Guy Spier - The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment

The
Education
of a
Value
Investor

My Transformative Quest for
Wealth, Wisdom, and Enlightenment

Guy Spier

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To my parents, Marilyn and Simon Spier, and to my sister, Tanya.

To my children, Eva, Isaac, and Sarah.

To my wife, Lory:

You are all my reasons.

Contents

Introduction

My goal in writing this book is to share some of what Ive learned on my path as an investor. Its about the education of this investor, not any other investor. This story is not an investment how-to. Its not a road map. Rather, its the story of my journey and of what Ive learned along the way. With my own flaws and foibles and idiosyncratic abilitiesand despite my considerable blind spots.

Over the years, Ive stumbled across some profound insights and powerful tools that Id like to share with you. In most cases, these are not things that are written about in textbooks. Because its a story about how things happen in the real worldand because the real world is messythe topics are broad in scope. They range from the most insignificant of habits that Ive developed, like what to read first, to the grandest: whom to choose as heroes and mentors and how their wisdom can change your life.

This book traces the arc of a transformation. I started off as a Gordon Gekko wannabebrash, shortsighted, and entirely out for myself. Then a series of transformations and self-realizations led me on a path from Benjamin Grahams The Intelligent Investor to Ruane Cunniff to Poor Charlies Almanack to Robert Cialdini, then to meeting Mohnish Pabrai and lunch with Warren Buffett. That $650,100 meal had a life-changing impact on me, as you will see.

Within one year of my meeting with Buffett, I let two-thirds of my staff in New York go, stashed half of my familys belongings in storage, and shipped the other half to Zurich, where we went to live. I stopped charging management fees to new investors in my funds. I switched off my Bloomberg monitor. And I renounced my perilous addiction to checking stock prices on a minute-by-minute basis.

Im not necessarily advocating that you should also have lunch with Warren Buffettespecially now that the price tag has soared, hitting a high of $3.46 million in 2012! And Im not claiming to have a special understanding of him either. What I can tell you is that he has had an extraordinary impact on how I invest and on the way I live my life. My hope is that I can share some of these lessons that Ive derived from him so that they will benefit you as much as they have benefited me.

It took me the best part of two decades to get onto a more enlightened path in life, and Ive made many missteps and lost much time along the way. Hopefully, this book will help you to reach your enlightened path faster, and with fewer missteps. As Buffett once said, Try to learn from your mistakesbetter yet, learn from the mistakes of others!

I submit to you that if you learn only some of the lessons here, you cannot help but become richand perhaps wildly rich. Certainly, the wisdom Ive gleanednot just from my heroes, but from my own mistakes and successeshas helped me immeasurably as an investor. As I write this, Ive had a cumulative return of 463 percent since founding the Aquamarine Fund in 1997, versus 167 percent for the S&P 500 index. In other words, $1 million invested in the fund would now be worth $5.63 million, versus $2.7 million if it had been invested in the S&P 500.

But this book is also about the inner game of investing, and by extension, the inner game of life. As Ive come to discover, investing is about much more than money. So as your wealth grows, I hope you will also come to realize that the money is largely irrelevant. And what you will want to do with the bulk of your wealth is give it back to society.

Youre not quite sure about that last part? Thats okay. For much of my life, I wasnt sure about it myself, and a part of me still doubts it. Like you, Im a work in progress.

Were told a lot these days about why capitalism has failed us. Were told that greedy bankers and irresponsible CEOs need to be reined in with more stringent regulations, and that wealth should be more aggressively redistributed. Perhaps. But greed can also be a vehicle to something deeper and more soulful. In my experience, you can start out as a hungry young capitalist, driven almost entirely by greed, and find that it gradually leads you to a more enlightened mind-set. In that case, greed may be good after allnot if it merely motivates you to acquire more, but if it drives you toward that inner journey of spiritual growth and enlightenment.

I expand on that lesson at the very end. But first, lets enter the belly of the beast.

From the Belly of the Beast to Warren Buffett

O that this too too sullied flesh would melt,

Thaw and resolve itself into a dew!

...

How weary, stale, flat, and unprofitable,

Seem to me all the uses of this world!

Fie ont! ah fie! tis an unweeded garden,

That grows to seed; things rank and gross in nature

Possess it merely.

Hamlet, act 1, scene 2, lines 129130
and 133137

Have you ever felt that way? Utter self-loathing. Unlike Hamlet, at least I wasnt suicidal. But I felt almost as wretched. I was disgusted with investment bankers as a breed, and especially the ones I worked with. I felt the same way about my investment banking firm. Worst of all, though, I was disgusted with myself.

Less than two years earlier, I had felt ready to conquer the world. Back then, I was a student at Harvard Business School (HBS). For good measure, I also had a degree from Oxford University, where Id come top of my class in economics. Everything had seemed possibleuntil I threw it all away with one recklessly foolish career move.

In 1993, a few months before I graduated from Harvard, I stumbled upon a job listing for an assistant to the chairman at D. H. Blair Investment Banking Corp. Id read a bit about investment banking and fancied myself as one of these budding Masters of the Universe.

Brimming with youthful confidence, I headed to New York City to meet with D. H. Blairs chairman, J. Morton Davis. Morty had started out as a poor Jewish kid from Brooklyn. He graduated from Harvard Business School in 1959 and went on to become the owner and chairman of D. H. Blair, which had been founded in 1904. People told me that hed made hundreds of millions for himself.

I met with him in his wood-paneled corner office at 44 Wall Street. The place hadnt been renovated in years, and it looked like a traditional investment banking partnership from John Pierpont Morgans era. In fact, J. P. Morgans headquarters were almost next door.

Morty was a consummate salesman, and he did a brilliant job of beguiling me. He talked to me about some of the great deals hed pulled off in hot areas like biotech, adding, Youll be doing deals right away, working directly with me. He assured me that there was no limit to what I could achieve there with him and later gave me a book by Frank Bettger called How I Raised Myself from Failure to Success in Selling . I liked the fact that Morty was an outsiderunconventional, self-made, and highly successful.

Shortly afterward, I read a New York Times article that referred to D. H. Blair as an infamous brokerage house whose brokers have been known to refuse to let customers sell when they request that a stock be liquidated. The article also mentioned that securities regulators in Delaware had tried to revoke Blairs license and that regulators in Hawaii said Blair was using fraudulent and deceptive sales practices. When I went back to ask him about the article, Morty told me that people envy success and try to take you down. I was gullible enough to believe whatever he told me.