The Education of a Value Investor by Guy Spier
My Transformative Quest for Wealth, Wisdom, and Enlightenment
The most important message of the book according to the author, Guy Spier. Nothing matters as much as bringing the right people into your life. They will teach you everything you need to know.
This book is down-to-earth and easy to follow. If you are a fan of Warren Buffett you will especially like this book. I like his thoughts in chapter 8 detailing how he has his office environment setup to encourage him to spend time sitting and thinking quietly.
My Favorite Quotes
- The real goal is not acceptance by others, but acceptance of oneself.
- If you keep learning all of the time, you have a wonderful advantage.
- We have to imagine our future before it happens.
- Envy and pride are expensive flaws.
- It is difficult, if not impossible, to become successful on your own.
- When you begin to change yourself internally, the world around you responds.
- Structure your environment to counter your mental weaknesses, idiosyncrasies, and irrational tendencies.
- It is not about how much money you make, it’s about changing the world. -Mark Pincus
- By consistently improving the way I consume information, I am looking to create better conditions for success over many years.
- Nothing is more important than getting better people into your life. They will teach you everything you need to know.
- You end up receiving infinitely more in life by giving, than by taking.
- Value people as an end in themselves, not as a means to our own ends.
- If we take responsibility for our mistakes and failures, they offer priceless opportunities to learn about ourselves and how we need to improve.
- The real reward of inner transformation is the gift of becoming the best person we can be. That is the ultimate prize.
- Why is it that some people are strengthened by their traumas and not broken by them?
- Is there any way of tilting the balance in our favor, so that we increase the odds of victory in a game that is so heavily stacked against us?
- What needs to happen for this company to generate a lot of cash next year?
- How do we create and nurture the right relationships, so that we can learn from them what we need to learn, and become who we ought to be?
- There are several good questions below in chapter 11 about the investor’s checklist.
Guy Spier, the author, and Monish Pabrai purchased lunch with Warren Buffett for $650,100. This lunch had a life-changing impact on him, both how he invests and how he lives his life. Within one year of the lunch, he let 2/3 of his staff go, moved to Zurich, and stopped charging management fees to new investors.
Try to learn from your mistakes, better yet, learn from the mistakes of others. -Warren Buffett
According to the author, if you learn and apply only some of the lessons in the book, you can’t help but become rich.
This book is also about the inner game of investing and by extension the inner game of life.
Investing is about much more than money. As your wealth grows, the author hopes you will begin to learn that the money is largely irrelevant and that what you will want to do with the bulk of your wealth is to give it back to society.
Chapter 1: From the Belly of the Beast to Warren Buffett
Why is it that some people are strengthened by their traumas and not broken by them?
An essential component of our education is to learn from our mistakes. If we don’t make mistakes we may not learn at all.
Chapter 2: The Perils of an Elite Education
Every one of us has a handful of moments in the course of a lifetime, where we know there is an action we must take, and we need the courage to act on those moments.
The entire pursuit of value investing requires you to see where the crowd is wrong so that you can profit from their misperceptions. This requires you to shift to measuring yourself by an inner scorecard. The real goal is not acceptance by others, but acceptance of oneself.
Part of the problem with Guy’s education was that he learned to appeal to the academics who graded his papers, instead of training his mind to solve real-world problems.
If you keep learning all of the time, you have a wonderful advantage.
Chapter 3: The Firewalk
Whenever the author has a choice of doing something with an uncertain, but potentially high upside, he tries to do it. The payoffs may be infrequent, but sometimes they are huge. The idea is “heads, I win; tails, I don’t lose much.”
We have to imagine our future before it happens. Our consciousness changes our reality.
What seems impossible in one instant can become entirely possible in the next, if only you are willing to devote every once of your mind, body, and soul to reach it.
It is important to show kindness and to be helpful to people early in their careers, even when they have done nothing to deserve it.
You must choose to have certain people in your life, however tangentially, who embody the values you admire. (This was one of his reasons for investing the Sequoia Fund)
Creating the right environment and network helps to tile the playing field subtly in the right direction so that you can become far more likely to succeed.
Advantages are often created imperceptible-step by imperceptible-step.
Warren Buffett’s letters reach out to people that aren’t impressed by noise.
In an effort to model Warren’s behavior, Guy began to constantly ask himself “what would Warren Buffett do if he were in my shoes?”
Tony Robbins describes this process as “modeling our heroes.”
Guy began to study the companies in Warren’s portfolio. He started reading the annual reports for all of Warren’s major holdings: Coca-Cola, American Express, Capital Cities ABC, etc.
Chapter 4: The New York Vortex
Inaction and patience are almost always the wisest options for investors in the stock market.
The process of self-correction begins with self-knowledge. Investing has a way of exposing our psychological faultlines. Envy was one of Guy’s biggest weaknesses at the time of living in New York.
Guy says that his envy led him astray and he wasted time and money focusing on the wrong things. Envy and pride are expensive flaws.
Guy began to surround himself with a mastermind group of investors who had become lifelong friends and trusted sounding boards.
It is difficult, if not impossible, to become successful on your own.
It is crucial to be open to the possibility that we might be mistaken.
We often bring bad things on ourselves when we point the finger at others. It is karmically better to focus on the positive and act as a force for good.
Chapter 5: Meeting a Master
Ronald Reagan mastered the art of caring for others, and he expressed his care through letters.
Guy began writing hundreds of letters every year. When he didn’t know who to write to, or what to write, he would write them to his doorman, barista, or anyone. He looked for opportunities to thank people and focus on other people.
In sending out a cascade of letters over many years, he began to open up to people in a way that he never had before. He started to see everyone around him as someone he could learn from.
The habit of writing letters is an incredibly effective way of compounding goodwill and relationships.
Most people give up long before they reap the benefits (such as writing letters).
Every letter he wrote was an invitation for serendipity to strike.
Writing letters his how he connected with Monish Pabrai, he was the only person to write to him after an annual partnership meeting.
When you have a personal agenda people can smell it, and this tends to put them on the defensive.
We have a greater capacity to influence others when we are an authentic version of ourselves. From the book Power vs Force by David Hawkins.
Real power resides with the person who is honest and in touch with himself.
There is power in modeling the habits of successful people.
Progress often works by copying the best ideas and making them our own.
Most people succeed because they get a lot of small things right. Learn to take more and more intelligent but practical actions on a micro-level. Over a lifetime, a myriad of simple actions can accumulate to create big reputational and relational advantages.
Chapter 6: Lunch with Warren
When you begin to change yourself internally, the world around you responds.
When your consciousness or mental attitude shifts, remarkable things begin to happen. That shift is the ultimate life tool.
Chapter 7: The Financial Crisis, Into the Void
I didn’t take any notes on this chapter.
Chapter 8: My Own Version of Omaha, Creating the Ideal Environment
He recommends reading Journey to the Ants by Bert Hölldobler, a book that he gave to Charlie Munger, Charlie had long intended to read the book. He resolved to spend more time reading books about biology after this.
It is helpful to think of the economy as an evolving and infinitely complex biological ecosystem.
Is there any way of tilting the balance in our favor, so that we increase the odds of victory in a game that is so heavily stacked against us?
It is indispensable for any serious investor to know how to read a company’s accounts. This includes understanding the various ways that accounting rules can be used to skew the earnings numbers.
There are many books available that can provide this knowledge, such as The Intelligent Investor by Benjamin Graham.
It is critical for investors to structure their environment to counter their mental weaknesses, idiosyncrasies, and irrational tendencies. Guy focused tremendous energy on creating an ideal environment for himself.
The goal is not to be smarter but to construct an environment in which your brain is not subjected to such an extreme barrage of distractions and disturbing forces.
Managing the non-rational part of his brain had to become an integral part of his stock portfolio.
The New York environment accentuated aspects of his own irrational nature that are not conducive to his own investing. Therefore, he decided to move to Zurich, Switzerland.
He has his computers and monitors on an adjustable height desk, which he positions so that he has to stand beside it. He has it set up in a way that prevents him from sitting at it for long periods of time.
His goal is to create an office that gives him the space to think quietly and calmly. He as a room at one end with no computers or phone, he calls it the library. He wants to encourage himself to spend more time sitting and thinking, so this room is designed to be warm and welcoming.
How you decorate your office matters.
Warren Buffett’s office contains very little that can clutter his mind. It contains no computer and no space for large meetings.
Chapter 9: Learning to Tap Dance, a New Sense of Playfulness
It is hard to invest well if your non-investing life is out of whack or in chaos.
There is a chess mantra by Edward Lasker “when you see a good move, look for a better one.” Guy modified this mantra, applying it to investing. “When you see a good investment, look for a better investment.”
From playing bridge and chess, he learned not to take things so seriously. Instead of seeing everything, including his work, as a form of mortal combat, he began to see it as a game.
It is not about how much money you make, it’s about changing the world. -Mark Pincus
When you drop a stone into a calm pond, you see the ripples. Likewise in investing, if you want to see the big ideas, you need a peaceful and contented mind.
All of humanity’s problems stem from man’s inability to sit quietly in a room alone. -Blaise Pascal
Among the many gifts of his life in Zurich, none has been more important than his sense of quiet contentment. In this state, the right investment ideas have a way of bursting through to him.
Chapter 10: Investing Tools, Building a Better Process
Ants can use a handful of simple rules to develop an infinitely complex survival strategy.
One way to tilt the balance in our favor is to construct an environment in which we can operate more rationally.
To make better investment decisions, it helps immeasurably to develop a series of rules and routines that we can apply consistently. This brings more order and predictability and reduces the complexity of the decision-making process. [This is similar to the advice given in What I Learned Losing a Million Dollars for creating a plan and making decisions prior to entering the market.]
The rules Guy has developed encompass a wide-ranging assortment of critical investment processes. His rules include:
- What he reads, and in what order
- Whom he speaks with and refuses to speak with about potential investments
- How he deals with corporate management
- How he trades stocks
- How he communicates, and doesn’t, with his shareholders
Some of his rules are broadly applicable, some are more idiosyncratic.
It will help you enormously if you start thinking about your own investment processes in this structured, systematic way.
Here are some of the rules, routines, and habits that Guy has put in place:
- Stop checking the stock price.
Rule: Check stock prices infrequently as possible.
- If someone tries to sell you something, don’t buy it.
Rule: If the seller has a self-interest in me buying, I am not buying. (he does not invest in IPOs)
- Don’t talk to management.
Rule: beware of CEOs and other top management, no matter how charismatic or amiable they seem. The exception to the rule: Warren Buffett and some other managers who have a reputation for sharing what they would like to know if they were in their shareholder’s shoes.
- Gather investment research in the right order.
Rule: pay attention to the order in which you consume information.
The order in which you read materials matters greatly.
- Start with the least biased and most objective sources: typically the corporate public filings including the annual report, 10-K, 10-Q, and proxy statement.
- Next move to earnings announcements, press releases, transcripts of conference calls.
- Books about the company or its founder.
- Equity reports by brokerage firms. He forms his own impression prior to reading these. Keep in mind their work is paid for.
- Discuss your investment ideas only with people who have no ax to grind.
Rule: pool your knowledge with other investors, but stick with people who can keep their ego in check.
Ground rules for investment discussions:
- The conversation must be strictly confidential.
- Neither person can tell the other what to do.
- We can’t have any business relationship.
- Never buy or sell stocks when the market is open.
Rule: keep the market at a safe distance, don’t let it invade your office or your brain.
- If a stock tumbles after you buy it, don’t sell it for two years.
Rule: before buying any stock, make sure you like it enough to hold on for at least two years, even if the price halves right after you buy it.
- Don’t talk about your current investments.
Rule: don’t say anything publicly about your investments that you may live to regret.
These rules are not meant to be a straight jacket. The purpose of these rules is to have them guide your behavior in a generally healthier direction.
Minor shifts in how we operate can have a major impact.
By consistently improving the way I consume information, I am looking to create better conditions for success over many years.
Instead of asking what a company will earn next year, it is more useful to ask “what needs to happen for this company to generate a lot of cash next year?”
Example research on investing in a shoe company. Produce a list of the top 20 tennis players, see who sponsored them, then estimate which of those players attracted the most viewers in what is typically a winner-take-all market. His friend did this for K-Swiss and found they only had one in the top 20.
Chapter 11: An Investor’s Checklist, Survival Strategies from a Surgeon
Guy adopted this concept from the Checklist Manifesto by Atul Gawande
The goal of creating a checklist is to avoid obvious and predictable errors.
They group their investment into six categories (leverage, corporate management, etc) and approximately 70 items.
His checklist includes questions such as:
- Is there some way in which this investment idea is being sold to me?
- Does someone in this situation have an ax to grind?
- Who benefits if I make this investment?
- Does this investment appeal to any personal biases of mine that should be reexamined?
- Are any of the key members of the company’s management team going through a difficult personal experience that might radically impact their ability to act for the benefit of their shareholders?
- Has this management previously done anything self-serving that appears dumb?
- Does this product offer good value for money?
- Is this company providing a win-win for its entire ecosystem?
- How does this company sit within the value chain? What parts of this business could be impacted by other changes in the value chain that this company has very little influence over? (he wants to invest in companies that have control of their own destiny)
- Is this investment cheap enough, not just in relative terms?
- Am I sure that I am paying for the business as it is today, not for an excessively rosy expectation of where it might be in the future?
- Does this investment satisfy my psychologically by meeting some unmet personal need? For example, am I keen to buy it because it makes me feel smart?
A great company makes tons of money while adding real value to its customers.
Chapter 12: Doing Business the Buffett-Pabrai Way
The best way to learn is to surround yourself with the right people.
Hang out with people better than you, and you cannot help but improve.
Nothing is more important than getting better people into your life.
Relationships are the killer app.
How do we create and nurture the right relationships, so that we can learn from them what we need to learn, and become who we ought to be?
When we join together with good intentions, we are much more than the sum of our parts.
The most important point in the entire book according to the author. Nothing, nothing at all, matters as much as bringing the right people into your life. They will teach you everything you need to know.
Compound goodwill by being a giver, not a taker.
You end up receiving infinitely more in life by giving, than by taking.
We learn by watching people who are better than us, modeling their behavior, then experiencing for ourselves why their approach is wise and works.
Ways of improving the circles in which we operate:
- Join organizations where you can regularly rub shoulders with people who are better than you in a multitude of ways. Guy joined the Young Presidents’ Organization (YPO), Entrepreneurs’ Organization, and Toastmasters.
- Business investors meetings
- Join a local religious community
- Attend annual shareholder meetings
Warren told Guy and Monish that he can survey a room of 100 people and easily identify the 10 people he would do business with and the 10 he would avoid. He puts the other 80 into his “unsure” category.
Invest time and energy into the handful of people you are sure about, and leave the rest alone. Become more efficient at eliminating people from your network if you aren’t sure about them.
Guy stopped placing advertisements for hiring and started hiring people whose behavior he had a chance to observe in unguarded moments.
Value people as an end in themselves, not as a means to our own ends.
Create an ecosystem for yourself in which everybody is the type of person who wants to find ways of helping others.
Chapter 13: The Quest for True Value
If we take responsibility for our mistakes and failures, they offer priceless opportunities to learn about ourselves and how we need to improve.
To achieve sustainable success, we need to confront our vulnerabilities whatever they may be. Otherwise, we are building our success on a fragile structure.
The real reward of inner transformation is the gift of becoming the best person we can be. That is the ultimate prize.
My Action Steps After Reading
- Reached out to join and attend a local Toastmaster’s group
- Started making a more concentrated effort to reach out to people and write notes
Related Book Summaries
- What I Learned Losing a Million Dollars
- The Richest Man in Babylon
- Think and Grow Rich Summary
- The Most Important Thing by Howard Marks