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Island Investing

Riffs, rants, and the upside of investing from way off Wall Street

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Markel on Profitability

Here’s my favorite bit from the 2012 Markel letter to shareholders, which you can find here.

The best and most durable businesses in the world are ones that serve their customers well. Profitability is a marker that says a business is serving its customers with products that they need and want and that they are efficient and skilled enough in doing so that there is a measure of profit left over after all is said and done.

If a business is not making an appropriate profit it means that either they are doing something that the customers don’t particularly care about, or that they are not good enough at the task to accomplish it in a cost effective manner. Neither one of those outcomes is good. As such, just thinking about the long-term profitability and return on capital record of a business gives us a wonderful insight into whether the company is indeed serving its customers in a fruitful way.

To paraphrase…profits are proof you are very good at serving someone.