This conversation is truly a masterclass on investing in great businesses for the long term—and vastly outperforming industry peers and the broader market indices. Peter C. Keefe has quietly amassed one of the most impressive long-term track records in the business, and Christopher Tsai is well on his way to doing the same. Both are exceptional judges of management talent, company culture, and the ability of a business not only to sustain but to expand its competitive advantage over time.
Christopher hosted Peter for this wide-ranging discussion at MOI Global’s Latticework summit, held at the Yale Club of New York City in late 2023.
By way of background, Christopher serves as president and chief investment officer of New York City-based Tsai Capital Corporation, an investment management firm focused on the long-term growth and preservation of capital on behalf of select families and organizations. Peter serves as founder and managing member of Alexandria, Virginia-based Rockbridge Capital Management. Previously, he managed client portfolios at Avenir for more than three decades and recently served as the firm’s executive chairman.
The following transcript has been edited for space and clarity. (MOI Global members, access all features, including ways to follow up with Christopher and Peter.)
Christopher Tsai: Let’s start with a few words about Peter and his incredible investing journey. He has been a quiet force at Avenir for 33 or so years, and over that period, the company has outperformed the S&P 500 by about three percentage points per year. When you do the math, you realize how powerful that is on a cumulative basis.
I understand that your investing journey began at Bache and Company, which is coincidently where my late father started out as a securities analyst. Could you give us a sense of your early experiences and how they led you to where you are today? Did you always know that you wanted to be an investor?
Peter C. Keefe: First of all, I don’t do many of these events, and I always feel a little nervous. I always wonder, “What do I have to say that you can’t get from Buffett, Munger, or a YouTube video featuring a brilliant investor such as Christopher?” In fact, I was thinking that the best presentation here would be if we could have you and a hologram of your grandmother, who was a force in the Singapore Stock Exchange and an incredible businesswoman in an era when businesswomen didn’t exist, much less incredible businesswomen. I am deeply respectful of your great lineage as an investor, your personal accomplishments, and your thought process.
As for my journey, you have to go back real far to get to the Bache connection because there was a broker at the company who saw me when I was a waiter in a restaurant in Old Town Alexandria after college, and he suggested I take a look at the securities business. He gave me a copy of Graham and Dodd’s Security Analysis. I was a politics major, so when I cracked open this book, I might as well have been reading a treatise on nuclear fusion. In any event, I had always had this curiosity about how value was created.
My approach to this was not financial. It was more philosophical. How does $1 become $1.10 or $1.50? I had a pretty good idea that it had nothing to do with flickering electrons on a screen and that there were human beings who got up in the morning, went to work, and somehow or other value was created. That was the original impetus for trying to figure out the investment puzzle.
I did become a stockbroker with a Washington, DC regional firm by the name of Johnston, Lemon and Company. It no longer exists, but at one point, it was an important force in the national securities market. At one time, I think it had more capital than Morgan Stanley. It took public companies such as GEICO, Potomac Electric, Washington Gas Light, and Marriott.
I was hired at Johnston Lemon by Chuck Akre, who was also a retail stockbroker and the branch manager. Chuck and I immediately hit it off. We both had interest in value creation. I don’t think either one of us had much interest in generating transactions for the sake of generating transactions and commissions. We were both focused on the value creation process. We are still terrific friends. He is my son’s godfather.
That’s how I got started. I had no idea what I was doing when I was in the business. I think I made my first trade as a retail broker in 1980. I swear to you this is true. It was the last day the Dow closed over one thousand. It was on its way to a 25% decline to roughly 750. Everything I touched turned to lead. I had no idea why the research my firm was producing said these businesses were great, they were going to go up, and my clients were all going to get rich.
I was what they called at the time a “bleeder.” I just couldn’t stand the fact that capital was eroding, and I didn’t understand why. I hopped on a bus, went up to the local community college, bought its accounting books, and taught myself double-ledger accounting. I said, “I’ll start doing my own work,” and the firm was kind enough to let me do my own work. That’s how I wound up being here today. If I’d done well as a stockbroker, I might have continued doing that forever, but I became intrigued by the investment process, so here we are.
Christopher: If I remember correctly, there was also a period when you were thinking about law.
Peter: After I got out of college, I thought I’d work on Capitol Hill for a couple of years, then become a country lawyer and live a beautiful life with a wife and four kids out in the country. However, while living in Washington and working not on Capitol Hill but as a gofer boy for a think-tank, I saw a lot of 40-year-old lawyers who were hunched over and didn’t look happy. I quickly decided law school was probably not for me and started thinking about something else.
Christopher: It’s always been fascinating to me to understand where people came from and where they’ve moved along in their life. The past is always so interesting. Thank you for sharing that with us.
Let’s talk a bit about the present. Before we get to investing, I want to talk about something outside of it. You and I spent a wonderful afternoon recently in Washington, DC. I was in desperate need of some parenting advice. You told me some wonderful things about parenting, but one thing in particular struck me profoundly – you said a good parent needs to teach their children how to serve others before themselves.
Your words immediately reminded me of Frederick Taylor Gates. I did not know about him until about a year ago when Peter Kaufman showed me a great pamphlet he wrote called “The Unsung Hero.” Frederick Taylor Gates was the confidential adviser to John D. Rockefeller Sr. He was also a Baptist minister and spoke about leading a life of disinterested service. The investment management business can provide a deep service to others, particularly to those who have no idea how to manage their money. We manage money for a former milk farmer and a correctional officer. We have some fascinating clients who lack the skills to manage their money on their own.
I understand that you’re serving the world in other ways, too. Can you tell us about your charitable work, particularly your time spent on mental health and suicide prevention?
Peter: I volunteer with the National Capital Chapter of the American Foundation for Suicide Prevention. It’s no secret that mental health has declined dramatically, particularly among teens, people in their 20s, and, depressingly, males in their 60s and 70s. Why is this so in the context of a degree of global prosperity that is unrivaled, unheard of, and probably wouldn’t have been imagined by our parents? This is something I want to help with, so I simply went to them and said, “Is there a way in which I can help you?”
I’m not sure they know what I do for a living, but I think they understand that I have a desire to help. They said, “Yes, sure” and gave me a job. I now lead a committee that presents a module called “More Than Sad,” which teaches parents of high school and college kids to identify the signs of suicide or potential suicide, how to prevent it, what to do, what words to use, what approach to take, who to call, and how to recognize and manage a situation that might result in self-harm.
That’s what I do with the AFSP. It’s rewarding work. I encourage all of you to go to the organization’s website and see what it’s doing. This is a national problem. It’s its own pandemic. The CDC recently announced there were 50,000 suicides in the United States in 2022, which is sadly a record number. Every single one of us can do something about it. Not one is untouched by this plague, and there is something you can do about it, even if it is simply being aware of the signs and knowing the national suicide hotline number – 988.
Christopher: Has there been much conclusive research done on the effects of social media and suicide? Have you come across that?
Peter: There are tons of research and opinions. I don’t think there’s any conclusive or dispositive evidence, but we all understand. If you ask a mother, “Does social media have an impact on your child’s mental health?” she will say, “Yes, absolutely.” You know what? She’s right. Trust mom on this one. You don’t have to ask the scientists. It absolutely does.
This “More Than Sad” module is one of half a dozen the AFSP presents to schools, churches, and civic organizations. They all have a focus on social media. There are countless instances where someone took their life as a result of bullying or a demeaning post on social media. That’s not to say it wouldn’t have happened otherwise, but the point is that social media is clearly an accelerant in this trend.
Christopher: It’s particularly concerning to me. It’s one of the questions I wanted to ask you because I have two teenage daughters, and I see a lot of the friends they’re spending time with and a lot of the things they’re going through that my generation never went through.
Peter: The death of a child is an unspeakable horror. When it’s a suicide, the blast zone is far greater, and the concentric rings of damage are unbelievably extensive. A second cousin says, “Did I miss something? Should I have reacted to this?” We can all be advocates for greater mental health. If you go to our website and take a look at what the signs are, you might save a life. Thank you for asking about that, Christopher.
Christopher: Let’s talk about Avenir because your firm has one hell of a record – 33 years, 3% per year outperformance on average over time. That’s incredible. We would all love to know what filters you’re using to arrive at the kind of portfolio you have today, which includes insurance companies, technology companies, and industrial companies. What types of businesses do you look for that help to generate that track record?
Peter: We use the same filters most of you use. We look for great businesses run by great managers, and we try to buy them at no more than a fair price – preferably a bargain price. If you put that structure on top of our portfolio, you’d see that roughly 90% of it maps perfectly to that.
You can rank all of your businesses in terms of how tightly they conform to those criteria. For example, we have a lot of Markel, but I would argue that property and casualty insurance is not inherently a superior business. Our largest position is Microsoft, which is inherently a superior business, but property and casualty insurance – even on the specialty side, where Markel lives – tends to be a commodity, if not a pure commodity. It’s a competitive business. It runs through cycles where things gets a little less hard when the cycle is good, but it’s always hard in that business.
Why do we own it if it’s not an inherently superior business? We like the people a lot. It has also got a terrific long-term record of capital allocation and value creation. The last five years haven’t been so great, but we’re all going to go through periods where five or ten years aren’t so great.
Christopher: Is there anything particular in the culture of the company that you find interesting, something that draws you to Markel as opposed to Kinsale, Arch, or any of the other property/casualty specialty companies?
Peter: I think so. By the way, it’s not that we selected Markel and not Kinsale. We wish we had owned Kinsale simply based on the meteoric price performance, but we’ve known the Markel people – at least I’ve known them – since the 1980s. I know Steve, Tony Markel, and Tom Gaynor. I knew Tom before he was at Markel.
One of the things we want to do is look the managers in the eye. We want to get them off the script. When we spoke to Steve, Tony Markel, Tom Gaynor, and Alan Kirschner, we detected a sense of personal authenticity and character, to the extent that everything in the script matched up with their behaviors. It mapped perfectly. They were absolutely sincere about their capital allocation process, which we deem superb. We think that’s a piece of the culture that is suffused throughout the business.
Every year, Markel has a dinner at its annual meeting. It started out very small, but now it’s got a few hundred people. At that dinner, I make a point of not trying to get near the big guys. I try to get myself seated with somebody who’s been an underwriter for 13 years at the Red Bank New Jersey operation because I want to talk to this person and find out how they feel about Markel. When you do that, you find that the walk matches the talk.
I once spoke to someone who said, “I’d never met Tony, but when I had a problem in my family, I got a call from him.” That means a lot. You can see the tendrils of the culture emanating from headquarters right down to the underwriter who’s behind a desk 40 hours a week at the Red Bank operation. That’s meaningful to us.
You can’t get that. You can’t screen for that. It means an awful lot to us. Culture is an incredibly important part. We won’t invest in a management we don’t trust or a management that we think is overtly “two for us, one for you” kind of people. We simply won’t do it. We’ve done it by accident, but we won’t do it on purpose.
Christopher: What you said about what you can’t screen for, that’s the competitive edge. You need to have some competitive edge because everybody is screening for the same metrics. We’ll come back to that. I want to talk about books for a moment because so many people in this room love books. We all read so many books. We love finance books, but many of us – like you – like history. We like fiction as well, not just non-fiction. Are there any useful mental models you’ve taken from history, maybe particularly from the Civil War? I know you’re quite a Civil War afficionado. Maybe you got something from a particular fiction book. Is there something you can share with us?
Peter: I don’t think there’s a serious book from which you can’t extract good financial advice. Of course, the Bible’s full of it – the Old Testament and the New Testament, but mostly the Old Testament. The lessons I have taken from history that I can apply to finance don’t directly relate to how to buy a business cheap, but they relate to how to identify character in a business or even a country or a political system.
My father fought in World War II. I’m old enough to have a first cousin whose father died a month after World War II in a military plane crash in the Pacific. The ethos that generation brought forward and the Bretton Woods Agreement created an economic framework that energized Western economies – actually, all economies – for 70 years.
Bretton Woods seems to be in the process of being dismantled. Effectively, it said, “We’re not going to set up the tariff houses in the countries of the conquered and start extracting capital from you. We’re going to do the opposite. We’re going to rebuild these economies and create a great global economy.” That was the overt purpose of this agreement. Look at what it did over the decades since it was struck up. We’ve seen some unparalleled historical economic growth. Munger was talking about this very recently in his Becky Quick interview. That’s something I carry forward from history that impacts us today.
I can’t think of anything else, certainly not from the Civil War. I’m an armchair historian, but I’m a lover of virtually all literature. Munger has said that no incredibly successful people he knows do anything but read, read, read. He said, “My kids must think I’m a book with legs sticking out.” If you read enough, you’re going to find ideas. Steven Pinker, the famous Harvard polymath, wrote a book called The Angels of Our Better Nature, which Bill Gates said was one of the best books he’d ever read in his life. Bill Gates says it’s a good book, so maybe I’ll give it a read.
The book is about the secular decline in violence over the centuries, which may surprise some people, but Pinker argues that violence has been secularly declining for 2,000 years and that, surprisingly, the 20th century was less violent than the 19th century despite Pol Pot, Stalin, Lenin, Hitler, and all the other bad guys. He discusses the animal rights movement in Europe and how it’s spreading to the United States. That got us thinking about the opportunities in some of these veterinary-related publicly traded equities. It led us to a quite successful investment which we no longer own.
This is why if you read enough and get off what I call the analog track, you will find ideas. You just don’t know where you will find them, but if you read a lot, you will. It’s inevitable.
Christopher: If you look enough, you’ll probably find some useful mental models as well. Right now, I’m thinking about Richard Feynman. He has a great story in one of his books, Surely You’re Joking, Mr. Feynman! He goes out with his son, and there’s a bird. He says, “Look at the bird.” His son looks at the bird, but Richard Feynman says, “No, you need to really, really study the bird. Look at the bird for the next hour.”
From what I understand, they love nature. They were always out in nature. Peter, you love nature. I understand you have some wonderful mountainous land in Virginia. On that land, you have some interesting guests that come around from time to time. Maybe some of those guests have provided you with some useful mental models. Since it doesn’t have a name, I’m going to call this mental model the apex predator model. Can you tell us about your apex predator friends?
Peter: When you’re out in the woods, you see ecosystems. You see systems. They’re everywhere – systems of energy consumption, food consumption, and animals in a totally wild uncontaminated-by-people environment sort themselves.
As I’ve sat in the woods and observed the wildlife, it occurred to me there are animals that resembled business models. We have a lot of coyotes on our property. Coyotes are incredibly successful because they have a great business model. They only attack when they have an enormous, overwhelming advantage, and there’s almost no likelihood of harm to them. In other words, they’re wired to have a margin of safety.
Their prey have business models with no margin of safety. For example, if you’re a wild turkey on the floor of the mountains of Virginia, you’re a 20-pound source of protein. Everybody is interested in you, particularly the coyotes. A wild turkey can’t put up much of a fight, but a dog can. If a coyote is going to attack a dog, it won’t do so unless there’s a pack, and they won’t do so unless it’s seven or eight on one. If you’re a coyote and get hurt or get a scratch, you might die of an infection, so they take no risks that will to result in a permanent loss of life. We think about permanent loss of capital.
These are the things you can see outdoors. These are the systems and subsystems you can see in operation that relate to what we do for a living. I find that these things are necessary analogs to what we do, necessary in the sense that you can observe them and see them reinforcing what you think about the investment process. It even comes right down to the consumption and production of energy among the plant life and the animals that support themselves on plant life.
Why is this important? I think it’s important to get away from what I call the analog model of investing where you get an undergraduate degree in accounting, economics, or finance, go get your MBA, go work in private equity for two years or so, go work in investment banking for two years, and then become an investor. I find some people who are far brighter than me kind of hemmed in by a lack of knowledge or awareness that the rest of the world operates on exactly the same basis our markets operate on and that there are analogies to the great businesses everywhere around us.
Christopher: Every week, I get one or two internship requests from college kids. To your point, they have roughly the same resumes. There’s very little differentiation. When you come across somebody who might have studied the liberal arts or taken a year off to do charitable work somewhere and learn by observing, I think it truly stands out and can be a differentiating benefit.
Peter: Absolutely. You don’t come to work for me unless you can write well. I believe the ability to write well is a window into the mind. It signifies somebody who can think well, construct an argument, and express themselves well.
You’re absolutely right. Someone who has travelled the world will have an advantage over someone who hasn’t. I had never traveled the world. I come from a generation in which you got out of school, got a job, went out, and tried to kill it. The more broadly you can think, the more well-read you are, and the more experiences you can bring to the investment process, the better an investor you will be.
Christopher: To that point, there’s a lot of luck in that educational process, too. In other words, the order in which you might read some books is very important. For example, you don’t start with The Alchemy of Finance by George Soros. You start with something else and build up. If you have the order wrong, it could seriously affect your thinking and then you wind up becoming pretty close-minded. That’s one of my observations.
Let’s shift bases for a second. You use this great term “the silent killer.” You talk about one of your biggest investing regrets—cutting back wonderful compounding machines too early, cutting the flowers to water the weeds. I think there will be something for a long-term investor to be concerned about. The news hits us every day. Particularly if you’re watching the basket closely, you’re likely to read something negative. My question for you is two-part. First, how do you resist the temptation to sell one of those wonderful compounding machines? Second, to what degree are you comfortable letting market value exceed your estimate of intrinsic value?
