With Guy Spier, Investor, Author of, The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom and Enlightenment
Steve spoke with Guy Spier, a Harvard MBA who shot to fame in June 2007 after he bid $650,100, with Mohnish Pabrai, for a charity lunch with Warren Buffett. Spier manages the Aquamarine Fund that is inspired by and styled after value investing philosophies of Buffett and Ben Graham. He is the author of The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom and Enlightenment.
Harvard As An Inadequate Education
Guy reveals in his book that his Harvard education may not have been the best preparation for the real world of business. He learned how to quadratic equations but missed out on acquiring important real-world skills such as learning how to read people, learning how to say no, and learning how to fail. An analogy Guy uses is that of a Ferrari – “I was like this finely tuned Ferrari. The problem is that I came out of school and a finely tuned Ferrari doesn’t work very well on a hardy mountain road.”
A Difficult Beginning
Guy’s first job after leaving university was with a less-than-ethical firm. Steve shared that he had a similar experience, starting out working with a major investment firm where the culture was also lacking in ethics. Guy related that despite having studied moral philosophy in college, he didn’t know how to handle finding himself in such a morally questionable environment. He didn’t seem to have the ability to just say “no” and walk away. He just wasn’t prepared to deal with the situation.
One lesson he came away from that experience with is that it might be a helpful part of one’s education to go through working in what he calls “bad ponds”, just to learn the basic fact of life that there are some bad working environments out there that you don’t want to get caught in.
Picking Up A Book Changes Things
Guy talked about how picking up Ben Graham’s book, “The Intelligent Investor”, which had an introduction written by Warren Buffett, began to change things for him. Steve again noted a similar experience – reading Lowenstein’s biography of Buffett and crediting the inspiration of Buffett with helping him to find a moral compass in his life.
After leaving the unethical brokerage house he was working for, Guy met Mohnish Pabrai, a fellow immigrant to the United States, who shared an interest in Warren Buffet. Pabrai had started an IT consulting business, sold it, and then started investing in a fund modeled on Buffett’s Berkshire Hathaway. Guy got the opportunity to meet Mohnish by practicing a valuable real-world habit – that of sending handwritten “thank you” notes. As Guy tells it, Mohnish was “the person who really changed my life”.
Meeting Buffett And Learning Some Lessons
Through his association with Pabrai, Guy got the luncheon opportunity to meet Warren Buffett. What initially struck him was Buffett’s seemingly boundless energy. But what really impressed him was the fact that Buffett’s primary focus was not, as Guy had expected, making Berkshire Hathaway successful, but instead making sure that he never did anything he wasn’t personally comfortable with.
The truly profound insight he gained from talking with Buffett was that Berkshire Hathaway was built the way it was precisely because Buffett, rather than someone else, was the person who built it. The lesson for Guy? – He shouldn’t aspire to be Warren Buffett or any other legendary investor; he just needed to be himself. That lesson has guided him in developing and managing the Aquamarine Fund.
A Word Of Encouragement For Individual Investors
In closing, Steve asked Guy about his belief that individual investors actually have an advantage over professionals. Guy explained that individual investors have an edge by virtue of the fact that they aren’t burdened by things such as trying to meet incentive quotas or keeping clients happy. Individual investors are free to simply follow their own instincts and make the best investing decisions they can.
To learn more about Guy Spier, pick up his book, The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom and Enlightenment.
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Steve Pomeranz: From time to time, I like to reach back into my audio files and grab a favorite interview, and this is one of them. It’s from a 2015 talk I had with Guy Spier, winner of the annual charity lunch with Warren Buffett. In his book, The Education Of A Value Investor, Guy discusses how the lunch changed his life and how his elite Oxford and Harvard education may have hindered, rather than helped him. I hope you enjoy it. Here we go.
My guest is Guy Spier. He is a Zurich-based investor. In June 2007, he made headlines by bidding $650,100 with Mohnish Pabrai for a charity lunch with Warren Buffett. Since 1997, he has managed Aquamarine Fund, an investment partnership inspired by and styled after the original 1950s Buffett partnerships. He’s an MBA at Harvard business school class of ’93 and holds a first-class degree in politics, philosophy, and economics from Oxford University. And while at Oxford, he was a contemporary of the past Prime Minister of Great Britain, David Cameron. He’s got a new book out. It’s a wonderful book. The title is The Education Of The Value Investor: My Transformative Quest For Wealth, Wisdom, And Enlightenment. It’s in hardcover and as I said, it’s just coming out. Guy Spier, welcome to the show. It’s such a pleasure to have you.
Guy Spier: Steve, it’s a pleasure to meet you as well. And by the way, the guy that you just mentioned, I think I’d like to meet him too. He sounds pretty good.
Steve Pomeranz: He is pretty good. Hey, listen, I never mention where my guests go to school, but in your book you talk a great deal about the kind of education you received at these two elite schools and how it actually may have hindered you in your investment career. As a matter of fact, you asked yourself the question, “Did my education fail me? Or even worse, did I fail my education?” Please tell us about that.
Guy Spier: Yeah, I think that what I learned, and it took me more than 10 years really for the pennies to start to drop, that what I needed in the business world and the world of life and the world of real life, was a kind of hardy four by four, is the analogy that I use. You need to be good at many things, or you need to have a reasonably good ability at many things. Like evaluating people, knowing how to say no, figuring out if you’re in a morally compromised situation and just move away from it, learning how to fail. All of those kinds of things, which are kind of the practical life tools that I think that if I had gone and worked as a manager at McDonald’s or as a burger maker at McDonald’s and then worked up the ranks, I would’ve learned.
But what I graduated with was, I knew how to do quadratic equations when I left school. I knew what the root of [inaudible 00:02:41] Dornbusch exchange rate overshooting model was. And I knew how to write really great essays. And the analogy I use is if learning how to say no in the right situations, learning how to fail gracefully is a kind of a four-by-four type skill. I was like this finely tuned Ferrari. The problem is is that I came out of school and a finely tuned Ferrari doesn’t work very well on a hardy mountain road.
Steve Pomeranz: Right, so your education had a lot to do with focusing and following what the success route was in order to excel, but when it translated to the real world, it really didn’t come in very handy.
Guy Spier: Absolutely. I think that if I would have followed the very, very narrow standard paths that you get out of my undergraduate institution or out of Oxford or out of Harvard, so out of undergraduate… If I would have gone into the government or if I would’ve stayed in management consulting or out of business school, if I had’ve stayed in management consulting or gone to one of the sort of well-known and well-trodden paths, I would’ve done well enough, I think, because they’re almost expecting you just to have those skills.
I didn’t want to take that kind of path. I wanted to have a life in business and there those skills… I think that maybe 10 or 20 years out those skills and that knowledge might be coming helpful as background that you know. My first job out of business school, I was in there with some very rough and tumble, aggressive New York types who were out to win deals and sell things. I was a little like cannon fodder, I think might be the right expression.
Steve Pomeranz: So in your early years, you basically spent time working for a company that was really less than ethical and actually, I had a similar experience as well. I worked for major investment firms when I just started out and their culture was less than ethical as well. You know, we both realized early that we didn’t really want to live this way, but your inability to kind of perhaps see the real world as it was, based upon what you’re saying on your education, where you came from was maybe one reason that you made this very serious mistake. Tell us very briefly about that. Then when that was over, take us to what happened next.
Guy Spier: Yeah, I mean in the book, I really contrast it and it really is shocking to me today. I mean I studied at undergraduate, I studied political philosophy, and I studied moral philosophy. I think that the people that I studied with would have said, in this very sort of important voice, “We’re producing graduates who know how to engage in moral reasoning.” But I was in this environment where somewhere I could tell that this wasn’t right, but I didn’t know what to do about it because my mind wanted to go to this sort of moral reasoning or what that has been termed, analysis paralysis. In contrast to other people that I know who would have just said, “This is stupid, why are you doing this? Just walk away.” And I had to ask myself why I couldn’t just call it what it was.
Just going back to the university experience, I was good at taking exams. I learned to be good at university. So I didn’t realize it, but you tell a fish that it’s swimming in water and the fish says, “What’s water? I have no idea what water is. This stuff around me, I take it for granted.” And what I took for granted was that when you’re in an environment, you figure out the rules and then you kind of play the rules of the environment to succeed. Except that I’d never been in an environment which was morally compromised. So there I was, and my whole mindset was, “How do I figure out how to succeed here? How do I learn how to do it?” And I didn’t have the judgment to say, “Maybe I just don’t even want to be here.”
Steve Pomeranz: Yeah, maybe this was a pond that you didn’t really want to swim in, but you had no way to tell.
Guy Spier: Yeah, exactly. So, I think that if I were a teacher, which I’m not, based on the experiences that I’ve had, I’d want to have my students experience some bad ponds, if you like. There are not just good ponds in the world. There are bad ponds. As you said, the right thing to do is just to walk away.
Steve Pomeranz: I think those that are listening to us now that are younger, may find themselves in similar situations like this and it does take some courage and some self-analysis to say, “Who am I really? What is important to me and does this really fit who I am?” And make a decision once you realize that you understand what water is and maybe what the quality of the water is that you’re currently swimming in.
Guy Spier: Then what I would say is… It’s part of why I wanted to write the book and why I have this immense and deep well of gratitude for Warren Buffett, because I knew things weren’t right. I couldn’t put my finger on it. And, of course, by this point in my time at this firm, people know that I wasn’t seeing the whole everything of what was going on. So what I describe, what I can now see clearly, at the time, I didn’t see clearly at all.
But you know, I walk into this bookshop. I was picking up all sorts of books at the time, but one of the books I picked up was The Intelligent Investor Introduction by Warren Buffett. I became absolutely fascinated and I just wonder, Steve, it’s just such an interesting question and I don’t know what your story is. Maybe you can tell me a little bit if it’s appropriate, but I don’t know if Warren Buffett had not been there as an example… I’m there reading every day in my lunch hour, Lowenstein’s biography of Warren Buffett. I just wonder if I might’ve stayed there too long. So I really feel like Warren Buffett wasn’t aware of it. He didn’t even know who I was, but in a certain way, knowing who he was and what he’d done gave me an example that allowed me to see a different way of living and allowed me to see that I really needed to leave.
Steve Pomeranz: The book is The Education Of A Value Investor: My Transformative Quest For Wealth, Wisdom, And Enlightenment. It’s a new book just out. The author is Guy Spier, and he is with me today.
I totally understand. For me, I was searching for a moral compass and didn’t really know what the details were, but I found them through Warren Buffett. It wasn’t because he was preaching it, he was just living it. I said it just felt right to me. It was something that I could read and I can do on my own because I like to do things on my own and do them my way. But I was able to use him at least as a moral compass. We both discovered Warren Buffett around the same time, but you know, you went a little bit further here because after that experience with that company, you started to put yourself out and started to meet some great investors. One of whom was Mohnish Pabrai. Tell us who he is.
Guy Spier: Yeah, Mohnish Pabrai. If I can just sort of bring you to then, some of my choices that I made after I left that brokerage house were not of my own making. It was that I didn’t have any other choices available to me because I’d tarnished my copybook so badly that a lot of people didn’t want to hire me. But, well, Mohnish Pabrai is this… Funnily enough, I now live in Switzerland, but I was an immigrant to the United States and Mohnish Pabrai was also an immigrant into the United States who had also discovered Warren Buffett around the same time we had. He had started a IT consulting business, which he had sold and then he’d started investing primarily his own money in a fund modeled on Warren Buffett’s.
I would not have met him if I had not been reading up on everything Warren Buffett and, of course, Berkshire Hathaway and Charlie Munger related. And so the way I found myself in front of him has to do with the fact that I had decided that writing thank you notes was a good thing to do. Handwritten thank you notes. An analyst or an intern of mine had taken me to his partnership meeting, and I had written a thank you note to Mohnish Pabrai, and he responded to it. Had I not written that thank you note, which was one of thousands I’ve written in my lifetime, I may never have met him. In some ways, I think that obviously, Warren Buffett is more famous, but I think that the person who really changed my life more was Mohnish Pabrai than Warren Buffett. I think having changed my life, I got to have lunch with Warren Buffett who accelerated my learning. But Mohnish Pabrai came first, and if it wasn’t for Mohnish Pabrai, Warren Buffett wouldn’t have happened.
Steve Pomeranz: So tell us about your lunch with Warren Buffett. What can you share with us about that?
Guy Spier: I will tell you, Steve, that I was a little sick at the time because I was just so nervous. I became sleepless in the three or four days beforehand. I would tell you that afterwards I was utterly exhausted. I can tell you that Warren Buffett was not utterly exhausted. He was energized, and his mind is so powerful and so penetrating that I’ve read this elsewhere… Alice Schroeder who wrote that biography of his, has written the same thing. He leaves people exhausted, but I think that the thing that really floored me was that I expected on some level to see that Warren Buffett wanted to build Berkshire Hathaway into this very successful and admired company that it is today. I’m not saying that that’s not a goal of his, it clearly is, but it’s not the most important goal. What really floored me was how it became really clear to me that he did not want to do anything that took him out of his sense of alignment and comfort zone.
It came across to me when I asked him this question, I said, “You know, Warren Buffett,” At first I started calling him Mr. Buffett. Then eventually he said, “Look, Guy, first of all, Mohnish’s daughters will call me Warren and they were already calling him Warren and then eventually you will, but you might as well just start now.” He was working hard to put us all at our ease. I had recently read this book, The Starfish And The Spider, and the book describes how spiders are a kind of like, you pull off a spider’s leg and it can’t grow the leg back, but if you pull off the leg of a starfish, it can. So starfish are more resilient creatures. And I kind of described to him how I thought Berkshire Hathaway was a kind of a starfish. It had so many parts to it that one part could fail but it wouldn’t affect the rest, which is not necessarily the case in other businesses where if one part fails, everything fails.
So I asked him the question, I learned to say, “Warren.” I said, “Warren, did you intend to build it this way when you started off 20 years out?” And the way I remember it is, I don’t know if he actually did this, but it was like he put his hand up to me and said, “Guy, I need to explain something to you. You said Berkshire Hathaway is the way it is because it suits him. You said it suits him for it to be that way.” He said, if he’d had a different personality, Berkshire Hathaway would have been different, and I don’t remember if he said this, but what I took away from it is that if he would’ve had a personality that was more like Jack Welsh, then Berkshire Hathaway might’ve looked more like GE than like Berkshire Hathaway.
I think that that’s such a profound insight because I think that many of us in, at least, the professional investing world, are trying to make ourselves into something. I didn’t really understand, and it didn’t really sink in for another six to eight months afterwards that there was no point trying to be Warren Buffett. There was no point in trying to be Bill Ackman. What I needed to be George Soros or anybody else, I needed to be myself.
Steve Pomeranz: You know, Guy, I want to ask you one other question here because we are running out of time. You’ve stated that you think individual investors have a big advantage over the professional investor. We’ve got about a minute left. Tell us why.
Guy Spier: Well, individual investors don’t have all of the incentive biases and all of the noise that is happening for a professional investor. Professional investors are worried about end of year evaluations, about their clients calling them up and asking them why something happened or why something didn’t happen. So as a professional investor, one way or another, you always have somebody looking over your shoulder, and there’s an awareness of that. I think that the best decisions are made when we go into a room alone and ask ourselves, “Am I comfortable doing this? I, with me myself.” And that is something that an individual investor is ideally suited to do. Individual investors should trust their own instincts. Their instincts are right. Don’t let Wall Street convince you otherwise.
Steve Pomeranz: That’s great advice. The book is The Education Of A Value Investor, and you can see why he named it so. There is so much more that we cannot get to in this interview. The subtitle is My Transformative Quest For Wealth, Wisdom, And Enlightenment. You can see that Guy really goes into depth and really talks about his personal experiences and how he was changed, and how he’s actually been able to create the world around him to suit the way he does it best by using models like Warren Buffett and Charlie Munger and Mohnish Pabrai.
Guy, thank you so much for joining us. Hope to have you on again.
Guy Spier: Steve, it’s my great pleasure and I want you to know that I think you do an incredible service to your listeners. I’m very impressed with your show.
Steve Pomeranz: Thank you so much. Take care.