] William Green: And it’s funny that message, you know, the line that you were quoting about, you know, with all your heart, with all your might and with all your soul. I mean, that’s Jewish as well, right? I mean, we have that in the Shema prayer that Jews like me often recite every day. And also actually, it’s supposed to be the, I think in the moment of death, it’s supposed to be the last thing you recite. So, I think it begins here, Israel, the Lord, our God, the Lord is one and you shall love him with all your heart and all your soul and all your might or something like that. And so, it’s funny the way these values kind of run, run through so many different faiths and paths.

[01:39:36] Peter Keefe: Right and why shouldn’t, in the way you invest, love your neighbor as yourself? I mean, there’s so many ways you can think about that. It means giving them the portfolio that you would have. You’d be surprised.

[01:39:49] Peter Keefe: You may know this, but you’d be surprised at how many people in this business. They have personal portfolios that don’t resemble their actual portfolio that they market to their clients. So, are they loving others as they love themselves in the way they build their portfolios? No, I don’t think that they are, but you know, then it comes back to this notion of service and who you’re serving and understanding and being aware of who you’re serving and being totally clinical when you ask yourself that question.

[01:40:18] Peter Keefe: You know, if you’re not in this business to serve others. What are you going to look back at when you hang up your spikes? You know, how are you going to evaluate yourself? You know, a great thing about this business is there is a scorecard. And so, I’m like being a lawyer or an accountant or a million other businesses. You’ve got a scorecard. So, you know, you’ll know on the last day. exactly how well you did over a long period of time.

[01:40:44] William Green: It was really striking to me where you shared me you shared with me a talk that you’d given to a group I think called Margin of Safety that Sarah Mardan, who I mentioned before, hosts, I think once a year.

[01:40:56] William Green: And you talked over dinner to that group and there was one quote that I wanted to read back that’s very much related to this question of service where you said, if you’re an above average investor, be thankful for this gift and understand that it is a blessing, not a source of pride and give of your gift. Mentor struggling investors, young or not so young. Counsel those who may not have access to competent investment advisors. You would be amazed at how many people don’t understand a mortgage.

[01:41:23] William Green: Your kid’s schools, your church, your civic organization, the scouts, they all need your help. It’s a different feeling to help someone get a good night’s sleep, as opposed to helping them get the next 10 million. Don’t worry about compensation. More money than you deserve will rain upon you. That is not to say your contribution is unimportant. It is vitally important, which is why it needs to be shared widely. I thought that was such an interesting… An interesting quote that in a, I think often we, you know, even Munger calls investing, it’s a vocation, but a low vocation, but actually as Tom Gayner would say, it’s actually, it’s a pretty sacred trust, right?

[01:42:00] William Green: To be able to help people with their retirement savings and to, and their kid’s college expenses and all of these things. And it’s kind of amazing how much this aspect of the business kind of gets forgotten.

[01:42:15] Peter Keefe: I mean, it goes back to Anthony Deaconess, irreplaceable capital. It’s an enormous responsibility and that statement that I make, I think speaks for itself. Munger’s probably right. There’s probably a hundred thousand too many of us in this business. Who knows? I won’t be surprised if that changes over the next 10 years, but and that the number actually shrinks, or the size of the fee pool shrinks. But yeah, it’s a low calling if you’re in this for the money. It’s a high calling if you’re in it to serve others. And I am insistent on this notion that investment management is a calling.

[01:42:58] William Green: I think that’s a beautiful note on which to end, Peter. Thank you so much. It’s really been a delight. And I really am grateful to start because thanks to your modesty, you tend to fly under the radar.

[01:43:09] William Green: And so, it’s just been a great pleasure getting to read your letters to shareholders and listen to the very occasional interviews that you’ve done in the past and to learn more about your way of thinking. So, thank you. Thank you so much for this rare opportunity to learn from the wisdom that you’ve accumulated over all these decades in the investment business.

[01:43:28] Peter Keefe: You’re quite welcome, William. Thank you very much for having me on your podcast.

[01:43:32] William Green: Ah, it’s a great pleasure. Take care.

[01:43:35] William Green: Alright folks, many thanks for joining me for this conversation with the remarkable Peter Keefe. If you’d like to learn more from Peter, you may want to visit the website for his investment firm, Avenir Corporation and check out the archive of his letters to clients going back to 2008. I’ve included a link in the show notes for this episode.

[01:43:55] William Green: Personally, I feel like I need to listen to our conversation several more times and really dwell on some of the ideas he mentioned, including that all important question we discussed. As he put it, you’re serving someone. The question is, who?

[01:44:10] William Green: I think one reason why Peter is so impressive is that it’s clear that he’s not just great at compounding money over the long term but is truly dedicated to serving others. Not least by sharing his hard-earned wisdom with us today, so I’m very grateful to him. In any case, I’ll be back really soon with some more fascinating guests, including a wonderfully enjoyable conversation with Chris Davis, who’s not only a very prominent fund manager, but also a director of Berkshire Hathaway.

[01:44:39] William Green: If you want to hear what it’s like to be behind closed doors in a board meeting with Warren Buffett and Charlie Munger, you’ll definitely want to hear that conversation with Chris. So, I hope you’ll subscribe to the podcast if you haven’t done so already. In the meantime, please feel free to follow me on Twitter at @WilliamGreen72 and do let me know how you’re liking the podcast.

[01:44:59] William Green: I’m always delighted to hear from you, and I do try to reply as often as I can, though I sometimes get a little behind. Anyway, until next time, take good care and stay well.

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