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BookNotes: The Education of a Value Investor By Guy Spier

My notes from the most compassionate investing book I’ve ever read.

Shiven Tandon
Shiven Tandon
9 min read

Table of Contents

Hi there!

Last week’s article talked about the change in how financial services are bought and sold. Today’s article (Background music🎧) covers my notes from the book - The Education of a Value Investor, by Guy Spier.

Guy is a 55-year-old investor who founded the Aquamarine Fund, through which manages a total sum of $250 million. He was born in South Africa, has lived in England, Israel, Iran and USA, and is currently based out of Zurich, Switzerland.

I just go ahead and say it, I absolutely love this book; it’s the most humane investing book I’ve ever read. When I was starting out as an investor, I’d often feel overwhelmed by complexity, and by the sheer brilliance of some of my idols. This books showed me that it’s okay to feel that way. That having a rocky start to your career is okay too. Guy has literally poured his heart out to make the reader feel like they’re being guided by a dear friend and well-wisher.

The book has thirteen chapters; each heading below will cover my top takeaways, and my favourite quote from each chapter. I hope you’ll enjoy it! :)

Ch 1: The Belly of the Beast to Warren Buffett

Guy had always been a phenomenal student — finishing top of his Economics class at Oxford University, England, and then going on to complete his MBA from Harvard University, USA. But he threw it all away with one recklessly foolish career move. Instead of joining reputed firms like JP Morgan or Goldman Sachs, he picked an infamous firm called D. H. Blair. Determined to blaze his own trail and be more entrepreneurial, he ignored the warnings. In time, he realised that to be successful in that environment, he had to completely forego his morals.

He admits that he stayed there for far too long (18 months); since he was wary of looking like a failure, of admitting his mistake, of having that reputation of being a quitter follow him in the future. He cared more about how people viewed him, than about how he viewed himself.

Then he stumbled upon the book — Buffett: The making of an American Capitalist by Roger Lowenstein (on my reading list too), which showed him how Buffett lived a life which was both honourable and successful. He immediately felt drawn to Buffett, and was set on changing his life for the better.

“It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that, you’ll do things differently.”

Ch 2: The Perils of an Elite Education

Here, Guy asks, “Why did so many highly educated people from elite business schools and privileged backgrounds contribute to and exacerbate the financial crisis of 2008-2009?”

He goes on to state that intellectually dazzling concepts often celebrated in formal education aren’t useful in real life. Investors should educate themselves in ways that are more practical and effective in the real world.

"An elite education gives one the mental equivalent of a Formula 1 Ferrari, when in the real world, one needs a hardy Jeep, that can operate in various environments."

Ch 3: The Fire Walk: My First Steps as a Value Investor

After leaving D. H. Blair, Guy couldn’t find another job. He slowly started recognising his intellectual snobbery and then, letting it go. That, he says, was the first step in re-wiring his brain, and building the humility to learn from everyone. He dropped his biases and attended a session by famous self-help guru, Tony Robbins; which showed him that it’s always better to act, than be stuck in analysis-paralysis. From reading various books, he learnt life lessons like — using peoples names while addressing them, showing genuine interest, practising positivity, and so on. After religiously studying Buffett, he started actively asking himself, “What would Buffett do, if he were in my shoes?” — modelling his behaviour after his hero.

Despite all these positive changes, he still couldn’t find a job. That’s when his dad called him and asked him to manage the family savings, hence giving birth to the Aquamarine Fund. Here he says something that takes a lot to say, for young professionals who’ve inadvertently developed a sense of intellectual pride:

“For the longest time I wanted to hide or, at least, obfuscate this aspect of my journey. I desperately wanted to prove to the world that my achievements were entirely my own, and it seemed like an unfair advantage to get started with my father’s help. But I was grateful for the opportunity and daunted by the responsibility.”

Ch 4: The New York Vortex

Here Guy talks about how many standard practices at Wall Street are designed to make the funds wealthy, often at the expense of the investor. He talks about skewed fee structures, ostentatious offices and lifestyles of fund managers, and admits to getting sucked into it (when he lived in New York). He does this while extolling Buffett’s structure of performance fee only (above a hurdle rate), which he has since applied in his fund.

Furthermore, he talks about the benefit of seeking help, and surrounding oneself with high-quality individuals that one admires and respects.

"It’s difficult, if not impossible, to become successful on your own. The greatest opera stars have singing teachers; Roger Federer has a coach; and Buffett meets regularly with like-minded people."

Ch 5: Meeting a Master

Here, Guy talks about how he met and became friends with the famous investor, Mohnish Pabrai (His book was the subject of my previous BookNotes post). Guy and Mohnish are good friends, who teamed up to bid for and win the eBay auction of — the annual charity lunch with Warren Buffet in 2008.

Guy developed the good habit of writing letters to people. In the beginning his letters were well calculated, done with the desire of winning clients. But over time, the positive emotions it stirred in him, made him addicted to it. It was one such letter to Mohnish, after attending the investors meeting of Pabrai funds, that started off their relationship. The letter simply said: (sharing this to exhibit how little it takes to allow serendipity to strike. One cannot win a lottery without spending on buying a ticket.)

“Dear Mr Pabrai, Thank You so much for having me as a guest at your partnership meeting. I learned a lot about life and investing, and I also met some great people. Warm regards, Guy Spier.”

Ch 6: Lunch with Warren

This chapter covers Mohnish’s and Guy’s charity lunch with Warren. It’s filled with life lessons from a master. I’m enumerating them here.

  1. When you begin to change yourself internally the world around you responds.
  2. If you encounter someone who has exceptional qualities, it’s worth investing the time and energy to travel, so that you can be in their force field.
  3. Be authentic to the core. Have no facade. Give energy and attention to the people you interact with. Relish your work.
  4. Be very, very kind. (Inferring this lesson from — “Warren, who had brought gifts for the two girls (Mohnish’s daughters), beamed with pleasure and goodwill — more like an amiable grandfather than one of the world’s richest men and the greatest investor of all time.")
  5. Do your homework before meetings, so you can make meaningful conversation, and give thoughtful complements.
  6. People will always stop you from doing the right thing if it’s unconventional. Learn to live by an inner scorecard, instead of an outer scorecard.
  7. Train yourself to stay even-keel through flattery.
  8. Learn to say “No”.
  9. Live in a way that is totally congruent with your nature.
“It you’re even slightly above average as an investor, who spends less than you earn, over a lifetime, you cannot help but get very wealthy — if you're patient.”

Ch 7: The Financial Crisis: Into the Void

When the financial crisis struck, Guy was around 12 years into running his fund, and around 42 years in age. The force and impact of the crisis was brutal; his fund was down 46.7%. He saw that his (employee) analysts started giving into the pressure and cashing out. In times like these, psychological discipline counts for far more than an elite education. Guy instinctively knew that this was the buying opportunity of a lifetime.

Guy learnt during this time that investing success wasn’t just a matter of identifying great stock ideas. He learnt from the crisis that, he also had to create the best possible environment for himself — physically, intellectually, and emotionally — so that he could operate more effectively and be less vulnerable to negative influences. This is when he decided to hit the reset button, he left New York and moved to Zurich in the summer of 2009.

"From a societal point of view, debt is a vital economic lubricant. Used in moderation, it’s positively healthy. But for an individual investor, debt can be disastrous, making it even harder to stay in the game — both financially and emotionally — when the market turns against you. You only find out who is swimming naked when the tide goes out."

Ch 8: My Own Version of Omaha: Creating the Ideal Environment

Omaha is where Buffett lives. This chapter covers Guy’s pursuit of cloning his idol’s environment.

Guy realised that it’s critical to accept that the human mind is susceptible to irrationality. He goes as far as saying that one of his only advantages in the game of investing is the humble realisation of just how flawed the brain is.

After moving to Switzerland, he feverishly committed to building the best environment for him to think calmly and invest for the long term. This involved hiring a secretary, making two office rooms (a busy room, and a library), napping at work (to keep the mind fresh), steering clear of clutter and needless complications, and getting rid of a trading screen and a Bloomberg terminal. Plus, constantly asking oneself, “is this the best use of my time?”

"The ideal commute takes around ten to twenty minutes. This is close enough to improve one’s quality of life, but far enough to establish a separation between work and home."

Ch 9: Learning to Tap Dance: A New Sense of Playfulness

Buffett is known to “tap dance to work” every morning (figuratively of course, he is 90 years old), Guy too talks about learning to lighten up, adding humour and playfulness to his life.

He started playing bridge, and chess; both mental games which train one’s mind for investing. They hone skills like — dealing with inadequate information, always looking for a better move, pattern recognition, and so on.

He makes a landmark admission here, which proves how far his inner evolution has come from the start of the book; he says, “My goal is no longer to be Warren Buffett, even if I could be. My real mission is to be a more authentic version of myself.”

"The truth is that it’s hard to invest well if your non-investing life is out of whack, in chaos, or stunted."

Ch 10: Investing Tools: Building a Better Process

Considering the limited processing power of the mind, it helps to have some rules. He discusses eight rules:

  1. Stop checking the stock price: checking it often only gives a false sense of control. But the constant movement gives the mind a needlessly high number of calls-to-action.
  2. If someone tries to sell you something, don't buy it: this may hurt one in the short term, but, will definitely help in the long run.
  3. Don’t talk to management: senior managers, tend to be excellent salespeople, and have an ability to win over any audience; so don't expose yourself to such influence.
  4. Gather investment research in the right order: the first idea to enter the brain tends to be the one that sticks. Learn to consume the most rational, objective, and least biased information first; and go from there.
  5. Discuss your investment ideas only with people who have no axe to grind: and keep the ego out of such conversations.
  6. Never make buying or selling decisions when the market is open: doing this allows you to be calm, and not moved by impulse.
  7. If a stock tumbles after you buy it, don't sell it for two years: this will make you think hard about your decisions.
  8. Don’t talk about your current investments: once you've made a public statement it's hard to walk away, even if you know you were wrong.
"Make the market your servant, not your master."

Ch 11: An Investor’s Checklist: Survival Strategies from a Surgeon

The mention of surgeon is for Dr Atul Gawande, for his book the Checklist Manifesto. Checklists are a pragmatic way of coping with complexity. After completing his stock research, Guy pulls out his checklist which warns him against many biases, and saves him from bad decisions.

A checklist isn't a shopping list of desired business attributes; it’s a constantly growing list of mistakes which he hopes to never repeat.

Even with a well constructed environment and a robust set of investing rules, we’re still going to mess up (once in a while). There’s one measure, that can lower the odds of messing up — a checklist.

Ch 12: Doing Business in the Buffett-Pabrai Way

Guy here talks about how both Buffett and Pabrai have created an incredible network of people. This reinforced the learning that you end up receiving infinitely more in life by giving than by taking.

He further talks at length about essential values like love, kindness, punctuality, generosity, prioritisation, positivity and so on. Plus, he gives examples from the lives of his idol, and his friend (who he reveres), which makes for a delightful read.

“Nothing, nothing at all, matters as much as bringing the right people into your life.”

Ch 13: The Quest for True Value

This chapter talks about our inward journey, being more important than our investing journey. Quoting from the last page:

"The truth is that it doesn’t matter how you do this inner journey. What matters is that you do it. Whichever route you choose, the goal is to become more self-aware, strip away your facades, and listen to the interior. For an investor, the benefits are immeasurable because this self-knowledge helps us become stronger internally and to be better equipped to deal with adversity when it inevitably comes. The stock market has an uncanny way of finding us out, of exposing weaknesses as diverse as arrogance, jealousy, fear, anger self-doubt, greed, dishonesty, and the need for social approval. To achieve sustainable success, we need to confront our vulnerabilities, whatever they may be. Otherwise, we are building our success on a fragile structure that is ultimately liable to fall down."

If you’ve gotten till here, you’re the real MVP! I'll see you next week. :)