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 Enlightenment.  Everyone 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.

Value Investing Congress Notes: New York 2014 (Cooperman, Smith, Spier, Left & More)

We're posting up notes from the Value Investing Congress in New York that just ended.  Click the links below to go to each speaker's presentation


Value Investing Congress Notes: New York 2014

Lee Cooeperman (Omega Advisors): Are equities still the best house in the neighborhood? 

Carson Block (Muddy Waters Research): Short 500.com

Andrew Left (Citron): Short Zillow/Trulia

Guy Spier (Aquamarine): Bull case on POSCO

Jeff Smith (Starboard Value): 4 case studies 

Sahm Adrangi (Kerrisdale Capital): Long Via Varejo

Adam Crocker (Metropolitan Capital): Long Groupe FNAC, Molina Healthcare

Whitney Tilson (Kase Capital): Update on 2 shorts and 1 new short idea

Alex Roepers (Atlantic): 5 long ideas

David Hurwitz (SC Fundamental): Long Samho Development, KTcs Corp

Guy Gottfried (Rational Investment Group): 2 long ideas

Marcelo Lima (Heller House): Long Casino Guichard Perrachon

Amitabh Singhi (Surefin Investments): Plays on India

Cliff Remily (Northwest Capital): Pitch on Subsea 7

John Lewis (Osmium Capital): 2 ideas: E-plus and Rosetta Stone

SumZero Contest Winner: Long Samsung



Thanks to Nick Mazing from Ampera Capital for taking notes on day 2.

Guy Spier's Value Investing Congress Presentation: POSCO

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Guy Spier of Aquamarine Fund who presented long POSCO.  Guy also recently released a book: The Education of a Value Investor.


Guy Spier's Value Investing Congress Presentation

The investment process:

Recognize that you're not Buffett and that you're not rational. Recognize that you can't have all the knowledge. Recognize that most "data" is noise (keeps Bberg off). Recognize own biases (presenting an idea leads to a commitment, also vividness, authority, etc.)

Build a more robust investing process: don't look at the stock price, don't buy what's sold, don't talk to management, gather research in the right order (from QnA: read hte SEC docs first because they are legal), check with others, don't trade, and if a stock drops after you buy it, keep it for two years, don't talk about your holdings. 


The idea: POSCO 

Saw it in several places so that was a check (Manual of Ideas, Munger's DJCO 13-F, Corner of Berkshire and Fairfax, SumZero competition)

Started looking at the industry: looks like it's doing poorly

Since 2004, the NI margins of the major players have been declining. Now only POSCO and Bao are above 0%.

Some irrational competition due to employment goals by various governments

Ore is getting cheaper and is very abundant in part due to new discoveries and in part due to Chinese slowdown

POSCO appears to be a low cost producer

POSCO has own port and a very large complex in Korea

POSCO has a new steel-making method that does not require coking coal (but the other ingredients matter, it's like cooking)

Solid financial performance over 20 years.  Thinks 2-3x potential

Catalysts: new CEO, divestitures, new India operation with the new technology  

 Q&A: Sold CHK because it might not be the low cost producer, not smart enough to judge


Be sure to check out Spier's new book: The Education of a Value Investor.


And also make sure to read the rest of the Value Investing Congress presentations here.

Graham & Doddsville Fall Newsletter From Columbia Business School

Columbia Business School is out with its Fall 2013 edition of the Graham & Doddsville newsletter.  This issue features an interview with Aquamarine Capital's Guy Spier as well as a focus on Koch Industries, Homex (HMX) 9.75% Sr Guaranteed Notes, Wabash National (WNC), and Active Network (ACTV).

Spier gave an interesting interview about his career and investing style.  Here's a few select quotes:

"Something I believe quite strongly is that if you want to understand who an investor is, you need to understand their relationship to money in general, their relationship to the money that they specifically manage, and what the money means to them."

"At the end of the day, every successful investor ends up differentiating themselves on the unique aspects of their personality and who they are.  I'm not trying to be the best investor.  I'm just trying to be Guy Spier."

In his interview, Guy also walks through his thinking on Reciprocal Patent Exchange (RPX), as well as Fiat (FIATY).


Embedded below is the Fall 2013 edition of the Graham & Doddsville newsletter:




If you missed it in the past, Graham & Doddsville also had a great interview with JANA Partners.

Zeke Ashton, Guy Spier, & Michael Lewitt: Value Investing Congress Presentations

Given the large amount of speakers at the Value Investing Congress, we're trying to dissect the day's events into digestible nuggets of information. The following article details the presentations from Zeke Ashton (Centaur Capital Partners), Guy Spier (Aquamarine Fund), and Michael Lewitt (Harch Capital Management).

We posted up comprehensive notes from day 1 of the Value Investing Congress here encompassing presentations by John Burbank, Lee Ainslie, and more. We've also highlighted Bill Ackman's question and answer session in a separate post as well. Make sure to check out those resources. Without further ado, the rest of the presentations from day 1:

Zeke Ashton ~ Centaur Capital Partners

Ashton has seen an impressive 16% CAGR since inception with his hedge fund, Centaur Capital Partners. He had some ideas in the property & casualty insurance space, notably Fairfax Financial (FRFHF) as well as Aspen Insurance (AHL). Fairfax is run by Prem Watsa, a man many have dubbed the 'Warren Buffett of the north' as he's based in Canada.

Aspen Insurance is a name we've seen in David Einhorn's portfolio for a while as well and Ashton believes it could see $40, a book value of 1.15 (it currently trades around $30 per share) as the company continues to buy back stock at a discount. He also sees Liberty Mutual as potential value when they eventually come public.

Turning to his next play, Ashton brought Biglari Holdings (BH) to the table. While he believes retailers in general are cheap, he sees BH trading at 8x free-cashflow and Sardar Biglari (the man in charge) only gets paid if FCF grows 6% per year. Many investors (particularly in the value investing community) have taken issue with Biglari's compensation package. Ashton sees lots of real estate value in BH and likes that they are shifting to a franchise model with their Steak n' Shake stores.

Biglari is essentially trying to create a Berkshire Hathaway-esque holding company/model as his company has made buyout offers for insurer Fremont Michigan (FMMH). Many have pondered whether or not Steak 'n Shake (now Biglari Holdings) was the next Berkshire Hathaway. Biglari also recently revealed a position in Sonic (SONC).

Centaur Capital Partners currently has 20% overall exposure to the retail sector. Ashton believes diversifying between retailers, restaurant, and a high quality operator (like Target - TGT) is beneficial in the space.

Lastly, Ashton mentioned that equity asset managers are cheap due to the public's current distaste for equities. He feels buying a basket of these stocks is a solid approach. He cited (CLMS) as an undervalued asset manager, Janus Capital (JNS), and also MVC Capital (MVC). Interestingly enough, the Centaur Capital Partners manager also noted his use of the iShares 20+ year treasury (TLT) as a hedge against interest rate risk.


Guy Spier ~ Aquamarine Fund

From a theoretical/educational standpoint, Spier highlighted to pay heed to a sign in Warren Buffett's office reading 'invest like a champ today.' Spier profoundly professed that starting relationships with the right people can have a very strong impact on your life as an investor. In particular, choosing the right investors for your fund sets your fate. He highlighted Whitney Tilson and Glenn Tongue's partnership to form hedge fund T2 Partners as well as Markel Corp (MKL) as another good example. On this notion, Spier recommended Michael Eisner's book, Working Together: Why Great Partnerships Succeed.

Shifting to specific picks, Spier actually sees Japan as a compelling potential investment. Screening for stocks in this universe returns a lot of companies with negative enterprise value, many of which are paying dividends and partaking in share buybacks. In particular, the Aquamarine Fund manager singled out Otaki Gas (TYO:9541), a pipeline company that owns assets in Japan. His best idea is slightly morbid in Heian Ceremony Service (JSD:2344), a funeral service business that can benefit from Japan's aging population.

Lastly, Spier had an intriguing quote on the notion of liquidity. He says that liquidity today is not important. Instead, liquidity is important when you want to exit a position.


Michael Lewitt ~ Harch Capital Management

Lewitt, also the author of The HCM Market Letter, started out by saying that we need to rid ourselves of fiscal problems because the traditional tools aren't working. He would prefer a constructive approach instead of pumping out another trillion dollars via quantitative easing round two. Lewitt feels that central banks are destroying currencies (especially in Japan). Also, he feels that naked credit default swaps (CDS) shouldn't exist and highlighted the situation with BP (BP) as an example. You'll recall that in the past we highlighted that Bill Ackman bought BP CDS.

In terms of opportunities, Lewitt sees bank loans as an attractive asset class because they are secured, can be leveraged to enhance returns, and many have 7% floating rates. As a play on bank loans, he likes KKR Financial (KFN). He highlights the 5.5% yield which should increase. He also singled out Tetragon Financial Group (AMS:TFG) trading in Europe.

Turning to bonds, Lewitt says junk bonds have been on fire (obviously). While he likes them, he notes you obviously have to be very selective due to their very cyclical nature. In particular, he finds value in BB and BBB corporate bonds.

Lastly, The HCM Market Letter author recommended utilizing ProShares UltraShort 20+ Year Treasury (TBT) as a way to short bonds. Keep in mind that since this is a leveraged ETF, it suffers from tracking error over longer time periods. He also advocated a long position in gold, something many managers have done.


That wraps up the presentations from these speakers. If you are on Twitter, we are posting live updates from the Congress on our @marketfolly Twitter feed. Be sure to also check out our comprehensive notes from day 1 of the Value Investing Congress.

Value Investing Congress: Notes From Day One

The Value Investing Congress has been posting updates of the first day of the event on Twitter (make sure to follow us as well) and we wanted to aggregate their brief updates into a comprehensive post here on Market Folly. Yesterday, the Congress heard investment presentations from the likes of Mohnish Pabrai (Pabrai Investment Fund), Bruce Berkowitz (Fairholme Fund), Paul Sonkin (Hummingbird Value), Richard Vogel (Alatus Capital), Lloyd Khaner (Khaner Capital), Amitabh Singhi (Surefin Investments), Carlo Cannell, Guy Spier (Aquamarine Capital), and Patrick Degorce (Theleme). We'll start first with Mohnish Pabrai's presentation:


Mohnish Pabrai of Pabrai Investment Funds: His presentation was entitled "Leveraging Checklists to Dramatically Improve Investing Results." He has developed this list based on mistakes other value investors have made and thus far he has 80 mistakes on the list. Pabrai notes that no companies will pass all of the 80 questions on his checklist but that his list has helped him determine position sizing. He also mentioned that had this checklist been in place before some of his prior investments, some of his decisions would have been different. In terms of investment ideas, Pabrai feels that the property & casualty market is very soft but that there is value to be found there. For those interested, we've also detailed Pabrai's portfolio in the past.


Bruce Berkowitz of Fairholme Fund: The main thing to take away from Berkowitz's talk is that he is now long Goldman Sachs (GS) in size. It's not exactly clear what type of investment he made, but we do know he has a new position now. Turning to his stake in General Growth Properties (GGP), he mentioned that he is not raising his bid. On his new position in AIG (AIG), he noted that GAO has terrific reports on the company (we previously detailed Fairholme's new AIG stake). Lastly, Berkowitz jokingly mentions that the only 'perfect hedge' is a Japanese garden as everything is correlated when things turn sour. You can view the rest of our coverage on Berkowitz here.


Richard Vogel of Alatus Capital: Vogel is focusing on companies with 8-10% free cash flow yields that also have an "inflection point" with some sort of catalyst (a new product launch or tapping into a new market, etc). His presentation focused on Europe as all the countries are 'in a sea of red ink' because they all have budget deficits, except for Switzerland. Vogel focused on a Swiss based company: Valora (SWF: VALN). It has an estimated free cash flow yield of 11% and is the largest kiosk operator in Switzerland and Luxembourg with 1,175 outlets. He mentions that new management is taking positive steps as they improve margins and restructure.


Lloyd Khaner of Khaner Capital: Khaner gave a presentation entitled, "Why Some of the Best Value Investors Own Gold." He mentioned that he had formerly 'shunned gold' until the mid 2000's but obviously has had somewhat of a change of heart. He mentions that the gold to oil ratio has typically been "1 oz of gold to 15 bbl of oil." In terms of rationale for owning gold, Khaner cites that gold supply is decreasing as production is around 2,500 tons per year and consumption bests that at 4,000 tons. Central Banks have also been net buyers of gold for the first time since 1980. Khaner specifically highlights gold as a safe haven because it holds value even if it does not appreciate. It is the last currency standing as you cannot print more.

If you were to use the same inflation trajectory as the last gold bubble and apply it to current times, the price would be near $5,000 an ounce. There is one main reason value investors own gold: currency devaluation. While not a value investor, this is exactly the reason that John Paulson launched his gold fund. He is using gold derivatives and gold mining stakes as a proxy for his wager on the US dollar being devalued.

Khaner did not specifically cite the best way to play gold (whether it be via exchange traded funds, physical gold, or mining companies). John Burbank's hedge fund Passport Capital prefers physical gold and David Einhorn's Greenlight Capital does as well. In fact, at the previous Value Investing Congress in October 2009, Einhorn's presentation centered on gold.

Khaner did say that if you go the mining companies route, you have to focus on good management teams that have skin in the game, a company with a good history, and one with low production costs. Back in the 1930's when deflation was prevalent, gold mining stocks were the place to be. Both John Paulson and George Soros bought a stake in the same gold miner recently as well. In the past we've posted up copious amounts of hedge fund research on gold so definitely check that out if you're looking for more insight on the subject.


Carlo Cannell of Cannell Capital: Focusing on small cap value plays, Cannell founded his firm in 1992. He has 18 years of investing experience and will take on an activist role when needed. During his talk, he mentioned that all of his funds are named after islands. The were not many updates posted about his talk but he did mention that Research in Motion (RIMM) does not particularly interest him as he prefers to buy companies trading at 1x EBITDA. He gave one example of a gem: Core-Mark (CORE).


Patrick Degorce of Theleme Partners: Degorce recently launched Theleme (his new firm) with $200 million and he was previously co-founder of The Children's Investment Fund. Investment timeframe is very important to Theleme as they typically focus on 4-5 year timelines. Degorce echoed Warren Buffett by noting that you should invest in businesses/companies that you understand and not pay attention to short-term gyrations in the market. In particular, Degorce values companies based on discounted cash flows. Turning to his specific investment idea, Degorce recommended Deutsche Boerse (ETR:DB1). He notes that they earn 45% of EBIT from European equity derivatives and fixed income. They recently announced cost cutting measures to the tune of $150 million and have a growing cash horde of 6.5 billion euros. In 2009, they generated 3.40 in free cash flow and it currently trades around 10 times FCF.


Amitabh Singhi of Surefin Investments: Singhi focused on opportunities in India and noted that while many industries are mature, some have exploded like real estate, telecom, and pharma. He thinks there is more opportunity in small cap names as there is little research coverage. In particular, he buys 'cigar butts' as he prefers contrarian plays, special situations, and even some GARP plays (growth at a reasonable price). One such 'cigar butt' play is Cheviot (BOM:526817), a producer of Jute (vegetable fiber) that is trading at cash and below its net current asset value. Additionally, it has a return on equity of 26% over the last 10 years. Overall, when investing in India, Singhi likes to have 'assets on the ground in (the) country.' He typically avoids the metals and oil & gas sectors.


Guy Spier of Aquamarine Capital: Spier focused on Fortescue Metals Group (FMG) and notes it could be trading at 1x EBITDA if the market starts to take a hit. He also noted an idea from Passport Capital's John Burbank: 'go long what China is short.' Spier also mentioned something that Warren Buffett has in his office: 'invest like a champion today.' Guy also recommends to increase productive relationships and reduce toxic ones in order to associate yourself with people who are better than you so that you may become better. In essence, that is one of the main goals here at Market Folly. By tracking successful and talented investment managers, we strive to learn from both their successes and their mistakes.


Paul Sonkin of Hummingbird Value: Sonkin focuses on micro and nano cap value plays and looks for a discount to intrinsic value. He seeks internal and external catalysts and notes that certainty of outcome and timeline are essential as well. Interestingly enough, he sometimes competes with companies buying back their own stock due to the low liquidity. Sonkin's investment idea was Steinway Musical Instruments (LVB) citing three assets: real estate, piano business, and band business. Like many other companies, he anticipates growth in Asia over the next ten years as well as a recovery in the US for their piano business. He estimates their properties in New York might be worth $50-75 million. Additionally, Sonkin feels LVB has pricing power as they've raised prices on pianos 4% each year for quite some time. Lastly, a fun fact from Sonkin: he feels the Proxy statement is the most underrated tool out there and he also won't invest in a company if a CEO wears a lot of jewelry (guess he won't be investing in rapper mogul "Birdman's" new oil company).


That wraps up the summary of the first day of presentations. Thanks again to the Value Investing Congress for posting their Twitter updates and keep in mind you can follow us on Twitter as well. Hopefully readers have found this aggregation useful. Stay tuned as we'll also post up summaries from day two of the event here at Market Folly as well as more in-depth research regarding some of the investment ideas. In the mean time, head to our coverage of the latest hedge fund portfolio movements.