Gayner Sells CarMax, Deprival-Superreaction Tendency

Published on August 5, 2020

Wednesday, August 5, 2020
Volume 1, Issue 33

Tom Gayner Sells CarMax

Markel Corporation is often referred to as a “mini” Berkshire Hathaway due to co-CEO Tom Gayner’s strong track record in publicly traded securities as well as his efforts to build a portfolio of wholly owned non-insurance subsidiaries under the Markel Ventures umbrella.

Like Berkshire Hathaway, Markel started out in the property-casualty insurance industry and broke away from the standard industry practice of restricting investments to fixed income securities. Markel typically invests insurance float in fixed income securities while investing its equity in publicly traded stocks and wholly owned non-insurance subsidiaries.

In a surprising development, Tom Gayner appears to have sold Markel’s longtime holding of CarMax stock. According to a SEC filing, Markel no longer owned any CarMax shares as of June 30. As of March 31, CarMax was Markel’s second largest holding at 5% of the portfolio. Berkshire remains Markel’s largest position.

The sale of CarMax is interesting because it has long been one of Gayner’s highest conviction positions. According to, Markel has owned shares of CarMax for well over a decade. In a 2013 interview, Gayner explained what attracted him to CarMax after it was spun off from Circuit City in 2002. CarMax offers customers a fixed price, no haggle experience when buying used cars which attracts many customers who dislike the traditional car buying experience. Gayner’s comments were the primary motivation to publish a detailed profile of CarMax on The Rational Walk in 2017.

During Markel’s second quarter conference call on July 29, Gayner spoke about reducing the company’s exposure to publicly traded stocks in an effort to raise capital to support increased insurance underwriting. He also stated that the COVID-19 pandemic and related circumstances this year have reduced the long-term profitability of several companies. Markel sold many positions during the quarter, but CarMax was the most notable in terms of size.

CarMax reported financial results on June 21. The results were for the first fiscal quarter that ended on May 31, so the quarter was heavily impacted by COVID-19 related shut downs. Sales were down nearly 40% and net income fell to $5 million, down from $266.7 million in the prior-year period. It appears that the company would have reported a loss without a one-time benefit of $40.3 million related to settlement of a lawsuit. CEO Bill Nash expressed optimism in the earnings report based on trends that have taken place since May 31 noting an uptick in unit sales and strong growth in online channels.

CarMax stock has been volatile. Following hitting a record high of $103.18 on February 20, shares plummeted to an intra-day low of $37.59 on March 18 but have since recovered, closing at $99.36 on August 4. We do not know what price Markel received for the stock during the second quarter. The range was wide, with shares trading in a range from $47.06 on April 3 to $98.45 on June 8.

Source: Google Finance

The Wall Street Journal reported in early July that used cars were in high demand despite the pandemic due to lower interest rates and stimulus checks. However, this week the Wall Street Journal reported that used cars are in such tight supply that dealers are having difficulty keeping enough in stock. CarMax focuses on offering low mileage used vehicles that sell at prices over $12,000. 

Tom Gayner is a long term investor who typically owns large positions for very long periods of time. The fact that he chose to sell CarMax to raise capital likely means that he sees something that has impaired the long-term profitability of the business, at least in comparison to other stocks in Markel’s portfolio.

Deprival-Superreaction Tendency

Starting in the 1990s, Charlie Munger began to give public talks about his framework of human misjudgment which was later significantly expanded in written form as a chapter in Poor Charlie’s Almanack. Deprival-Superreaction Tendency refers to the human reactions to the experience of loss — both the loss of something one already possesses as well as the loss of something that one has almost obtained.

Munger likens the human reaction to loss to the reaction of his dog when someone tried to take food out of his mouth. The dog, normally tame and good natured, would bite his master. This was a totally irrational act for the dog but represented an instinctive and automatic reaction to loss.

In a new article published this week, I explore the implications of the deprival-superreaction tendency along with a few practical applications of cognitive errors that result from it. This article is part of a series covering Charlie Munger’s psychology of human misjudgment.

Read Deprival-Superreaction Tendency on The Rational Walk

Interesting Links

One Way Out by Philip Grant, August 3, 2020. Observations regarding record low yields on the ten year treasury note, real interest rates, talk of the Fed implementing yield curve controls, and implications for federal budget deficits if rates eventually rise. (Almost Daily Newsletter – Grant’s Interest Rate Observer)

Stock Splits Pay Off — on the Rare Occasions They Occur by Michael Wursthorn, August 1, 2020. Three and four digit stock prices have become common over the past decade but Apple’s four-for-one stock split could signal a resurgence of the popularity of stock splits. Although splits should logically have no effect on intrinsic value, some observers claim it can still make sense. (WSJ)

Businessman Jim Clayton among three survivors of Tennessee River helicopter crash by Gregory Raucoules, August 4, 2020. Jim and Joe Clayton co-founded Clayton Homes in 1966 and built the business for decades before selling to Berkshire Hathaway in 2003. The brothers were in a helicopter crash on Monday. Jim survived but, sadly, Joe died in the crash. (WATE/ABC)

The Ugly Scramble by Morgan Housel, July 29, 2020. “The difference between snap reactions vs. taking your time to think is night and day.” Individuals and businesses that entered the pandemic with a margin of safety had the luxury of avoiding snap decisions and were able to pause long enough to take the time to formulate more effective long-term strategies. (Collaborative Fund)

The Most Important Number in Personal Finance by Nick Maggiulli, August 4, 2020. What is the most important number in personal finance? Many people will look to net worth or liquid net worth but these measures have some limitations. In this article, Maggiulli comes up with an alternate measure that he refers to as the “Wealth Discipline Ratio”. (Of Dollars and Data)  

How to Operate: Lessons in Brand, Distribution, and Leadership, July 28, 2020. Patrick O’Shaughnessy interviews Kat Cole, COO and president of North America for Focus Brands, which owns brands such as Cinnabon, Carvel, and Jamba. The discussion included many interesting comments and observations related to the art of building long-lasting brands. (Invest Like the Best Podcast)

The Ingredients for Innovation, August 3, 2020. “Inventing new things is hard. Getting people to accept and use new inventions is often even harder. For most people, at most times, technological stagnation has been the norm. What does it take to escape from that and encourage creativity?” (Farnam Street)

Montaigne Fled the Plague, and Found Himself by Robert Zaretsky, June 28, 2020. “In the summer of 1585, the mayor of Bordeaux learned, from the comfort of his nearby chateau, that the bubonic plague had burst upon his city.” The mayor was Michel de Montaigne, famous today for his collection of essays. Zaretsky discusses Montaigne’s life in the context of the plague. (NY Times)

It’s Not About Routine, but About Practice by Ryan Holiday, July 28, 2020. Holiday believes that routines are fragile because they can be easily disrupted. In contrast: “Practices are things you do regularly—perhaps daily, perhaps not—but in no particular order. They are things you return to, time and time again, to center yourself. To reset. To reconnect. To focus.”  (

Mere Superheroes by Lawrence Yeo. An illustrated essay regarding heroism: “A person that does extraordinary things as a result of having extraordinary power is a mere superhero. The superhero that does incredible things despite being powerless, on the other hand, is the real deal.” (More to That)

The Order

I recently finished The Order, Daniel Silva’s latest book in the Gabriel Allon series which chronicles the life and times of a fictional Israeli intelligence operative. The Order enters the realm of Vatican intrigue when the Pope, Allon’s longtime friend, dies under mysterious circumstances and a conclave is assembled to select a new pontiff. As usual, Allon is in a race against time. Books in the series can be read in any order, although I’ve read them sequentially. Silva’s books are always page-turners and his latest is no exception.

Quote of the Week

A Pier Overlooking Dordrecht, early 1640s by Aelbert Cuyp, oil on canvas, National Gallery of Art

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Gayner Sells CarMax, Deprival-Superreaction Tendency