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

I met Guy Spier in the “green room” of Bloomberg television in November 2012. I was there to talk about the Islamic finance industry while he was there to be interviewed about the state of the stock market as he manages the Aquamarine Fund. After finishing our respective interviews we went out for coffee together since he is a very sociable person.

While that was our only meeting in person, since then we have stayed in occasional electronic contact. For example I follow him on Twitter while he follows me. I am also on his Christmas card list.

Accordingly when I learned that he was writing a book I pre-ordered it, receiving it in late 2014. However due to my reading backlog I was only able to read it earlier this year.

Overview of the book

The book is quite short, under 200 pages if one excludes the index, bibliography etc. I found it extremely easy to read and very engaging.

Investing is something I have been reading about since my early 20s.

Contents

The table of contents gives an excellent snapshot of the book and of Guy’s personal journey.

Introduction

1. From the Belly of the Beast to Warren Buffett
2. The Perils of an Elite Education
3. The Fire Walk: My First Steps as a Value Investor
4. The New York Vortex
5. Meeting a Master
6. Lunch with Warren
7. The Financial Crisis: Into the Void
8. My Own Version of Omaha: Creating the Ideal Environment
9. Learning to Tap Dance: A New Sense of Playfulness
10. Investing Tools: Building a Better Process
11. An Investor’s Checklist: Survival Strategies from a Surgeon
12. Doing Business the Buffett-Pabrai Way
13. The Quest for True Value

Acknowledgements
Bibliography and Guide to Further Reading
Index

I have dipped into these chapters to illustrate the style of the book and to give a flavour of the content.

Introduction

The author begins by explaining why he wrote the book.

“My goal in writing this book is to share some of what I’ve learned on my path as an investor. It’s about the education of this investor, not any other investor. This story is not an investment how-to. It’s not a roadmap. Rather, it’s the story of my journey and of what I’ve learned along the way. With my own flaws and foibles and idiosyncratic abilities – and despite my considerable blind spots.

Over the years, I stumbled across some profound insights and powerful tools that I’d like to share with you. In most cases, these are not things that are written about in textbooks. Because it’s a story about how things happen in the real world – and because the real world is messy – the topics are broad in scope. They range from the most insignificant of habits that I’ve 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 wannabe – brash, shortsighted, and entirely out for myself. Then a series of transformations and self-realizations led me on a path from Benjamin Graham’s The Intelligent Investor to Ruane Cunniff to Poor Charlie’s 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.”

From the Belly of the Beast to Warren Buffett

The author begins with the time he felt complete despair, opening with a quotation from Hamlet:

Hamlet.
O that this too too solid 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 on't! ah, fie! 'Tis an unweeded garden
That grows to seed; things rank and gross in nature
Possess it merely.

Act 1, Scene 2, Lines 129-130 & 133-137.

“Have you ever felt that way? Utter self-loathing. Unlike Hamlet, at least I wasn’t 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 I’d come top of my class in economics. Everything had seemed possible – until 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. I’d 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 D.H. Blair’s 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 he’d made hundreds of millions for himself.”

The author goes on to explain how he was persuaded to join the company and how horrible he found it, particularly because of the firm’s practices which he considered unethical.

“As for me, my 18 gut-wrenching months at D.H. Blair had destroyed my clean copybook and brought my career to an absolute low. The resume and reputation I had built for myself at Oxford and Harvard had been reduced to dust. And reputation in business – especially the investing world – is everything. For years after I left D.H. Blair, I felt so sullied by the experience that it was as if I couldn’t wash the dirt off my hands.

…

This book is about my journey from that dark place toward the Nirvana where I now live.”

The Perils of an Elite Education

The author reflects on what had gone wrong.

“My ending up at D.H. Blair was certainly a betrayal of the purposes of my education at Oxford and Harvard. I’d attended two of the world’s finest institutions only to become an inadvertent accomplice in a perversion of the finance industry.

Did my education fail me? Or, even worse, did I fail my education? There’s a larger question to be asked here, too, since I’m also a microcosm of my peer group. Why did so many highly educated people from elite business schools and privileged backgrounds contribute to and exacerbate the financial crisis of 2008 – 2009? Did our education fail us? Or did we fail our education? These questions haven’t been answered adequately by the prestigious universities that groomed all these high-powered creators of economic mayhem.

…

The unsettling truth is that there are elements of an elite education that are positively a disadvantage. I wasn’t aware of these disadvantages at the time that I finished my formal education or for about a decade afterward. On some level, I had my eyes closed and was cruising on autopilot for quite a while, wasting what should have been some of the most productive years of my life. If you had an educational experience that was anything like mine, you – like me – may have to reprogram and rewire yourself in some fundamental ways.

The person who has influenced me most as an investor is Mohnish Pabrai, an Indian immigrant to the United States who has racked up far better returns than I have. He studied at Clemson University in South Carolina, not at Oxford or Harvard. And when Mohnish and I had our charity lunch with Warren Buffett, you can be sure that Warren (who had failed to gain admission to Harvard Business School) couldn’t have cared less where either of us had studied.”

The author goes on to explain how his academic education had infected him with a belief in the efficient markets hypothesis. So much so that when Warren Buffett came to speak to his class at Harvard business School, the author “instantly dismissed him as some speculator who had just gotten lucky.”

The Fire Walk: My First Steps as a Value Investor

The author’s time at D.H. Blair had seriously damaged his employability.

“After leaving D.H. Blair, I had the hardest time finding another job. There was this stain – a damned spot on my hitherto pristine resume that I couldn’t wash out. I had mistakenly given D.H. Blair the benefit of the doubt, but prospective employers were, understandably, not willing to give me that same benefit.

My resume was strong enough that I could land interviews with companies like Goldman Sachs, Sanford Bernstein, and Credit Suisse First Boston. But I was damaged goods, and none of them would hire me. Wall Street insiders who understood D.H. Blair’s reputation looked at me like this: either I’d been too stupid to figure out what was going on, or I was a dangerous fellow who was willing to push the boundaries of what was prudent. Either way, they wouldn’t touch me.”

He explains how a very smart Swiss couple with PhDs from Stanford University told him about the self-help guru Tony Robbins.

“I had been planning to spend the weekend hanging out and relaxing in San Francisco. But one of my Swiss friends, Diana Wais, told me that Robbins was doing a seminar there and that it would change my life. The title of the event was “Unleash the Power within.” I was full of misplaced scepticism, but I was able to get out of my own way sufficiently that I showed up.

In retrospect, I’ve come to see that this is a smart strategy for life: whenever I have the choice of doing something with an uncertain but potentially high upside, I try to do it. The payoffs may be infrequent, but sometimes they’re huge. And the more often I pick up these lottery tickets, the more likely I am to hit the jackpot. This is an application of a powerful philosophy that Mohnish describes in his book The Dhandho Investor: The Low-Risk Value Method to High Returns. As he puts it, “Heads, I win. Tails, I don’t lose much.”

In the book as a whole I have found many commonalities between the author’s experiences and my own. I attended Unleash the Power Within in London in 2003, with my wife. I was so impressed that I then paid for both of us to attend the Tony Robbins courses Date with Destiny in the Bahamas, Wealth Mastery in London and Life Mastery in Fiji. Even though more than a decade has gone by, I still recognise the changes in myself that these courses brought about and strongly recommend them.

“Having opened up to Robbins, I started voraciously reading books by other self-help gurus. Before attending his seminar, I would have rolled my eyes at a book entitled How to Win Friends and Influence People. But Warren Buffett himself credits the author, Dale Carnegie, with having helped him enormously. In fact, Buffett has said that the only diploma he keeps in his office is a certificate confirming that he had “successfully completed the Dale Carnegie Course in Effective Speaking, Leadership Training, and the Art of Winning Friends and Influencing People.” I would have been equally dismissive of Think and Grow Rich by Napoleon Hill, even though it had won over Prem Watsa, the highly successful chairman and CEO of Fairfax Financial Holdings, who is frequently described as “the Canadian Warren Buffett.”

I share these commonalities also. “How to Win Friends and Influence People” was the first self-improvement book I ever read at about the age of 16, and I have been reading self-improvement books ever since. I read “Think and Grow Rich” in my 20s or 30s.

Comparing my own life with that of my children has taught me the simple truth that being born into a wealthy family gives you more choices than being born into poverty.

“Inspired by Robbins and Buffett, I had a growing sense of opportunity. Instead of feeling that every door was closed, I started to realise that it was possible to move forward. I was so obsessed with value investing that I hoped somebody would hire me as a stock analyst. But I still couldn’t get a job.

Then, out of nowhere, my father called from his home in London to suggest that I manage some money for him. It was 1996. At the time, he was probably the only person who would have trusted me, given my D.H. Blair blemish. Born in Israel to German refugee parents, my father, Simon Spier, had founded a small but successful company, Aquamarine Chemicals, which trades and distributes products to protect crops. He had seen my mounting fascination with investing, and he told me, “Guy, if you don’t break out on your own now, you’d be completely nuts.”

That push got me started. He entrusted me with about $1 million. Within a year or so, he invested more, and two of his business associates invested alongside him. As a result, the funds initial assets amounted to around $15 million. I named it the Aquamarine Fund, feeling that I was somehow rejoining the family business. The fund started trading on September 15, 1997.”

The New York Vortex

The author points out the disreputable practice on Wall Street of selling multiple funds as a way of disguising failure.

“The ones that do well are those that then get the marketing dollars and raise more money from investors. The ones that do poorly are either shut down or merged into the better performing funds. In the process, the failures are buried as if they’d never existed while the successes are highlighted.

I’d seen a similar thing happen at D.H. Blair. There, the brokers would put different clients into different stocks. The clients whose accounts went down would be a lost cause, but those whose accounts went up were good for more business. Similarly, the publishers of some investment newsletters have a practice of segmenting their mailing lists and sending different predictions under different titles to different people. They can then make hay with those segments of their overall mailing lists that have done well.

These ruses disgusted me then and they do now. I was determined that I would go through my entire investing career running only one fund so that I would have just one track record. Period. If the long-term performance of that fund is lousy, this will be obvious to everyone; there’s no place for me to hide.

Equally important, my family’s money would also be in that one fund alongside my investors’ money. Indeed, I’ve invested almost 100 percent of my net worth in the Aquamarine Fund. As a result, I’m truly eating my own cooking. This alignment of my own interests and my shareholders’ interests is inestimably important. This isn’t a sales pitch. It simply a matter of pointing out that this approach is conducive to good investing, not least because it enables me to focus on that one portfolio instead of having scattered interests. In this, I consciously modelled Buffett, who has focused all of his investing energy on Berkshire Hathaway for decades.”

Meeting a Master

In this chapter author describes some of the other people who have influenced him.

“In my early years as an investor, I wanted to be a superstar and for other people to recognise my brilliance. By nature, I was a lousy salesman, but I came to understand that this was something I needed to learn. I started to explore how to market and sell myself more effectively. The result was strange and unexpected. What I learned about marketing would change me as a human being – so much so that I stopped caring about selling myself at all.

I had studied marketing at Harvard. But my true education in this field began when I attended the annual meetings of the Sequoia Fund. I became friends there with a delightful American businessman named John Lichter, who was an investor in both Berkshire Hathaway and Sequoia. He gave me a CD of Charlie Munger’s talk at Harvard on the 24 standard causes of human misjudgement.

I quickly realised that I’d been handed a mother lode of wisdom that was unavailable anywhere else, and I resolved to listen to this lecture as many times as possible. It soon displaced my Tony Robbins recordings, and there was an 18-month period during which this was the only CD in my car’s entertainment system. Munger has an astonishing mind. Mohnish Pabrai, who has spent time with him, later told me that Charlie is the smartest guy he’s ever met – even smarter than Buffett. What’s more, Munger has an extraordinary grasp of different disciplines, and this speech distilled and integrated his knowledge of psychology, economics, and business in a way that blew my mind.”

The author goes on to give some specific examples and then introduces another influence.

“Munger helped me to understand these tricks that the mind plays on us, and I began to see these patterns all around me. Equally important, his speech mentioned Robert Cialdini, a renowned academic who had written a book entitled Influence: The Psychology of Persuasion. Munger said Cialdini’s book had “filled in a lot of holes” in his own “crude system” of psychology.”

I already own a copy of Cialdini's book although I have not yet found the time to read it!

The author goes on to explain how he acquired the habit of writing letters.

“What affected me most was an extraordinary story Cialdini told about a Chevrolet salesman, Joe Girard, who regularly wrote holiday cards to thousands of his former customers with the words “I like you” printed on each card, along with his name. This personal expression of goodwill had an unbelievable effect: Girard won a place in the Guinness World Records book by selling 13,001 cars in 15 years. As Cialdini writes, “We’re phenomenal suckers for flattery,” and “we tend to believe praise and those who provide it.”

I was fascinated. Was it really that simple? Was it all just a matter of harnessing this “liking” principle? I have a tendency to go to the extreme: if an idea resonates for me, I don’t just flirt with it – I embrace it to the nth degree. So I decided that I would write three letters per working day, or 15 per week. I began to thank people for giving a great speech, for sending me their investor letter, for providing a great meal in their restaurant, for inviting me to their conference. I would send people cards to wish them a happy birthday. I’d send them research reports or books or articles that I thought would interest them. I’d send them notes saying how much I’d enjoyed meeting them.

At around the same time that I read Cialdini’s books, I also stumbled upon a book that included many of Ronald Reagan’s letters. He wrote to an amazing range of people, and he seemed to have a genuine interest in every one of them. He shared jokes and advice, addressed their concerns, encouraged kids. It seemed to me that this was part of the secret of his success. He wasn’t the most cerebral American president, but he mastered the art of caring for others, and he expressed his care through letters. If this had worked for the president as well as for America’s top car salesman, I knew there was something in it for me.

At first, my letter-writing experiment was quite calculated, since I did it with an explicit desire to improve my business. I had a clear expectation of what the results would be. But it started to feel really good, and I became addicted to the positive emotions that this activity stirred in me. As I looked for more opportunities to thank people, I found that I truly did become more thankful. And the more I expressed goodwill, the more I began to feel it. There was something magical about this process of getting outside myself and focusing on other people.

Tony Robbins had taught me that small differences in how we behave can, over time, have a profound impact and this small action of writing hundreds of letters a year was transformational for me. Initially, it wasn’t easy. I often didn’t know what to write or to whom. So I’d end up writing to my doorman or the person who’d served me coffee that morning. At times, I felt foolish. I didn’t see an immediate impact. My view now is that it can take as long as five years to have a significant effect, so most people give up long before they reap the benefits.

In sending out this cascade of letters, I began to open up to people in a way that I never had before, and I started to see everyone around me as someone I could learn from. As I now understand, this habit of writing letters is an incredibly effective way of compounding goodwill and relationships instead of merely compounding money. Einstein is often said to have called compounding the eighth wonder of the world. But the narrowly financial application of compounding may be the least valuable and least interesting aspect of this phenomenon.

My letter-writing crusade had begun as a way of marking my fund, but it ended up giving me a richness of life that I could hardly have imagined. Rather than becoming a good salesperson, I found myself starting to care about the people I was writing to and to think about how I could help them. The paradox is that, as I became more authentic and discarded my agenda, people became more interested in investing in the fund. This was an unintended consequence of becoming less selfish and more honest about who I am.”

The chapter goes on to discuss the importance of authenticity in more detail and concludes with the successful bid that the author and Mohnish Pabrai may jointly for lunch with Warren Buffett, with the money, $650,100 being payable to a charity, The GLIDE Foundation.

Lunch with Warren

The author explains how during the lunch Warren Buffett taught him the importance of living by an inner scorecard.

“He then went on to explain how crucial it is to adhere to values that you know to your core are right rather than being swayed by external forces such as peer pressure. “It's very important always to live your life by an inner scorecard, not an outer scorecard,” he said. To illustrate this, he then asked is, 'would you prefer to be considered the best lover in the world and know privately that you’re the worst – or would you prefer to know privately that you’re the best lover in the world, but be considered the worst?'”

The author during the lunch recognised just how incredibly intelligent Warren Buffett is; far more intelligent than the author in his opinion.

“In the past, having come top of my class at Oxford, I’d somehow convinced myself that I had the mental capacity to compete with him, and I had hoped that I might one day learn to perform equally well. Seeing him in person that day, I was left with no doubt at all that I could never hope to match him.

This could have been dispiriting, but I found it weirdly liberating. For me, the lesson was clear. Instead of trying to compete with Buffett, I should focus on the real opportunity, which is to become the best version of Guy Spier that I can be. It reminded me of an old joke that Warren likes to tell: “how do you beat Bobby Fischer?” Answer: “play him at anything other than chess.”

I couldn’t beat Warren at his own game. But I could certainly follow his example. What impressed me most about him that day was not just his mental firepower, but the fact that he lived in a way that was totally congruent with his own nature. Nothing seemed to be misaligned. He had evidently spent his life trying to be true to himself.

This became my own goal: not to be Warren Buffett, but to become a more authentic version of myself. As he had taught me, the path to true success is through authenticity.”

My Own Version of Omaha: Creating the Ideal Environment

Warren Buffett is famous for being based in Omaha, well away from the frenetic atmosphere of Wall Street.

In this chapter the author explains how he went about relocating to Zürich to achieve the same objectives.

Investing Tools: Building a Better Process

The author emphasises the importance of having a structured investment process that you follow consistently. He makes the following points, each of which is of course developed in detail in the chapter:

1. Stop checking the stock price.
2. If someone tries to sell you something, don’t buy it.
3. Don’t talk to management.
4. Gather investment research in the right order.
5. Discuss your investment ideas only with people who have no axe to grind.
6. Never buy or sell stocks when the market is open.
7. If a stock tumbled after you buy it, don’t sell it for two years.
8. Don’t talk about your current investments.

An Investor’s Checklist: Survival Strategies from a Surgeon

In this chapter, the author explains what he learned from a surgeon about the importance of checklists.

“The goal in creating a checklist is to avoid obvious and predictable errors. Before I make the final decision to buy any stock, I turned to my checklist in a last-ditch effort to prevent my unreliable brain from overlooking any potential warning signs that I might have missed. The checklist is the final circuit breaker in my decision-making process.

The idea for this didn’t originate with me, but with Atul Gawande. A former Rhodes Scholar at Oxford, he is now a surgeon at Brigham and Women’s Hospital in Boston, a professor of surgery at Harvard Medical School, and a renowned author. He is a remarkable blend of practitioner and thinker, and also an exceptionally nice guy.

In December 2007, Gawande published a story in The New Yorker entitled “The Checklist,” which drew heavily on his experience as a surgeon to explore a problem that is both profound and practical. As he put it, “intensive-care medicine has grown so far beyond ordinary complexity that avoiding daily mistakes is proving impossible even for our super-specialists.” As he explained, this reflects a fundamental challenge that exists in other fields, too – namely, “the art of managing extreme complexity,” and the question of “whether such complexity can, in fact, be humanly mastered.”

His article went on to describe the groundbreaking work of Peter Pronovost, a critical-care specialist at Johns Hopkins Hospital, who designed the checklist after a particular patient nearly died. Pronovost took a single sheet of paper and listed all of the steps required to avoid the infection that had almost killed the man. The steps were all “no-brainers,” yet it turned out that doctors skipped at least one step with over a third of their patients. When the hospital began to use checklists, numerous deaths were prevented. This was partly because checklists helped with memory recall, “especially with mundane matters that are easily overlooked,” and partly because they made explicit the importance of certain precautions. Other hospitals followed suit, adopting checklists as a pragmatic way of coping with complexity.”

I heard of Atul Gawande for the first time last December year because he was the BBC Reith Lecturer for 2014.

I have not yet developed the habit of using a checklist for investing.

However many years ago as a result of going on trips and finding that I had forgotten essential items such as my toothbrush and toothpaste, I developed a packing checklist which I print off for every trip where I need to pack a suitcase. The checklist contains everything I could possibly want to take, including my dinner jacket and by swimming and tennis gear.

The reason is that it is very easy and quick to decide not to take something but very difficult to remember something that you have forgotten to include. Accordingly my packing checklist is completely comprehensive so that all possible trips are catered for. For example, there is a section containing all of the things I might want for an international trip which obviously I just strike through if the trip is domestic within the UK.

Concluding comments

The book is very easy to read, and Guy Spier emerges as a very likeable and open character. I was particularly struck by how much we have in common in our investment and other reading and our interest in self-help and improving ourselves.

I recommend the book to anyone who is interested in investing and who wants to get better at it.