Saturday, November 8, 2014

Q&A With Guy Spier About His New Book: The Education of a Value Investor

A MarketFolly reader recently reached out to Aquamarine Capital's Guy Spier about his new book, The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment.  Guy graciously agreed to answer the reader's questions and to host it on MarketFolly so everyone can learn from his experiences.

Simply put, this book is Guy's look at his life and his investing evolution.  He candidly showcases his shortcomings and highlights the great attributes of other investors he's met with and learned from, such as Warren Buffett and Mohnish Pabrai.

One of our favorite sayings is that investing is a continual education.  The Education of a Value Investor exemplifies just that.  As you ride alongside Guy on his journey, you'll learn from his experiences and undoubtedly reflect on your own path and how you can further improve yourself.

Video: Q&A With Guy Spier About His New Book

Embedded below is the video of Guy's responses (email subscribers will need to come to the site to view it):




Here are the questions Guy answered along with a brief summary of his responses.  Be sure to watch the video for his full, in-depth answers to each topic.

1. Going Out of Your Comfort Zone (at 0:12 in the video) What other activities do you participate in that would have once been out of your comfort zone? What lessons have you learned from those and how have they shaped you as a person and an investor?  Guy did an Ironman triathlon and has looked into meditation.  He says listen to your gut instinct and if it's pushing you towards something, go for it.


2. On Mentors (at 3:35) Mentorship played a key role in your success. How do you suggest young people seek out mentors? And since mentees often have little to offer in return, how do you think the mentee can show appreciation and/or give back in the relationship?  Guy says, "Don't seek the masters, but seek what they sought."  The key here is since you're probably not going to get access to the likes of Warren Buffett, instead look at who those people have learned from and seek out their mistakes/successes.  If you do have the opportunity to meet with someone influential, send them a handwritten note expressing your gratitude.


3. Avoiding Bad Influences (at 7:38)  What advice would you pass on for people looking to create healthy, encouraging environments?  Guy says it's important to make decisions that make you happy and not necessarily what's expected of you.  He says to give your children choices/control early on to pursue interests.


4. Buying When the Market is Crashing (at 12:50)  How do you decide the right time to buy and who are the worthy candidates?  Guy found this difficult at first (especially due to not having longer-term lockups at his fund).  He says, "I think that the nature of one's liabilities is inextricably linked with one's ability to buy.  And the answer is I don't know how to run my emotions very well, but I do know how to modify my environment."


5. Advice on Selling (at 15:26)  When do you decide to sell? Have you received any advice on this from your mentors?  Guy admits that he doesn't have a great answer to this, but shared wisdom he received from Li Lu, who manages money for Charlie Munger.  Li Lu said that the time to sell is when you no longer want to buy it.  There is no 'hold', it's either buy or sell.


6. His Relationship With Mohnish Pabrai (at 18:21)  Has being close friends with Mohnish Pabrai slowly made you less risk averse in investing?  Guy says there's a distinction between risk and uncertainty.   Uncertainty is where you don't know the outcome while risk is that there's potential it goes to zero.  Everyone has their own tolerance level for dealing with 'hairy' situations so you have to find out what you're comfortable with.


7. Gaining an Edge on the Competition (at 20:40)  How do you think you gain an edge in a world filled with intelligent, driven individuals all looking to generate alpha?  Guy says to get a structural advantage (permanent capital or as close to it as possible, which allows you to act while others are handcuffed).  He also says to build a network of smart individuals over time.


8. On Macro (at 24:06)  How do macroeconomic considerations factor into your investment analysis?  Guy says that he doesn't think his brain is big enough to do both top-down and bottom-up investing at the same time but different investors have different approaches.  While some investors may provide commentary on the macro environment, it might not ultimately influence their investment decisions directly.


9. Sectors & Geographies For Value Investors (at 25:55)  Are there any sectors or geographies that fundamentally do not work with value investing? Guy thinks the most important thing is having an idea where the business will be in 5, 10, or 15 years; he wants predictability.  He highlights the tech sector as one rife with change and avoids countries where he doesn't understand the rules (specifically mentioning Russia and the natural resources sector).  He also notes that he's made money in the Philippines before.


10. On Activism (at 31:07)  Why do you think more value fund managers do not become activist investors?  Guy doesn't have any intention of being an activist and says you always hear about the successes but there's also failures you don't necessarily hear of.   


11. Evaluating Management Teams (at 35:15)  How do you learn about the character of management teams without sitting down to lunch with them? Guy says the best way to evaluate a management team is to look at their actions based on publicly available information.  Look at their capital allocation, what kind of debt they've issued, etc.  Every decision reveals something about the people making those decisions.  He avoids meeting with management because it can lead to biases.


12. Executive Compensation (at 37:22)  What's your take on executive remuneration?  Are most CEOs overpaid?  Guy says there are some 'superstars' out there that should be paid what they're worth.  At the same time, some are overpaid, some are underpaid.  He says the real question is: what to do about it?         


13. Analyst vs. Portfolio Manager (at 42:10)  How does an analyst know whether they'd make a good portfolio manager? Guy says you'll never know until you go ahead and do it.  In the mean time, he says to obviously manage your PA (personal account) or start one if you haven't already.  They are really two separate skillsets.

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Our thanks to a reader for organizing this and thanks to Mr. Spier for taking the time out to further comment on his experiences.  

Be sure to check out Guy Spier's book, The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and EnlightenmentEveryone in the investment world takes their own path that defines who they are as an investor.  And more often than not, learning from others' journeys is an integral part of the process.  This book is a fantastic opportunity to do just that.

P.S.  As an added bonus, the book is a quick read so you can easily absorb it without taking a ton of time out of your schedule.