TIP168: GUY SPIER

THE EDUCATION OF A VALUE INVESTOR

9 December 2017

When we first started our podcast, Guy Spier was one of the first guests on the show. He is the founder of the Aqua Marine Hedge Fund and he’s a Warren Buffett Style investor. Guy is the author of the best selling book, The Education of a Value Investor, and he’s a graduate of Harvard and Oxford University. During our discussion, we cover a wide array of topics like, what kind of daily readings he looks at, the impact of statics and humility, credit cycles, cryptocurrencies, and much more.

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IN THIS EPISODE, YOU’LL LEARN:

  • What publications Guy reads on a daily basis.
  • How to think about intrinsic value calculations.
  • What Guy thinks about cryptocurrencies.
  • Guy’s opinion on writing letters.
  • How to think about temperament.

WHO IS GUY SPIER AND WHAT IS HIS BOOK, THE EDUCATION OF A VALUE INVESTOR, ABOUT?

Guy Spier is the author of the book, The Education of a Value Investor. Currently, Spier is the CEO of Aquamarine Capital. His fund concentrates on investing in publicly traded equities. Today, it is implemented according to the ideas represented in Buffett’s original 1950’s partnerships (Buffett ran multiple partnerships during that decade). With amazing credentials from Oxford and Harvard and an impressive record of stock returns, Spier is considered a worldwide authority in value investing. His book is a very honest account of his transformation to become a successful investor. Spier is very open about his initial setbacks and experiences, which have guided his investment approach to what it is today. Every year, hundreds of thousands of people travel to Wall Street in droves to achieve something in their life. Obtaining a degree from Harvard, Stanford, or Oxford is definitely not a piece of cake, so most students who graduate with their shiny diplomas usually head-over to Wall Street to master the tricks of the trade. Similarly, Spier, fresh out of Harvard University, stepped into the world of investments, determined to become the Gordon Gekko type.

Most students who graduate from prestigious universities are usually driven with high ambitions. Guy was no different. After he graduated with an MBA in Economics from Harvard, Spier took up a job at D.H. Blair as an investment banker. While there, he gradually realized that the working environment was compromising both his personal values and ethics. Now this is where the book is different. Instead of dishing out advise about investing, Spier talks about how he was forced to take a good look at himself. He rose to the challenge and devoted most of his time reading and understanding more about ultra-successful investors – like Warren Buffett. Since then, Spier hasn’t looked back and has modeled his life after powerful people like Buffett, Munger, and Benjamin Franklin. Most importantly, he has worked hardest on becoming a more authentic version of himself.

While Spier talks about a variety of investment principles he adopted from Warren Buffett in his book, what’s more fascinating is how he focuses more on personal growth and development from Buffett, rather than stock investing. He stresses that it’s vital to have an inner scorecard instead of an outer scorecard in life. An outer scorecard is used when you compare yourself to everyone else’s accomplishments, whereas an inner scorecard is all about judging yourself and seeking self-improvement. Simply put, you either live your life on your own conditions or care about what others think and have. The book talks about how investing is not all about money, but has a larger and deeper meaning. It advocates how authenticity can help you become a better investor and a better person. Authenticity cannot be taught, but it’s something that should be ingrained in an individual. Being authentic helps a person accept his own mistakes and learn from them. This truly is one of the most important elements for an investor as he/she strives to become a better version of themselves, instead of copying others. To prove his point, Spier describes how Buffett has conquered stock trading all while being true to his own self. He was successful with Berkshire Hathaway simply because it suited his temperament and not because it guaranteed high, profitable returns. Sure, we should all learn from our idols and heroes, but at the end of it all, we should never compromise our own essence.

WHY GUY SPIER AND MOHNISH PABRAI SPENT $650,000 ON A LUNCH WITH WARREN BUFFETT

Every year, Warren Buffett holds a charity lunch to raise money for a worthy cause. While winning bids have reached up to $3.5m in recent years, it’s important to note that the benefits go to the Glide Foundation in San Francisco. Guy Spier and his friend Mohnish Pabrai were among the lucky people to bid and earn a ‘power lunch’ with the brilliant philanthropist.

Spier and Pabrai met each other at Pabrai’s shareholder meeting a few years before the lunch with Buffett. Over time, their friendship blossomed and they also formed a Mastermind Group about investing. As of today, Pabrai is the managing partner of the prestigious Pabrai Investments, which was founded in 1999. You can read more about how Pabrai was also inspired by Buffett’s principles. Pabrai has managed to crush the market since 2000 by 1100%. Also, in Episode 4, we discuss Mohnish Pabrai with Hari Ramachandra.

So why did Spier and Pabrai invest heavily in the lunch with Buffett? First, it was a great opportunity to donate to a very worthy charity foundation that offered a lot of support to underprivileged people. Second, Spier and Pabrai wanted to show their gratitude to Buffett for everything he had taught them.

Spier and Pabrai, along with their families, met Buffett at Smith & Wollensky, a steakhouse in Manhattan. To Spier and Pabrai it was a family event – not a business deal. In, The Education of a Value Investor, Spier mentions a memorable moment during the special event. To provide a little context, it’s important to note that before the lunch with Buffett, Guy felt compelled to change the management fee structure of his fund. Generally, most hedge fund companies charge a 2% management fee along with an extra fee once profits go above a specified rate. Either way, the manager is getting paid if the fund performs or underperforms. Inspired by Buffett, Guy changed the structure of his fund so that investors only pay a fee if he produces returns higher than 6% (annually). Anything less than that, and Guy is working for free. As a result of this drastic and difficult change to his fund, Guy told Warren about this decision and how difficult it was for him. Buffett responded, “People will always try to stop you from doing the right thing if it is unconventional.” Guy then asked Buffett if doing the right thing would get easier with time. After a long pause, Buffett responded, “Just a little.”

For most people, spending $650,000 on a lunch may seem ridiculous, but for Spier and Pabrai, it was an experience of a lifetime. To them, it was a priceless event that was more symbolic and appreciative for what they had learned from their mentor. The next lunch auction with Buffett closed at $2.1 million, so I’m sure Guy and Mohnish can take great joy in knowing they purchased their intellectual property for a 25% discount of the following year’s market price.

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TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Preston Pysh  0:03  

Today is a really exciting show for us because we’re talking with one of our good friends, Guy Spier. When we first started our podcast, Guy was one of the very first guests that came on the show. He’s the founder of the Aquamarine Hedgefund and he’s a Warren Buffett style investor. Guy is also the author of the best selling book, “The Education of a Value Investor,” and he’s a graduate of Harvard and Oxford. 

During our discussion, we cover a wide array of topics like what kind of daily readings he looks at, the impact of statistics in humility, credit cycles, cryptocurrencies, and much much more. So I’m excited to bring you guys this episode. Stig was out of town and unable to participate in the call but he’ll be with us again next week. If you’re ready, let’s go ahead and do this.

Intro  0:48  

You are listening to The Investor’s Podcast where we study the financial markets and read the books that influenced self-made billionaires the most. We keep you informed and prepared for the unexpected.

Preston Pysh  1:09  

All right, so we are super pumped to have our good friend Guy Spier back on the show again. It has been a very long time since we last talked to Guy. I want to say it was like Episode 15, or it was very, very early in the show. I distinctly remember this interview because we got so many emails from people saying that interview was insane and that it was so good. 

Guy, it’s been way overdue. I know when we were talking in Omaha back at the Shareholders’ Meeting this past year I said, “When are you coming back on the show?” Then you said,” I’m going to come back on in the fall.” And I said, “I’m going to hold you to it.” So here you are. You’re a man of your word and we appreciate you taking time out of your very busy day to talk with us.

Guy Spier  1:53  

I was delighted to accept the invitation to come back on and *inaudible* don’t have the other podcasts too much because then people might just be disappointed by this one. For the listeners, well, it’s worth saying that this year I got to meet Preston at the Berkshire Annual General Meeting. 

So for the listeners and any of you who haven’t been to Omaha, I walked into the spire and I thought… I walk into the back and find this kind of nerdy guy with maybe three friends, and then we’ll have a nice chat until they realize that a whole bar, all 120 people are Preston and his gang. They are just totally pumped and everyone there is totally pumped. It’s actually an inspiration.

Preston Pysh  2:38  

Going into the questions, so we opened this up to our Twitter community. A lot of them are very big fans of yours. and they had some really interesting questions. 

One of the first ones that I really want to hit at because I think this is so fundamental to where we’re at in space and time here in 2017, *inaudible* asked, “How does an investor build patience, integrity?” 

This is something that we know Buffett and Munger talk about so much, but I think for a lot of people that maybe aren’t as attuned to their teachings, they hear the word temperament. They hear the word patience, and it’s just kind of cliche. So can you talk to us why this is such an important concept?

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P.S The Investor’s Podcast Network is excited to launch a subreddit devoted to our fans in discussing financial markets, stock picks, questions for our hosts, and much more! Join our subreddit r/TheInvestorsPodcast today!

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