[00:02:03] Intro: You are listening to The Investor’s Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

[00:02:24] Clay Finck: Guy Spier starts his story as a graduate of Oxford University where he studied politics, philosophy, and economics, and graduated at the top of his class as a student at Harvard Business School. He stumbled upon a job listing at DH Blair Investment Banking Corp in New York City. The firm really pumped up the job to them and they were selling Guy on the idea of building tremendous wealth and prestige with them.

[00:02:49] Clay Finck: However, Guy was shocked to find some disturbing things in the news about the company and how they weren’t treating their customers well, and the company had tried to relieve his concerns by stating that people [00:03:00] were just jealous of their success. The job really didn’t turn out near what Guy had been told or what he had expected.

[00:03:07] Clay Finck: He was miserable within just six months of this job, right off the bat, Guy experienced the doggy dog nature of wall. And how most people were just looking out for themselves and they were not afraid to screw over the other. Guy wasn’t going to give up too easily though, as he cared really deeply about how other people viewed him rather than how he viewed himself.

[00:03:29] Clay Finck: The way for Guy to win in this role was to get deals, but the bigger firms like Morgan Stanley would secure all the good deals, whereas he was left with all the poor deals. This put him in a really tough position and really put his integrity at odds because it wasn’t likely that a lot of these companies would ever succeed.

[00:03:47] Clay Finck: He realized that the way DH Blair operated was to secure some pie in the sky idea and then sell it off to those in the public who are too naive to understand how bad of a deal it actually. The company had an enormous conflict of interest. They were much more interested in collecting as much fees as possible on the deal, no matter how bad the deal was, and then having the deal essentially funded by public investors buying into the hype, and even the employees themselves would do their best to get their share from the person next to them.

[00:04:19] Clay Finck: Which Guy realized when he worked with someone else on his first deal and then ended up getting a small portion of the cut, he thought he would originally. Guy eventually left this company [00:04:30] because the place was really just driving him crazy and taking him towards a moral cliff. Just a few years later, the company’s retail brokerage business had shut down and had been indicted on 173 counts of stock fraud, as well as stock price manipulation and engagement in illegal sales tactic.

[00:04:49] Clay Finck: The investment bank, which was a separate company, hadn’t received any charges, but he was sure that his former boss, Morty Davis, was having plenty of headaches to deal with. Guy was reminded that Morty, his former boss, was actually a pretty nice Guy and a good person. He was just put in a place with poor incentives that encouraged him to take advantage of others, many people of which were faceless and people he would never meet.

[00:05:14] Clay Finck: Guy reflected on this experience on Wall Street by stating, In retrospect, I had been dangerously blind about the motives and ethics of my colleagues. This was powerful proof of just how dumb even smart, well-educated people can be. It certainly took me far too long to grasp that this business was set up in such a way that if I wanted to win, I would have to lose whatever was left of my moral compass.

[00:05:39] Clay Finck: End Quote. He learned that it’s extremely easy to get attracted to the wrong environment and just how difficult it is to change your environment. Rather than him changing the environment, the environment changed him. It’s incredibly important that you choose the right environment and surround yourself with the right people.

[00:05:58] Clay Finck: You want to be surrounded by people who [00:06:00] are better than you and surrounded by people. You want to be more like. Guy did what he could to turn this negative experience into a positive one by reflecting on it and learning from it. Just like how Buffett didn’t let a purchase of a failing textile mill bring him down, he managed to learn from it by transitioning to purchasing quality businesses rather than cigar butts.

[00:06:21] Clay Finck: One of Guy’s biggest lessons from working on Wall Street was to never do anything that taint your reputation. As Buffett once warned, it takes 20 years to build a reputation in five minutes to ruin. If you think about that, you’ll do things differently. While he was working at this company, Guy discovered the work of Benjamin Graham and Warren Buffett, and it changed everything for him.

[00:06:43] Clay Finck: As he stated, sometimes you know in your bones that something is true to me. This value investing philosophy made so much sense that it was self-evident. He talks about those moments in life where his gut told him he had to go in a certain direct. When he was studying law one day during the end of his second year of school, he woke up with the realization that there was absolutely no way he could study law for another day.

[00:07:08] Clay Finck: He says It felt as if an inexorable force had welled up in me until it wasn’t even a debate. These moments of clarity are so rare in life, and even the people closest to us may question whether we should act on such. I believe it’s crucial to pay attention to these non-rational convictions that percolate inside us even if we [00:07:30] can’t explain them. End quote.

[00:07:31] Clay Finck: This is similar to how George Soros describes how he would tune into his acute back pain as a signal that there was something wrong with his portfolio. Guy didn’t think that investing was the right path for him. He simply knew it. He explained how there were only a handful of moments like this in the course of a lifetime.

[00:07:49] Clay Finck: But it’s critical that we have the courage to act on that gut instinct. Guy also reflected and learned that he was living in a bubble in school. School, largely taught him theories that were countered to how the real world actually worked. He learned at Oxford that markets were largely efficient, and anyone who managed to outperform the market was just a lucky speculator.

[00:08:11] Clay Finck: So when Warren Buffett spoke during his first semester at Harvard Business School, he immediately dismissed what he had to. To consider that anyone had beaten the market by exploiting its inefficiencies was to challenge his own existing beliefs. Having dismissed Buffett during business school, he came around to eventually learn from him when he was ready, as he was struggling at DH Blair four years later.

[00:08:35] Clay Finck: He stated my arrogance had taken such a beating that I was open to Warren’s teachings in a way that I would never have been as an MBA. I had been so humbled and humiliated by my experience at DH Blair that it forced me to re-examine everything I believed. Such are the sweet uses of adversity. So despite making the poor decision of working for DH Blair, [00:09:00] it ended up being a tremendous blessing and gift as it allowed him to open up his mind and teach him lessons that he never would’ve understood in a c.

[00:09:09] Clay Finck: Leaving DH Blair was a really rough period for Guy as his resume in a way was tarnished by them. I thought this was a really interesting point for someone like Guy, you know, I know him. That’s just his great investor, but he was searching for all these ways to try and get out of this rut. He knew he had a lot of learning to do and unlearning of some of the things he had learned up to this point in life.

[00:09:31] Clay Finck: He actually ended up attending a Tony Robbins event called Unleashed the Power Within. Figuring that he would try to apply Mohnish’s Dhando framework in that something like this had little downside and potentially a lot of upside. This event with Tony Robbins led Guy down a journey of consuming self-improvement material, such as How to win friends and influence people and Think & Grow Rich.

[00:09:54] Clay Finck: He took many simple steps to improving himself in his mindset, most of which wasn’t taught in schools. He was also consuming a lot of value investing books and doing his best to get a job at a value. He got a hold of Berkshire Hathaway’s annual reports and couldn’t help but notice that it was totally different than the things he saw at his previous job.

[00:10:14] Clay Finck: Rather than showing hockey stick growth charts and predictions that only went up, he stated quote, Berkshire’s report came up with a plane cover and its highlight was a candid, non-pro promotional, easily understandable letter by Buffett. The report [00:10:30] also featured a table showing the annual increases in the company’s book value.

[00:10:34] Clay Finck: It was pure information, not an attempt to lie with statistics or to sugarcoat truth. With pretty pictures printed on glossy. I’d never seen a report like this. It was designed to attract shareholders who were genuinely reading it for the right reasons. I’d assume that the business world was all about shouting louder than the next Guy, so you could get attention.

[00:10:55] Clay Finck: But Buffett was reaching out to people who weren’t impressed by noise. Through the advice of Tony Robbins, Spier would ask himself, what would Buffett do in this situation? Robbins’ called this, modeling our hero. So in order to be more like your heroes, you needed to start thinking like them and act how they would act in order to achieve the outcomes they’ve achieved.

[00:11:17] Clay Finck: Imagining that he was Buffett, he started studying the companies that Buffett owned. He read through reports like Coca-Cola, Capital Cities /ABC, American Express, and Gillette. Spier then felt as if he was diving into his second MBA as a company like Capital Cities was swimming in cash. While most companies he analyzed at his previous job were either hemorrhaging cash or grossly overstating their cash generating ability.

[00:11:44] Clay Finck: Now, that Spier was obsessed with value investing. He was determined to get a job as an analyst. Yet out of nowhere, his father gave him a call suggesting that he managed some of his money for. This was in 1996. His father had founded a small company [00:12:00] called Aqua Marine Chemicals, which traded and distributed products to protect crops.

[00:12:05] Clay Finck: Guy’s. Father invested 1 million with him and two of his father’s business associates invested as well, bringing Guys assets under management to 15 million, and the funds started trading on September 15th, 1990. Even with this backing early on, Spier’s, chances of success were slim, as most hedge funds don’t survive longer than 18 months.

[00:12:29] Clay Finck: Spier also reflected on the initial mistakes he made in setting up his fund. Instead of taking Buffett’s approach of getting a quarter of the profits above a 6% hurdle rate, he opted for what most advisors pushed him to do, which was the traditional 1% fee, plus 20% of the profit. Although this gave him a more steady income, it misaligned the incentives because he makes money.

[00:12:52] Clay Finck: No matter how well the fund performs, the Buffett model would’ve allowed him to profit with his shareholders rather than profiting off of them. The second mistake was allowing redemptions by investors within 30 days rather than only allowing them once a year. Adopting the latter approach would’ve enabled Spier and his shareholders to adopt a long-term approach, rather than constantly worrying about the day-to-day price movements and wondering if shareholders would be bailing out on him because his fun stocks have dropped in price.

[00:13:23] Clay Finck: The great financial crisis would prove just how big of a mistake this was for him. As stock prices of course, plummeted [00:13:30] these two mistakes interrupted. What was Buffett’s Secret Weapon to wealth, which was compound. Both of these mistakes ended up interrupting or putting a drag on the fund’s compounding effect.

[00:13:41] Clay Finck: These mistakes also reminded Spier just how difficult it is to diverge from the crowd and how the temptations to do what others are doing is very easy to give into. Spier ran his fund out of New York City as he had a lot of connections there to help him out. Yet he tried to stay isolated and away from the noise the best he could similar to Buffett. He described the early performance of the fund as decent as he followed Buffett’s advice of purchasing companies that are cheap, that have an expanding moat around them and are washed with cash as other investors fell for the tech bubble frenzy, he didn’t get lured in at all. Sticking with the value investors he most looked up to.

[00:14:21] Clay Finck: After five years, his fund significantly outperformed and assets under management crossed $50 million. Very quickly, Spier was flooded with envy. As many were calling him, wanting to invest with them, and he was being compared to investors with much more money in assets under management. Being in a place like New York City, there’s always someone who is doing better than you.

[00:14:45] Clay Finck: At the time, doing well didn’t feel like enough for Spier. He started to try and market himself, realizing that many of the same tactics he had learned in school started to show up and sound impressive to others. This is also known as living by an [00:15:00] outer scorecard rather than living by an inner scorecard, Spier stated quote.

[00:15:05] Clay Finck: But the truth is that I shouldn’t have bothered with this mindless pursuit of growth, which was primarily motivated by my own ego. That time would’ve been better spend focusing on picking the best stocks and allowing my performance to speak for itself. Spier said that one decision he made in New York that was one of the most important decisions for him was to have a mastermind group of investors who had become lifelong friends and trusted soundboards.

[00:15:32] Clay Finck: For him, he says that it’s difficult, if not impossible, to become successful on your own. The group of investors met one morning a week, and one of them would pitch a stock that would be debated and dissected by the. In chapter five, titled Meeting a Master Spier talks about the influence that Charlie Munger had on him.

[00:15:51] Clay Finck: He got a hold of a CD of Charlie Munger’s talk at Harvard covering the 24 standard causes of human misjudgment and Spier quickly realized the incredible wisdom of Munger. Mohnish Pabrai had told Spier that Munger is the smartest guy he’s ever met, even smarter than Buffett. Munger helped Spier understand all of the complex tricks that our mind can play on.

[00:16:14] Clay Finck: Additionally, Munger led Spier to the book influenced by Robert Cialdini. Munger said that Cialdini’s book had filled in a lot of holes in his crude system of psychology. Spier read and reread this book trying to internalize all of the [00:16:30] wisdom in it. He was especially taken aback by the story of the car salesman in the book who would write handwritten, personalized letters to his former customers and ended up setting the Guinness Book of World record for car sales.

[00:16:43] Clay Finck: Cialdini writes were phenomenal suckers for flattery. We tend to believe, praise and believe those who provided. So Spier embraced this idea and went to the extreme end of it. He started the habit of writing 15 handwritten letters per week 15, he says, I began to thank people for giving a great speech, for sending their investor letter for providing a great meal in their restaurant.

[00:17:09] Clay Finck: For inviting me to their conference, I would send people cards to wish them a happy birthday. I’d send them research reports or books or articles that I thought would interest them. I send them notes saying how much I’d enjoyed meeting them. Although the initial goal of this experiment was to improve his own business, he eventually became addicted to the spreading of goodwill as the more he expressed goodwill and Thanklessness, the more he felt it himself.

[00:17:37] Clay Finck: Most of the listeners are aware of the power of compounding money, but this was Spier’s way of compounding goodwill through the building of many of these relationships. Spier said that my letter writing Crusade had begun as a way of marketing my fund, but it ended up giving me a richness of life that I could hardly have imagined.

[00:17:56] Clay Finck: Rather than becoming a good salesperson, I found [00:18:00] myself starting to care about the people I was writing to and to think about how I could help them. The paradox is that as I became more authentic and discarded with my agenda, people became more interested in investing in the fund. This was an unintended consequence of becoming less selfish and more honest about who I am.

[00:18:20] Clay Finck: I was listening to Guy’s Google Talk, where he spoke to Google employees, and he said that over the past nine years, he had probably sent 20 to 30,000 letters from his office just to think how many letters that is, it’s just insane. So I think that if you’re looking for a way to really stand out in some way from your peers or looking for a way to improve your relationships or improve your business, I think that Guy is right, that handwritten letters can prove to be immensely helpful.

[00:18:50] Clay Finck: A handwritten letter is actually how Spier got to become such great friends with Mohnish Pabrai. He had attended one of Mohnish’s events and after the event he wrote him a simple letter. Guy didn’t expect anything in return from writing such a letter, as it was one of dozens he had wrote that week, but Mohnish later told him that he was the only person that had wrote him after the meeting, and it really stuck out to him because it was unique.

[00:19:17] Clay Finck: Roughly six months later, Mohnish had reached out to Guy inviting him to dinner, and then that’s how they met and got to become such great friends. By the way, I did an episode last week on episode [00:19:30] TIP517 all about Mohnish Pabrai. He is just as much of an inspiration as Guy, so I think you’ll love that episode in case you missed it.

[00:19:38] Clay Finck: In getting to know Mohnish Spier discovered that he also wanted to replicate how the greatest investors lived, and thought Mohnish refers to this as cloning, joking, that he’s never had an original idea in his life. To him, this is how he would make progress by copying the best ideas of others in making them our own.

[00:19:58] Clay Finck: As they got to know each other and they were out eating together in New York, Mohnish had asked Guy if he would be interested in joining forces to bid for the charity lunch to eat with Warren Buffett that was auctioned on eBay each year. The first year they ended up getting outbid by someone else, but Mohnish was determined to win it the following year.

[00:20:18] Clay Finck: Since Mohnish would be bringing his wife and his children to the lunch, he told Guy that he would be willing to put up two thirds of the total while Guy would put up one third. So that second year, they purchased the lunch for $650,000. So they were set to have lunch with Buffett on June 25th, 2008. In preparing for the meeting, Spier couldn’t imagine being the person with the highest fee structure out of the.

[00:20:44] Clay Finck: So we ended up offering a fee structure similar to what Buffett did with his partnership, which allowed the current investors to transfer over their shares with lower fees. During the lunch, Spier mentioned to Buffett that he updated his fee structure and also mentioned how hard it had been to [00:21:00] convince his funds lawyers that this unorthodox approach made sense since it was fair to shareholders.

[00:21:06] Clay Finck: Buffett told him that people will always stop you doing the right thing if it’s unconventional. During the lunch, spier was also reminded of the importance of one’s environment. As Buffett very carefully created the business he wanted, he stayed far away from Wall Street and typically didn’t want to meet with corporate managers.

[00:21:25] Clay Finck: Just six months after this lunch Spier ended up moving to Zurich in order to get away from the noise of New York City. This allowed him the space to think clear and think for himself. Drowned out the chapter on the lunch with Buffett. He also mentions how it was clear that Buffett’s mind was operating on a level nobody could touch.

[00:21:46] Clay Finck: He stated seeing him in person that day I was left with no doubt at all that I can never hope to match him. This could have been dispiriting, but I found it weirdly liberating. For me. The lesson was clear. Instead of trying to compete with Buffett, I should focus on the real opportunity, which is to become the best version of Guy Spier that I can be.

[00:22:08] Clay Finck: And this is a good reminder for all of us that there is always going to be someone out there that is much smarter, and we should be focused on becoming the best version of ourselves and focus more on our own journey in development as a person and as an investor. Spier then turned to talk about the great financial crisis and how that experience changed him.

[00:22:28] Clay Finck: In March of [00:22:30] 2008, Guy read in the Financial Times that Bear Stearns was teetering on the edge of insolvency. The problem for Guy was that all of the Aquamarine Fund’s assets were held with Bear Stearns. So we worried whether those assets were in jeopardy or as Guy was watching the financial crisis unfold in what felt like slow motion.

[00:22:50] Clay Finck: The news reported that JP Morgan Chase would be acquiring Bear Stearns. Spier then felt a wave of relief as Jamie Diamond assured the public that they would guarantee any counterparty risk at hand. Guy stated that he’s never met Jamie Dimon, but he had sent him a Christmas card every year, ever since.

[00:23:09] Clay Finck: Just when he thought he was safe from any more catastrophes from the crisis, his father gave him a call in September of 2008. His father asked him if he thought that Lehman Brothers would be going bankrupt. Most of his father’s money was invested in the Aqua Marine Fund, but it turned out that he had also invested a sizable amount of money into Lehman’s bonds, and now it looked like Lehman was in a death spiral.

[00:23:33] Clay Finck: Spier says in his book, I was almost speechless. We had recently escaped disaster with Bear Stearns, and now this, I paced around my living room, listening to my father in disbelief, Lehman Brothers Bonds, you bought Lehman Brothers bonds. Why? I couldn’t imagine how he could have possibly stepped into this minefield.

[00:23:54] Clay Finck: Spier knew that Lehman should be avoided by investors as institutions were fleeing from Lehman, so they [00:24:00] managed to sell these bonds to more gullible investors. His father asked if he should get rid of the bonds, which we’re trading at 34 cents on the dollar, and Spier told him yes. But his father’s sell order never got filled as there was no liquidity to sell it.

[00:24:15] Clay Finck: And just a few days later on September 15th, 2008, Lehman filed for Chapter 11 making it one of the biggest bankruptcies in US history. The financial crisis even got the best of some of the smarter investors at the time. Spirit employed an analyst who he regarded as bright and hard work. In the fall of 2008, he had stated that he liquidated his own personal account to cash in order to wait for things to settle down and for the outlook to become clearer.

[00:24:44] Clay Finck: Guy asked if he was out of his mind as he was disgusted. Spier wrote here was a Guy who had proudly claimed to be a value investor in whom I was paying to be rational. He was supposed to be a like-minded soul helping me seize these incredible opportunities that the market was gifting us. Yet his emotions were so out of control that he was even getting swept up in the panic.

[00:25:08] Clay Finck: He just couldn’t take it anymore. This is a measure of how acute the stress can become at a time like, Even for an intelligent and level-headed analyst who had previously come up with some highly profitable investments for the fund, and I think this is such a good reminder as we may be heading into another big recession that might test our judgment and emotions.

[00:25:29] Clay Finck: As [00:25:30] investors, it’s easy to seek the flight to cash and it’s not easy to continue buying as stocks continue to head lower and lower month after. In the depths of the financial crisis, Spier’s Fund was down 46% and it seemed like there was nowhere to hide in the stock market to avoid this treacherous drawdown.

[00:25:50] Clay Finck: Although the crisis was a scary experience as an investor Spier knew that he would make it out the other side just fine, as long as he lived within his means or didn’t take on any excess. He had plenty of cash set aside as well to live off of. During the meantime, he says that quote, from a societal point of view, debt is a vital economic lubricant used in moderation.

[00:26:12] Clay Finck: It’s positively healthy, but for an individual investor, debt can be dangerous. Debt can be disastrous, making it even harder to stay in the game both financially and emotionally when the market turns against you. End quote, the vast majority of the funds investors held firm during the crisis. Spier’s father had asked him during the drawdown if he should take some tips off the table, and Guy said that now would be the worst possible time to sell and that he’d rather live in a shack than take any cash off the table.

[00:26:43] Clay Finck: During my episode covering the Money Mind of Warren Buffett, episode 513. I mentioned the link between how Benjamin Graham and philosopher Marcus Aurelius taught. During the crisis, Guy studied Aurelius’ work meditations, which wrote her the need to welcome adversity [00:27:00] with gratitude as an opportunity to prove one’s courage, fortitude, and resilience.

[00:27:05] Clay Finck: Guy double and triple checked that his holdings would managed to weather through this storm, one of which was American Express. The stock had dropped from a high of around 65. All the way down to $10. Spier held on during the downturn and watched the stock rise to over $90 by 2014, he purchased many other cheap stocks during the downturn that were almost certainly going to be favorable bets, which would turn out well and eventually pay off the financial crisis led Guy to do a lot of soul searching as he saw many fund managers having to close shop, and for him it was an investing equivalent of a near death experience.

[00:27:43] Clay Finck: It forced him to think about how he wanted to live and what was truly important to him. He thought about how Warren Buffett taped dances to work every morning, and he himself wanted to have that level of enjoyment in his own life for much of his life. He explained how he took things too seriously and he needed to lighten up a little bit since he saw Buffett having what looked like fun and having this relaxed nature.

[00:28:07] Clay Finck: He wanted to travel more and get away from this desire to constantly be working all the time. For example, in 2009, he took a 10 day trip to India with Mohnish, with no agenda. Spending more time with Mohnish allowed him to better understand how he operated and how he reacted to certain things as well as better understand his philosophies on charity.

[00:28:27] Clay Finck: He also got more interested in sports and games, [00:28:30] recognizing the link between games like Bridge and how it’s a probabilistic game using limited information similar to invest. For example, in Bridge and in poker, you’re always making moves based on limited and imperfect information. And during the financial crisis, it would’ve been extremely difficult for someone to fully understand the nuances of JP Morgan’s $2 trillion balance sheet.

[00:28:52] Clay Finck: But Spier could make useful probabilistic inferences about the bank’s balance sheet and their earnings power. He asked himself, going forward, are these likely to be better or worse than other investors expect? He stated quote. Meanwhile, I read in the news that Buffett had just made a 5 billion investment in the preferred stock of Bank of America based on probabilistic thinking.

[00:29:15] Clay Finck: This suggested to me that he believed that the Fed was committed to ensuring that money center banks would be able to rebuild their balance sheets. Buffett’s investment helped me understand that the Fed was highly unlikely to raise interest rates until the banks were once again hugely profitable and for me, his wing of these odds was revelatory. As Mohnish had pointed out, Buffett’s involvement with banking stocks went back as far as 1969, and he’d almost never lost money on a bank bet.

[00:29:47] Clay Finck: Given that nobody is a better investor in banks, Buffett’s seal of approval means a lot. End quote. The key point here is that many investments are fundamentally uncertain, but they maybe aren’t as risky as they might [00:30:00] seem. Since Guy better understood that living a good and happy life was more important than what other people thought of him, he’s now fully embodied living by his own inner scorecard.

[00:30:10] Clay Finck: Buffett describes he started spinning his days exactly how he liked. When one business associate told him that he needed to go out and market himself and grow his fund. Spier stated that he simply didn’t want to. He wanted to live a happy life, and he didn’t need to be the largest fund in order to be.

[00:30:28] Clay Finck: This level of peace and contentment allowed Guy to be a better investor as well as he was able to think more calmly and more clearly with this levelheaded approach. He began to see the stock market as a game, and he says that no doubt he improved as an investor by taking this more playful approach, of course, without becoming reckless during the process as well, because it’s still quite a serious game for.

[00:30:52] Clay Finck: I thoroughly enjoyed all of Guy’s book, but chapter 10 in particular I’ve found super interesting with knowledge and tips that you can’t find in a lot of places. The chapter is titled, Investing Tools: Building a Better Process. Guy explains how when it comes to about anything in life, humans can make a ton of different mistakes, mostly to do with how complex the world is in order to help prevent any sort of disaster from happening when it comes to investing.

[00:31:19] Clay Finck: Guy swears by having a set of guidelines and principles to live by to help limits any mistakes as he states. If we’re looking to make better investment decisions, it [00:31:30] helps immeasurably to develop a series of rules and routines that we can apply consistently. He also says that pilots internalize an explicit set of rules and procedures that guide their every action and ensure the safety of themselves and their passengers.

[00:31:46] Clay Finck: Investors who are serious about achieving good returns without undue risk should follow their example. In the book, he lists eight rules that he gave himself, which I believe he has continued to add to over the years. He credits Mohnish for a lot of what he’s learned related to investing, and he points out that adding a set of rules is something he cloned from Mohnish, who is the master cloner.

[00:32:07] Clay Finck: One of the rules he lists is to stop checking stock prices. Many investors are constantly checking stock prices every day, and oftentimes multiple times a day. It’s as if they’re waiting to see if a news story will come out and sideswipe them while they’re watching the stock. By the minute, checking the stock to see if it’s fallen can give us a false, a reassurance that the stock is doing just fine.

[00:32:29] Clay Finck: If you’re truly looking to buy and hold companies for at least a few years, then the day-to-day stock quotation and the price movements are really totally irrelevant to. As Buffett says, when we invest in a business, we should be willing to own it, even if the stock market were to close the next day and not reopen for five or 10 years.

[00:32:49] Clay Finck: Checking stock prices diverts energy and attention away from things that really matter and could lead your brain to performing mental gymnastics and potentially lead you to [00:33:00] making emotional or poor decisions. Buffett didn’t make a fortune on Coca-Cola and Apple by checking the stock prices every. He made a fortune by doing the research necessary, buying it at the right price and simply waiting.

[00:33:13] Clay Finck: As the business fundamentals continue to improve over time. I love the second role that Spier brings up here. If someone tries to sell you something, don’t buy it. With Guy being a fund manager, he’s always being sold something, whether it be a particular investment and a research tool or countless other products.

[00:33:30] Clay Finck: He began to realize that most of the things he bought from sales people. He ended up regretting these purchases. The tricky thing is when dealing with gifted salespeople is that they’re really good at playing these psychological tricks where they’re really good at making you buy what they’re selling, even though you might not necessarily need the product.

[00:33:49] Clay Finck: And I’m currently reading through the book Influence right now, and I’m just kind of blown away by some of the things that they mentioned in that book. Oftentimes, a lot of the decisions we make, we think are conscious, but actually a lot of them are actually unconscious decisions. So what Guy does is he simply tells salespeople that he has a rule, that he doesn’t allow himself to buy anything that’s being sold to him.

[00:34:10] Clay Finck: I can imagine that this role saves Guy from a lot of unwanted conversations and headaches. For example, if someone wants to visit his office to pitch an investment, he says that if they were to come in, then he wouldn’t be able to buy the investment and simply, politely ask them to mail him the materials in paper and he can analyze it himself [00:34:30] without a person trying to persuade him to do something that will, in the end, get some sort of benefit or compensation or kick.

[00:34:37] Clay Finck: Rather than speaking with salespeople to get investment ideas, he instead utilizes discussions with investors who have no hidden agenda. Investors like Mohnish, Nick Sleep, Bill Ackman, among a number of others. Another rule of his is to gather investment research in the right order. The reason for being careful when you consume information about an investment is because the first idea that enters your brain tends to be the one that sticks.

[00:35:03] Clay Finck: So if you learn about a particular investment from a salesman or from someone who is biased, then that can lead to you to having a distorted view of that company that doesn’t really reflect reality. Once he decides that an investment idea is promising enough to research, He wants to start his research routine with the least biased and most objective sources.

[00:35:24] Clay Finck: These are typically the public filings, including the annual report, 10 K, 10 Q in proxy statement. These are heavily reviewed by lawyers and auditors to ensure that all the information in there is accurate, so it has much more strict standards than what you’d read on social media or a blog or in the media in general.

[00:35:43] Clay Finck: Guy calls the corporate filings the meat and vegetables of his research as it’s less enjoyable, but usually the most nutritious. Next on the list would be to turn to earnings announcements, press releases, and transcripts of conference calls. He’s suspicious of consuming any [00:36:00] information that comes from Wall Street or any source that may have their own interests in.

[00:36:05] Clay Finck: The seventh rule he listed was that if a stock tumbles after you buy it, don’t sell it for two years. This is another rule that Guy cloned from Mohnish and there’s a couple of benefits to having this rule. First, it forces you to slow down and really think about the companies you’re buying. If you know that you could sell a company next week after you buy it, then you may be more impulsive in your buy and sell decisions, and maybe you wouldn’t be doing as much research as you should be.

[00:36:30] Clay Finck: Guy says that this rule helps keep him out of a lot of investments, and he thinks about how he would react if the stock were to fall by 50% immediately after he bought it. If you wouldn’t feel good about the stock falling, then it’s probably something you should avoid. If you get excited about the idea of the stock going lower, then that’s probably a good sign that you know enough about the business to know that any decrease in the price is actually a bargain for.

[00:36:55] Clay Finck: The last rule he lists in his book is to not talk about your current investments. And this one really hit home for me as someone who hosts a podcast. When you are public about your investments psychologically, it becomes much more difficult for you to change your mind. If I were to become a total advocate for a particular stock or investment, then I’ve essentially publicly attached my personality to that investment.

[00:37:18] Clay Finck: And Guy mentioned the mental wiring we have that is brought up in the book influenced by Robert Cialdini. It’s this idea that humans prefer to be consistent with their actions. Once they commit to [00:37:30] something in the book Influence, they refer to a psychology experiment where they went to a bunch of resident stores and simply asked them if they do something that wouldn’t cost them any money, but would help their neighborhood.

[00:37:41] Clay Finck: Then a few days later, they were asked to put an ugly sign on their front lawns to stop drivers from speed. In those who had originally said they would do such a thing, found it extraordinarily hard to change their state of position, so they felt obligated to put the signs in their lawns. Similarly, if you tell a child you’re going to give them a treat, they’re oftentimes going to reply.

[00:38:02] Clay Finck: You promise these children intuitively understand that you’ll find it hard to reverse course after taking your original position. There is deep conditioning inside our brain and our human DNA that makes it extremely difficult for us to change our original position. In the book, influence does a really good job of diving into a number of great examples of this Guy actually experienced this with one stock called EVCI, which won up Sevenfold in 18 months after he purchased it.

[00:38:31] Clay Finck: And he had done a public interview and talked about the company. He publicly stated that he was invested in the stock and he knew that the stock was no longer cheap though. Then shortly after the stock had been cut in half and in retrospect, Guy regrets having spoken publicly about the particular company.

[00:38:48] Clay Finck: So this is why Guy has that rule of never talking about your current investments. This chapter in particular helps me improve my thinking on how I think about my investments, and had a ton of useful lessons for me to [00:39:00] continue to look back on. Then in chapter 11, he talks about the importance of having an investment checklist and some of the mistakes he made in helping develop the checklist.

[00:39:09] Clay Finck: Having an investment checklist is a really simple way to ensure you don’t repeatedly make mistakes, such as paying too high of a price for a company, not doing enough due diligence on the company’s management. The list really goes on. Mohnish and Guy reviewed their own mistakes and shared them with each other, as well as did a review of Warren’s mistakes.

[00:39:27] Clay Finck: As oftentimes, the best way to learn from mistakes is to look at the mistakes of others so you don’t end up repeating those mistakes yourself. That doesn’t mean you should skip over and avoid analyzing your own mistakes, though in the book included set 70 items in his investment checklist so you can clearly see how seriously he thinks about these things.

[00:39:48] Clay Finck: One of his mistakes taught him to look for businesses that offer a win-win for all parties involved and this really reminds me of Nick’s sleep and his writings, and he’s always looking for win-win situations in the businesses he owns, has three of his primary investments today are Berkshire Hathaway, Costco, and Amazon.

[00:40:07] Clay Finck: In the late 1990s, Guy looked into a company called the Tupperware Plastics Company. In selling their products, they host what was called home parties that played many of these psychological tricks that Cialdini covers in his book Influence. For example, the parties applied the reciprocation principle as the host of these parties were given free Tupperware, which they would feel [00:40:30] indebted and want to produce sales for the company.

[00:40:32] Clay Finck: All guests were also given these small gifts as well. At the time, the business seemed to possess many of the qualities of a great business, such as high profit margins, high return on equity, and they managed to take $5 worth of plastic and produce a product that they could then sell for $50. A couple of years after buying the stock Guy would come to realize that the business wasn’t as good as he once thought.

[00:40:54] Clay Finck: After he have purchased it, sales stopped growing for the company as they met increased competition. Guy knew that the management was highly competent and hardworking. So initially he gave them the benefit of the doubt and held onto the stock, but thanks didn’t end up changing in terms of the actual business results.

[00:41:14] Clay Finck: The fundamental problem for this company was that there was too much competition and their prices were too high and somewhat prevented future growth from coming into fruit. As the competition, increased competitors offered a similar product at a cheaper price, which made it difficult for them to differentiate themselves on something relatively simple in which customers aren’t emotionally attached to it.

[00:41:36] Clay Finck: Like some people may be emotionally attached to a particular clothing brand like Nike. No matter how good the management team was, they couldn’t fix a poor business model. Only a couple of years after purchasing Spier ended up selling out of this position for about what he paid. He realized that he became too enamored with the good things about the business, that he overlooked some of the [00:42:00] weaknesses.

[00:42:00] Clay Finck: So the lesson he learned from this was to look for businesses that offer win-win scenarios. You want to own a great company that makes a ton of money, while also providing a ton of real value to the customers. Originally, Tupperware had done this by introducing an innovative product, but eventually it no longer became the case.

[00:42:20] Clay Finck: Like I mentioned, I talked about this concept of looking for win-win scenarios on my episode, covering Nick’s sleep. This is businesses like Walmart, Costco, and Amazon who want to provide the best prices to customers. To do that, they need to minimize their internal cost and get the best deals from suppliers, and it creates this flywheel effect, which in turn builds out their economic moat.

[00:42:42] Clay Finck: Over time, you’ll want to look at the whole value chain and all of the parties involved. Another mistake he expanded on was his purchase of CarMax. CarMax is known for offering a wide variety of cars at low prices due to their operational efficiency of their business. However, the fatal flaw Guy eventually realized with CarMax is that the business was dependent on the ability to access financing.

[00:43:07] Clay Finck: A significant number of cars in the US are leased, so if CarMax somehow wasn’t able to access financing, then the entire business model would end up falling apart. And this is what actually happened in 2008. Access to financing dried up, sales plummeted in the stock, followed this investment mistake, highlighted the importance of understanding the whole value chain in the business [00:43:30] model and what parts of it are outside of the company’s.

[00:43:33] Clay Finck: Spier says he wants to own companies that control their own destiny and avoid companies that have their destiny determined by forces beyond their control. The final chapter of his book, Guy titled The Quest for Value, he explains how value investing is a hard strategy to be if your goal in life is to get rich.

[00:43:52] Clay Finck: Yet he says that it’s not money that matters most after a certain point. It’s the less tangible things that are even more. Such as the path to becoming the best version of ourselves that we can possibly be. This involves asking ourselves questions such as, what is my wealth for what gives my life meaning, and how can I use my gifts to help others?

[00:44:13] Clay Finck: Spier wrote that quote in my experience, the inner journey is not only more fulfilling, but is also a key to becoming a better. If I don’t understand my inner landscape, including my fears, insecurities, desires, biases, and attitude to money, I’m likely to be mugged by reality. End quote Spier says that he has used countless tools to accelerate this process of inward growth, one of which was psychotherapy in other forms of therapy, and also dove into learn about spirituality and philosophy.

[00:44:47] Clay Finck: A lot of it really comes down to living by your own inner scorecard. And what you believe is right, rather than constantly seeking the validation and approval of others. For Guy, his experience at DH [00:45:00] Blair taught him that living by an outer scorecard is what leads to a life of misery. And life lived by an inner scorecard is more in line with peace and contentment.

[00:45:10] Clay Finck: Living in this sort of way not only leads you to being happier, but it can also lead you to becoming a better investor as well as you’re constantly reevaluating ways you can improve yourself through reflecting on your failures. Guy ends the book by stating that the real reward of this inner transformation is not just enduring investment success.

[00:45:29] Clay Finck: It’s the gift of becoming the best person we can be, that surely is the ultimate prize. Then I like how at the end he includes a ton of different books that have helped him in his own journey, ranging from investing, biographies, leadership, psychology, and personal development. I’d also like to touch a little bit on Guy’s investment portfolio.

[00:45:50] Clay Finck: His 13 F filings only show his US holdings, so we aren’t able to see the entire portfolio. But in his 13 F, he shows roughly 164 million in his holding. And in his book he mentions that he doesn’t try to achieve the highest returns possible. A lot of his fund is invested in Berkshire Hathaway. Given that Berkshire is as massive as it is, he could probably get a higher return elsewhere, but wants to continue to hold it partially because Warren Buffett is in charge and also because it provides sort of a ballast to the portfolio that is almost indestructible.

[00:46:24] Clay Finck: His next largest US Stock Holdings are American Express, bank of America, MasterCard, [00:46:30] Ferrari, micron, and Moody’s. Guy is somewhat known for having a pretty long holding period with his positions, and he isn’t super active in his portfolio. According to his 13 F, he’s only purchased three stocks over the past couple of years.

[00:46:44] Clay Finck: This includes Alibaba Daily Journal and Micron, all of which aren’t huge positions relative to the rest of his portfolio. So not a ton of action over the years, as he’s definitely more of a sit and wait kind of investor after he find a business he likes. Even though Guy is widely known for having these long holding periods, he’s stated in the past that his returns would probably be higher even if he had more of a bias to hold onto things rather than selling them.

[00:47:10] Clay Finck: Another thing I’d like to point out is how well the majority of the companies he owns has held up through this recent bear. I think that’s a testament to the due diligence he does in selecting companies and ensuring that they’re continually moving towards a more favorable destination each year. This is what Nick’s sleep calls destination analysis.

[00:47:31] Clay Finck: Alright, that wraps up today’s episode. If you don’t already, be sure to click follow on the podcast app you’re on so you can get notified of all of our future episodes coming out. Also, if you enjoyed this episode, I would really, really appreciate it if you shared it with just one person you think would also enjoy.

[00:47:47] Clay Finck: This will really help us out as we continue to provide these episodes to you for free. Also, if you’re interested in checking out Guy’s book for yourself, which I highly recommend, we’ll be sure to get that linked in these show notes as well. [00:48:00] With that, thank you so much for tuning into today’s episode, and I hope to see you again next time.

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