Summary of the book “The Education of a Value Investor” by Guy Spier
Guy Spier is a value investor who manages a hedge fund called Aquamarine funds based out of Zurich, Switzerland. His hedge fund is based on the original principal of Buffet partnership of 1950.
He has an MBA from Harvard Business School from the class of 1993 & and holds a First Class degree in Politics, Philosophy, and Economics from Oxford University.
Guy has worked as an Investment banker in New York & and as a management consultant in London and Paris.
After leaving the investment banking firm he started his fund from his New York apartment with his family & friends with a modest amount of funds on 15th September 1997.
Guy Spier with Mohnish Pabrai paid $650,100 for a lunch with the greatest investor of all-time Warren Buffett with was held on June 25, 2008, which he calls a bargain.
This book is more of a biography than an investment book, the author has described his journey from his college days to the present day.
Following are the 5 takeaways from the book.
1. Investing Environment.
Describe his time in New York during the 2008 crisis where there was blood on the street, the stock market was plummeting. He had a rented office wherein many stock market hedge funds operated during that time he describes that there was a lot of tension around him where the stocks were available at a very cheap price.
He had learned that there was a major bubble in the housing market after listening to a superb presentation on Lehman by David Einhorn at the value investing Congress.
So he had totally sidestepped it by not investing in a financial company or companies dependent on large amounts of finance.
But the environment was too depressed to make rational decisions during the same time he had lunch with Buffett after which he decided to move out of New York.
In the book, he writes however smart you are it’s very difficult to make rational decisions during his times.
He also writes
“The financial crisis had shown me beyond doubt that managing the non-rational part of my brain had to become an integral part of managing my stock portfolio. It also highlighted how hard it was for me to do this in Manhattan. We’re all wired a little differently, but New York- with its relentless energy, competitive spirits, and pockets of extreme wealth-accentuated some aspects of my own rational nature that are conducive to good investing”
So in order to navigate this mental bias moved to Zurich, Switzerland in the summer of 2009.
2. 8 Investing Tools
1. Stop checking the stock price.
In share, prices are influenced by greed and fear which will ultimately be set off against the intrinsic value and the profits earned over a longer period of time
2. Don’t buy when someone is trying to sell you something.
In the stock market, there are various advisory, tips services or different type of services which are not required for investing success or which may hamper your investing success due to various reasons so next time when someone is trying to sell you a something do proper research before going through.
3. Don’t talk to the management.
The author describes that management is people who are a good salesman that is the reason why they have a reach to the position of CEO, etc. They can easily influence your investing decisions.
4. Gather investing research in the right order.
Guy says that if a person during a party talks about a stock he immediately stops him and tells him that please send me in a written form about the company. We are better off reading from the public filings such as annual reports because they are mostly unbiased because a slight error can cost a company a fortune if it ends up in court. Reading a book on the founder can also be helpful.
5. Discuss your investment only with people who have no benefits.
Talk to the people who have no benefit from your buy or sell call for a particular investment. this will decrease the influence of the buyers of an individual over a particular action and give out a rational idea.
6. Never buy and sell in an open market.
The author learned this idea from Mohnish Pabrai, not buying & selling during the open market reduces the influence of share price fluctuations.
7. 2 years rule.
Under this rule, an investor should not sell his or her holding before 2 years period by following this idea an investor is not influenced while buying itself so the author asks himself a question before buying a stock What if the stock falls 50% after buying will I’ll be able to live through it. And then buy according to the answer.
8. Don’t talk about your investment with others.
The human mind is sort of like in human egg, wherein when a sperm goes into the human egg closes in the same way; when an idea goes into the human’s mind it’s very difficult to get it out or to make a rational decision while having that idea in mind.
3. The checklist.
An entire chapter is based on this topic were in the author read about an article which was sent to him by Mohnish Pabrai in which a surgeon from New York had named Atul Gawande hard wrote about a process wherein the operation room the surgeon had to check all the necessary things had been taken care off before the operation is conducted; which resulted in saving many lives due to small tiny mistakes.
These lessons were learned by him from observing his own mistakes and inspired by the airline industry where a pilot has to go through a checklist before taking off.
The checklist should not be a wish list it should be e pulled out when all the research is completed and check whether all the points are in place or not, for example, does the company have a moat, the debt levels are not a concern, does the company is influence by the raw material prices, etc.
4. Our own mental wiring.
Mental wiring means a person’s mental markup which he has learned or got influenced by his life experiences. The mental wiring of a person is rigid and it may not be possible for an intellectually smart person likewise Guy Spier to change, it is so important to understand.
For example, you can teach investing to the person in the most detailed manner, but it would be very difficult to teach him how to be patient and believe in compounding which is linked to delayed gratification.
The author’s great grandfather was affluent rich in Germany. But during the Hitler times, it got destroyed, his family wealth, and his father and others had to work hard to get it all back which made him a risk-averse investor.
5. Inner scorecard.
During the lunch, Warren Buffett told Guys “It’s very important always to live your life by an inner scorecard, not an outer scorecard”.
This means that a person should always set his own rules of life & not get influence by the outer world.
For Example:- If a group of a salesman and forcefully selling on false promises, others should not follow. Other people should preserve their integrity and move on to something else.
In the book, Guy Spier has given an example of how analysts and other investors wanted Warren Buffett to move his insurance business domicile to Bermuda where other insurance companies have their domicile but Warren Buffett refused.
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