We had the pleasure of hosting a live online Q&A with value superinvestor Guy Spier in the summer of 2015. With registrations at maximum capacity of 1,000 people more than a week before the call, Guy was able to get through only a small subset of the many insightful questions asked of him. The one-hour Q&A session ended up lasting nearly two hours.
Listen to the Q&A session with Guy Spier:
Read a transcript of this session, translated into Spanish.
The following transcript has been lightly edited for clarity. However, transcription errors likely remain. If in doubt, please listen to the audio replay.
John Mihaljevic, The Manual of Ideas: A very warm welcome to this Q&A session with Guy Spier. It’s such a pleasure for me to welcome here in Zurich my friend, mentor and value superinvestor, Guy Spier. He is the head of Aquamarine Capital Management and has written a wonderful book, The Education of a Value Investor.
Guy Spier: It’s a real pleasure to be here and thank you, everyone, for listening in. I don’t know that I even have one-hundredth or one-thousandth of the wisdom that Warren and Charlie do, so I’m both honored and a little bit surprised and bewildered. I want to make sure that we hear from the audience, so I’ve got the questions up there. I’m going to go to a few of them and then, John, I’ll come back to you to get some people to respond and just hear what people are thinking, so it’s interactive. Just to let you know where I am, I’m at my office in Zurich. Behind me, you should be able to see this bust of Charlie Munger. I gave one of those to John Mihaljevic, but then he gave it away to the Dakshana Foundation. Then also behind me, you can see a photograph of Warren Buffett and Charlie Munger, so I’m at my office at my desk.
Onto the questions. We’ve received a series of questions from Ben Schmidt. One of the questions that Ben has asked says, “As I perceive it, Aquamarine is a one-man show. Where does Guy Spier see the merits of solitary analysis versus having a regular sparring partner on investment ideas?” There’s so much evidence that shows that investment decisions are better taken by an individual rather than a committee. I’m, in a way, a one-man show by design, but that doesn’t mean to say that I don’t have many conversations about investments with all sorts of people. In fact, a lot of what I do here at my office is develop relationships with those people. It’s just that I don’t want to have those people as employees. I would also say that I’ve distinguished between two kinds of cognitive styles when it comes to discussing investments. There are people who want to have a really hard debate and express their views vociferously with some kind of sparring partner. I don’t think that that works very well for me because that when I express my opinions vociferously, I get caught into something and I will end up defending something that maybe I don’t agree with. I reduce my ability to change my mind, so I prefer to be around people who are helping me to keep my pond calm, so to speak.
Going to the second question, “Do I review my investment theses on a systematic and regular basis?” I like to believe that I review them on a regular basis, although it has not been systematic. I was deeply influenced by Rolf Dobelli, who wrote about how he considers news to be like sugar when it comes to a diet. You have your meats and potatoes, which is what we should be eating and news is like sugar. A tendency to want to try and review ideas too often may result in us going after news or going after the sugar of the investment world. My experience has been that what Rolf Dobelli says is the big events, you’ll hear about anyway, even if you don’t read a newspaper. I’d like to believe that the big events that happen to the portfolio companies, I’ve done sufficient research on them before I went into them and am around enough stuff and enough relationships that I hear about those companies, even if I’m not anally following them on a daily basis.
That said, as part of the registration for FINMA, I’ve had to give them a policy both on pre-trade checks, so I need to check with my risk department before I exit these trades and I need to write up a rationale. I agreed to that because I felt like it was a good idea. I felt like making myself write that up before I trade and once a quarter is a good thing. I guess, Ben, I am going to something that is more systematic. The key, though, is that I don’t want to spook myself out of an investment idea, so I looked at Moody’s recently. I sold out of Moody’s after the financial crisis. I had a 3x on it when I sold it, but I didn’t have about a 7x that I could have had. If I would have just not done anything, I would now have about a 15x, I believe. I allowed myself to be spooked out of it. We should realize that when bad events are happening, that will make us want to revisit our thesis and if we spend too much time in that kind of loop, we can convince ourselves an idea that is actually a perfectly good idea is not.
The example I’ve given – I don’t know where I gave it last – is that if you’re landing an airplane and I don’t have a pilot’s license, but I did take lessons as a child as far as landing an airplane, you have to keep your eye on the horizon and let the ground come up in your peripheral vision and fly the plane as you land it. If you look over to see where the ground is, the plane will roll. The plane goes where your eyes go and so the key in investing is to keep our eyes on the lookout for great businesses at discounted prices to survey the portfolio, but without getting into a deep dive or unbalanced dive on something that could lead us to get spooked out of the investment because often some of the investments that work really well have got hairy stuff associated with them. I’ll stop at that question. I’m going to do a couple from Nitin Khandkar, who also sent a number of questions in and then I’m going to go to Ben. Ben, I hope you’re online, just hear what you have to say and then I’m going to go to Nitin and hear what you have to say. Nitin’s first question is a review of Aquamarine Capital’s holdings from the last three quarters reveals that almost all its holdings are in US and European companies. What are my views on emerging markets? Would I consider investing in emerging markets? If yes, what is my favorite emerging market from a macro perspective?
It’s interesting to get this question in the light of an adjustment from China. A couple of days ago, I had a whole bunch of radio and TV stations asking me if I would comment. I ended up not doing any commentaries, so I can give you my commentary now, which is that I’m blown away by the way the world overreacted. Everybody knows that China and other emerging markets, they’re going to go through dips. They’re going to go through changes and adjustments. France is coming up against the demographic issue. It probably also needs to convert from being a production-based economy into more of a consumer-based economy. I don’t think there’s any doubt in anybody’s mind that that’s going to happen, so from an investing perspective, the turmoil over the last few days is a buying opportunity, nothing else.
Nitin, I do the very best I can to see the world as just one economy and one that’s sort of a place from which to select companies to invest. Having said that, nobody can ignore the fact that the institutional environment in the United States is the best in the world and we have various markets like the UK and others that are very, very good, but I’m trying to find things that I can buy nonetheless of where they’re based. To give an example, anybody who’s studied Berkshire Hathaway understands why Coca-Cola’s a great business. If I can find a Coca-Cola-like business in the Philippines or in Vietnam, yes, I would like to believe that I would invest, all other things being equal. I did that in the Philippines with a company called Alaska Milk that was written.
In general, when it comes to which emerging I like from a macro perspective, there’s no question that Indonesia’s really interesting given what’s happened, but I just spent a lot of time in Mexico, the first six months of this year and despite a lot of problems that Mexico has, it’s on the right path and I believe there’s another thing that happens. For example, Brazil is suffering right now, but one of the things that happens is when people get richer and people in Brazil have been getting richer, they tend to be more willing to focus on the negatives in their economy and in their country. That gets reported in the news an then there’s a bit more of a negative spin on that country. The best thing to do is to ignore a lot of that stuff. What I’m looking for is better businesses that I can understand at reasonable prices and I’ll look for those everywhere and anywhere and I’m not trying to say, “I need to invest in India,” or “I need to invest in Brazil.”
Another investment I’m about to probably do a post mortem on for my partnership meeting is this company, CRISIL. The fact is it was based in India was secondary to the fact that I was really interested in investing in the credit agencies. The commonality with Mohnish Pabrai’s portfolio—and it goes through Citigroup, Bank of America, GM, Fiat Chrysler, Horsehead, POSCO—how does my analysis and investing style differ from that of Mohnish? The first thing and this is not false modesty, Mohnish Pabrai is a better investor than I am. He’s a better investor because he has less fear of things that look risky to me and is able to act decisively in size when he sees something. I am more fearful and I’m less able to act decisively and with size. I have a harder time distinguishing with risk and uncertainty. Mohnish is able to see very clearly in many circumstances where something that is just risky to and I’m scared stiff about, Mohnish Pabrai can take a subset of those where he can show this is not actually risky, it’s just an uncertain outcome and can analyze it differently, but I’ve benefitted enormously from conversations with him.
In some cases there, Nitin, the one that was certainly the case, it was Bank of America. I figured out Bank of America I’d like to believe – Mohnish may think differently – either at the same time or even before Mohnish did, so not necessarily all ideas Mohnish figured out first, but whether it’s from conversations or from us engineering some of these investment decisions, the fact that it’s passed somebody else’s filter is a great positive and it took me a long time to learn that ‘not invested, invented here’ syndrome is very bad when it comes to investing. You really want to buy the ideas that have been vetted by other people if you can. It’s a much better way to invest, I believe. I will stop there and, John, perhaps Ben or Nitin, either of them want to have a comeback for me or some supplemental before we move onto other people.
MOI: A question from Ivan Kurniawan: He asks about you and Mohnish in relation to Benjamin Graham. He says, “Use the 35% minimum margin of safety as a yardstick before investing. What do you use as a yardstick in general?”
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