The Education of a Value Investor – Guy Spier

by The Graham Investor on October 4, 2014

Guy Spier’s “The Education of a Value Investor” is an unusual book. What makes it unusual is what is it not. Surprisingly, it is not really a book about value investing. In fact, if you are expecting to learn much that is new about the process of selecting value stocks or deep valuation techniques you will most likely be disappointed, for the book is about a journey towards becoming a better person and a better investor. Most people reading this review will know of Guy Spier. Some may even know him personally. For those who do not, he is an Oxford and Harvard-educated former Wall Street Investment Banker turned value investor who manages the extremely successful Aquamarine Fund which he started in September, 1997 with $15m of family money. That $15m has compounded five times since and, along with additions from other investors, the fund now stands at close to $200m. The fund is modeled on Warren Buffett’s original 1950s partnership, with no management fee but rather a flat 25% fee on profits over a 6% annual hurdle. (There is also a separate share class with a 1% management fee and 20% of profits above a 4% annual hurdle.)

An Oxford education is generally a priceless investment. On the other hand, an elite education can be a hindrance in so far as it makes one ambitious and competitive. True, those who go up to Oxford in the first place are ambitious, competitive alpha types who are probably used to succeeding. The problem is afterwards – they all want to be as rapidly successful as one another. Many of those who studied PPE (Politics, Philosophy & Economics) as Mr Spier did, have since become movers and shakers of British political and economic life – among them, David Cameron and at least 34 other members of the UK Parliament. Countless others have gone into investment banking jobs, both in the City of London and in Wall Street.

In terms of ambition, Guy Spier was no different. Following Oxford with a Harvard MBA, Guy landed in Wall Street working for a D H Blair, small Investment Bank. To his credit, he quickly realized that Wall Street and its shenanigans were not for him – a decision that was vindicated as D H Blair later became embroiled in a racketeering suit – and has since spent his life modeling Warren Buffett and Mohnish Pabrai, both of whom are value investors and role models he greatly admires. Even as he became disillusioned with his role at D H Blair, Guy began to learn about value investing, discovering and devouring Graham’s The Intelligent Investor and Lowenstein’s Buffett: The Making of An American Capitalist. These were the catalyst that led him away from D H Blair and to shape his life to become more like Buffett (and ultimately Pabrai) in his endeavors.

What follows is a story of transformation, well worth the read. Unlikely characters such as self-help guru, Anthony Robbins come into it. Ants play a part. So do Marcus Aurelius and Sir Ernest Shackleton. There is the story of the infamous $650,100 charity lunch with Buffett in the summer of 2008, bid jointly with Mohnish Pabrai. While Guy goes into some detail about what he learned from Buffett at this lunch, one senses that the market crash of the latter part of 2008 taught him much more about structuring his fund correctly and ensuring he detached himself from the “chatter” of Wall Street. Buffett has always kept his distance from Wall Street, having lived in the same house in Omaha for decades.

Following that ideal, Guy moved from New York to Zurich to isolate himself from Mr. Market – arranging his office and how he dealt with people, subtly (and perhaps not so subtly), to eliminate distractions. Guy learned – from the ants – how the market is more a biological model than an economic model. There are patterns of rules we can all follow, without distractions, to become better investors. Extending this pattern of eliminating distractions, eight rules of value investing are described in detail – from not checking the stock price to not talking about your current investments. These are mainly common sense rules, but they are hard to follow consistently as most investors have irrational brains. Checklists are important, something Pabrai learned from Atul Gawande, but with the caveat that they are a personal thing. The book also has four case studies of particular investments with lessons learned from each and ends with a long list of suggested reading material, fairly well-ranging from the classic to to the esoteric. It’s an engaging book that every value investor should read, but it also contains valuable life lessons that are applicable to anyone. I would go so far as to suggest that PPE graduates also read it before they go into politics.


How Many Personal Finance Gurus Does It Take to Change a Light Bulb?

by The Graham Investor on February 10, 2014

One to tell you that you can’t just replace the one bulb because the light bulbs in your house are sucking up all your money, and you need a plan to get rid of all of them. First you need to rank all the light bulbs in order of worst to best energy efficiency. Then you get rid of them one by one, starting with the first one in your list. But before you even begin to do this, you need to make a stockpile of 1,000 candles in case of emergency. And there WILL be an emergency.

One to tell you that manually replacing light bulbs is inefficient and you need to automate the process. However, it’s not about how many light bulbs you need to change, it’s about how many you don’t buy. In order to understand this concept, you first need to stop drinking lattes because they are costing you $2000 a year that would be better invested in a system for automating light bulb replacement.

And one to ask you how much it is costing you to stay in that house with a non-functioning light bulb. How many years will it take for you to pay down that mortgage which is more than that house with the non-functioning light bulb is worth? Could you walk away from your obligation to change that light bulb and move to a smaller, cheaper house with a working light bulb instead?

Yet another to tell you, don’t buy another light bulb – what you really need to do is to think bigger – be an “investor” and a “business owner” and work towards owning an asset that will work for you, i.e. the company that makes light bulbs, with your cat as a silent partner. Then you can get all the light bulbs you need for free while making lots of money off of people who remain “employees”, every time they need to change their light bulbs.

A further one to tell you you don’t need a new light bulb to be happy. You just need to learn to live with the light bulb you currently have and feel in control of it. This means you need to keep tabs on your broken light bulbs at all times, and be sure to donate some of them to charity. Also, you must use your working light bulbs sensibly while trying not to be consumed with a desire to own more light bulbs.

Still another to tell you that what you need to do is buy 10 light bulbs, sell them to 10 people, each of which finds as many people as they can to sell light bulbs to while passing a percentage of the profit up to you, and teach them to teach these people to sell light bulbs while passing another percentage of the profit up the chain to you, ad nauseam. So, for a small initial investment in 10 light bulbs, you will be able to afford a lifetime’s supply of replacement light bulbs.

And finally the one who tells you they know of a light bulb that’s really going to take off in the next few days. You really want to buy as many of them as you can, and go in big because this opportunity is unprecedented and exclusive and the masses are not aware of it yet; so sell your house, car, grandmother…but you have to get in really quick as the opportunity will be lost within the next 2 hours.

Or, you can simply change the light bulb yourself. One needs to go on in your head first.


Has Your Portfolio Suffered an ACL Tear?

January 18, 2014

The nastiest injury in sports doesn’t appear to have a lot to do with investing. You probably don’t give your Anterior Cruciate Ligament much thought unless you are a football, basketball or soccer player who has just torn it – an injury that is becoming increasingly common. Rehab of an ACL tear can take months […]

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How Good an Interpreter Are You?

January 3, 2014

“The text has disappeared under the interpretation.” ― Friedrich Nietzsche, Beyond Good or Evil In 1956, Soviet leader, Nikita Khrushchev was alleged to have said “We will bury you!” at a reception in the Kremlin for Western diplomats – the attendant Press corps jumped on this quote and made it appear a lot more menacing […]

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What Are Stocks From Past Screens Doing Now?

November 7, 2013

What are stocks from the NCAV screen of a few years back trading at now? Luckily The Graham Investor keeps copies of weekly screens and can look at the “TGI Wayback Machine” in order to see how various ideas panned out. We also so many emails from people asking about historical performance of the screen […]

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Book Review: The Manual of Ideas – John Mihaljevic

November 5, 2013

The Manual Of Ideas: The Proven Framework For Finding The Best Value Investments. John Mihaljevic. Wiley, 2013. Many books have been written on Value Investing over the years since Benjamin Graham’s Security Analysis was first published. Most have been rather specific, detailing well-defined methods of actual stock valuation. Some detail a single such method (Greenblatt: […]

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A Calendar, a Calendar! Look in the Almanac

October 21, 2013

“A calendar, a calendar! look in the almanac; find out moonshine, find out moonshine” – Shakespeare: A Midsummer Night’s Dream Calendar based Investing can be extremely profitable with the correct approach. Moonshine it is not, although the Shakespearean character named Bottom was actually referring to moonlit nights. There are a number of well-known calendar investing […]

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John Maynard Keynes — Value Investor Extraordinaire

October 6, 2013

Most people are aware of the British economist John Maynard Keynes from his extensive contribution to macroeconomic theory and business cycles that have resulted in a school of thought known as “Keynesian economics”.  Keynes’ magnum opus is his 1936 book – “The General Theory of Employment, Interest, and Money” – a 472 page treatise that […]

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Eliminating the Chinese Reverse Mergers

May 13, 2013

Several people have asked me about the proliferation of Chinese Reverse Mergers (or Reverse Takeovers) appearing on the NCAV screens. For those not in the know, these are Chinese companies that have found their way onto the US Markets – mainly the OTC, but sometimes the Nasdaq – somewhat surreptitiously, by performing a reverse merger […]

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LULU’s Lemons – Seeing Through the Product Recalls.

May 3, 2013

In March, Lululemon Athletica recalled 17 per cent of its stretchy black yoga pants made from a fabric called “Luon” because they were apparently too revealing in certain yoga poses. The recall was expected to cost LULU up to $60 million. From the date of the announcement in mid-March to the end of March, the stock […]

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