There’s a lot I liked about this book and most of it is connected to the author’s honesty and approach to investment. It’s very light on bullshit, sophistry and intellectual posturing; all of which are ordinarily the lifeblood of the fund management industry and its practitioners. He’s honest about his limitations, the intellectual dishonesty of huge swathes of the industry and the crippling effects of watching prices on Bloomberg. He even details some mistakes he’s made, about which I’ll write more later. Reading about, and speaking to, most investors about their performance and experiences would give you the impression that they pick 90% winners. Sadly, the statistical truth is much closer to a 50:50 ratio! He is also willing to talk about the emotional and personal pressures that have an inevitable and sizeable effect on investment decisions. He writes, “great investors don’t often talk publicly about their emotional challenges” (p121) but Spier does and the book is all the better for it. This is very rare, with most fund managers prefering to peddle the illusion that they are either totally rational or so aware of their emotional and psychological biases that they can override them. Both are utter nonsense to my mind and are worryingly deluded notions. Most investors would try to paint themselves as masters of their subcortex but he is honest and intelligent enough to admit the impossibility of that. “I accept my fallibility. Instead of pretending to be perfectly rational, I find it more helpful to be honest with myself about my irrationality. At least then I can take practical steps that help me to manage my irrational self. Perhaps this is the best that any of us can do.” (p119) Hear, hear! I really like the way he doesn’t make psychological limitations something that only amatuer or lesser investors suffer from, which is all too common within the professional fund management community. Rather he genuinely recognises and embraces their existence and attempts to find solutions. It’s so refreshing!
Another aspect of it that I really loved and wholeheartedly agree with is the link that is drawn between the author’s life and his investment style and process. To me, these are totally inextricable. If successful investment was simply following a set of rules or applying a set of scientific methods then there would be an unbelievably expensive and competitive school where these things would be taught and all the best investors would go there. As it is, the world’s best investors are a pretty ragtag bunch coming from all sorts of different intellectual and personal backgrounds. Furthermore, successful investors can use violently disparate styles and strategies to achieve this success; ranging from totally quantitative algorithms to totally qualitative nose following. So what can be made of this? I feel the crucial thing is to adopt a style that suits your personality. Guy Spier is an excellent example of this. It seems the more he learns about himself, the more he refines his style and the better he becomes as an investor. In no way am I trying to suggest that a person’s investment style must be totally personal and not be subject to outside influences. Learning from others is absolutely essential. The author is refreshingly upfront about his respect for, and extensive borrowing from, Buffett, Munger and Prabai amongst others. Lots of investors try to pass off what they have learned or borrowed from others as their own ideas, which is yet another example of the intellectual dishonesty that is so rife in fund management. Why does an idea have to be original to be good or to help you make money? The answer is it doesn’t but lots of people can’t admit that; Guy Spier can and it’s another example of the extreme and excellent honesty there is in this book. I’m reminded of a quote from Jose Mourinho, the famous football manager, “with a mentor you can improve and have a base for evolution, but when you try and copy, the copy is never the same as the original. So I think you have to learn from people with more experience who have had success, but always keep your own personal identity”. Spier is a self-confessed Buffet-ite but it would be idiotic to assume that he doesn’t express his own personal identity in thousands of ways through his psychology, process, philosophy and, ultimately, through his portfolio. He recognises this too, “There’s no doubt that Warren [Buffet] and Mohnish [Prabai] have inner landscapes that better equip them to make clear headed financial decisions involving money. But I can’t spend my life yearning to be them. Instead, I need to understand what makes me different, then make investments that I can handle emotionally, based on this self-knowledge”. I think that’s really insightful. The sections on how he organises his office, his work schedule and his choice of city to live in are very helpful.
Another aspect of self-knowledge, and its utility in fund management, that Spier mentions is recognising the flaws in your brain and adapting the environment you occupy and the process by which you make investments to account for them. He writes, “I discovered that it’s critical to banish the false assumption that I am truly capable of rational thought. Instead, I’ve found that one of my only advantages as an investor is the humble realisation of just how flawed my brain really is. Once I accepted this, I could design an array of practical work-arounds based on my awareness of the minefield within my mind” (p107). One of these is removing himself from what he calls “the vortex” of the high octane, high testosterone environment of the finance industry in New York. I couldn’t agree more with this, whether London or Geneva really represent that much of a deviation or are simply different vortexes is debatable and highly subjective. One example that didn’t really ring true to me was his friend, Nick Sleep, who set up shop on the King’s Road in Chelsea (p112). Part of what I felt was so truthful about his recognition of the negative effects ‘the vortex’ was having on his decision making were the feelings of envy and competitiveness that sprung up in insanely wealthy communities in London and NY. Anyone who knows London knows that the King’s Road is still an incredibly affluent area occupied by a lot of financial types. So for him to dress it up like it is Dalston or Brixton is a bit silly in my mind and doesn’t really exemplify what he is talking about. Clearly, that’s just my take on it and perhaps he doesn’t know anyone who set up anywhere less ‘vortexy’ but the difference between Mayfair and the King’s Road is pretty marginal to my mind!
The book also foregrounds quirky ideas like having photos of Buffet and Munger in his office to keep them, and their principles, in the front of his mind as he works. A bit like yogis and their gurus! He suggests he may even commision photos of all his investors to keep them in mind as he works and makes decisions. Often, the end user is very far from a fund manager’s mind when he makes decisions. They are thinking about their performance, their bonus, the effect this investment might have on their career, their perception within the firm, their own history of investments of this type etc. etc. etc. It really is a minefield and the ultimate client and their aims often get lost amidst all the other considerations. The photos may be a bit culty for some people’s taste but I love the way he comes up with his own ideas and wholeheartedly agree with the motivations behind them.
All good investors have rules. This is a commonplace observation. What’s less so is; all good investors break these rules! I’ve read so many fund managers’ books where they trumpet their rules. Then you take a look at their portfolios, or even read other stories in the same book, and think, ‘hang on a minute I thought he didn’t buy commodity stocks’ when you see or read about just that type of investment. I don’t think of the breaking of rules as a bad thing; there are an almost infinite variety of situations and companies and what may be true 99% of the time can still be untrue 1% of the time. But I do think it is dishonest and unhelpful not to recognise that. The setting of ‘target prices’ and sell disciplines is rife with rule breaking, denial of the same rule breaking and goal post moving. But Spier isn’t one of these self-deceivers! “We can all claim to have clear rules - for example, declaring that a stock must be sold when it reaches 80% of its intrinsic value. But the truth is that this is an incredibly inexact science. There are stocks in my portfolio that, on a purely rational basis [if such a thing exists!], I should probably sell. But I often hold on to them anyway. One reason is that I’m trying to manage myself, not just my portfolio. And I believe that my investment returns will be better over several decades if I master the trigger happy side of my nature”. “Bravo!”, I thought when I read that, “someone telling the truth for once”. My old boss also once told me that his extensive, miniscule holdings of 0.1-0.2% were ‘post it notes’ so he didn’t forget about companies he wanted to follow or wanted to build larger holdings in at better prices. At the time I thought that he should just have a ‘watchlist’ and not ‘waste’ money buying such inconsequential positions. Now I understand that this would not have been the same thing at all and he was really doing what Spiers is doing; managing himself, which is arguably the central part of the enterprise! Whether or not he would have been so honest with the clients is another question! I’m sure many of them, like me at the time, wouldn’t have understood it and seen it as unprofessional or profligate. Another, arguably even starker, example of Spier’s willingness to break his own rules occurs on p166 when he talks about how, “I want to invest in companies that control their own destiny”. This would lead me to think he doesn’t want anything to do with businesses whose fortunes are largely determined by the price of commodity outside of their control. However, on the next page he talks about how he made a lot of money in Alaska Milk; a company whose fortunes are determined by condensed milk, a commodity totally outside of its control! Spier even explains this in detail so it is not like he doesn’t understand that he is breaking his own rule stated only a few lines above! The point isn’t that he’s ‘wrong’, more that his is prepared to break his own rules and use the inverse of his normal thinking to identify opportunities. I would see this as pretty run of the mill for most fund managers. In general, you don’t want to buy businesses like this under normal circumstances. But, equally, when the commodity price has moved against the company in a way that is presumed to be unsustainable or over exaggerated then the company could begin to look attractive as investors with a shorter term focus sell it. He’s aware of this and is not constrained by dogma; although that does make for confusing reading in this instance! Some might say that it’s a funny way to demonstrate a rule by giving an example of how you broke it, but at least it is honest!
As well as being honest about his personal experiences and where he has got lots of his ideas about investment, the author is really serious about sharing this with the readers of this book. In an industry as competitive as fund management, lots of people want to keep what they have learnt to themself unless it would benefit them to share it with other people. For example, lots of people talk up stocks they have already bought in the hope that others will buy them too and push up the price. However, Spier really seems to want to share his insights for the enjoyment it brings him and because he feels it is the right thing to do. This was unusual and refreshing as well. He also includes an extensive reading list; showing where he is getting his ideas from and pointing anyone in search of further information in the right direction. Everyone gets their ideas from somewhere but so often in fund management people want to bolster their status or ego by claiming that ideas are their own and concealing their intellectual ancestry!
One aspect of his investment philosophy which is anathema to me is his insistence that it’s a bad idea to meet management. To be sure he makes good arguments to support it: don’t meet someone who is trying to sell you something, don’t be seduced by personalities etc. However, to my mind, it’s wrong to rubbish meeting management when he is so keen on individuals like Buffett and buys the stock of his company on the basis of their personality and track record. Why isn’t this theory applicable to other people and companies? All companies are managed by people and this is the primary determinant of their performance with the exception of the nature of the industry. I’m reminded of the famous Buffet quote, “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact”. Granted, industries can be better or worse from an investment perspective but the differentiator in the long term is surely management. So here I find it impossible to agree with Spier even though I in no way think this makes him a bad investor. This may be the best way for him to manage his personality and, therefore, his portfolio. Indeed, many fund managers think themselves good judges of character and end up making terrible decisions because of this assumption. However, I do think it is a bit inconsistent to have such huge admiration and respect for the power of good management in building a portfolio but then to dismiss it out of hand when applying the same principles to building a company.
There are a few other areas where I would disagree with or criticise his writing, philosophy or honesty too and I feel I would be remiss not to take issue with these. In the main, Spier is assiduous about referencing his sources and giving credit to those who have aided his thinking. That’s why it’s such a surprise to read this passage about Tony Robbins, “was Robbins just some poor player, strutting and fretting his hour upon the stage? Was he just an idiot telling his story, full of sound and fury, but signifying nothing?”. Perhaps it is because this is such a famous Shakespeare quote he feels he doesn’t have to attribute it. Nonetheless, in a book which, quite correctly, makes a point of referencing everything, has an excellent index and really goes out of its way to attribute the work of others it is astounding that The Bard doesn’t get a shout out for his masterful work in Macbeth!
Another issue I have with the book are the examples of mistakes that are offered. You might think I am being churlish as most investors won’t offer any examples of mistakes! However, I don’t feel like Spier really does share his biggest mistakes with the reader and this is a rare example of what I would describe as an ego driven decision. I’m fairly sure most investors of Spier’s vintage and longevity in the market will have suffered a total loss in a position or something pretty close (e.g. >90%). But none of the mistakes he mentions in the book even come close to that. Indeed, the example of the Tupperware ‘mistake’ (p164) doesn’t even involve him losing any money! Of course, you don’t have to lose money for your investment thesis to be wrong but in a profession where the object is to make money, or perhaps more accurately not to lose it (in real terms!), surely there must be bigger losers for him to share. I found myself thinking, ‘Oh come on! Tell us about how you lost some money for goodness sake! You must have something worse than this”. Even in the example of CarMax, a second hand car dealer, where he rightly points out that businesses that are highly dependent on the credit markets are riskier and lower quality than those that are not he doesn’t mention how money he lost. However, he doesn’t hold back in telling you how he made 5x his money in 5 years in Alaska Milk, which is a funny kind of ‘mistake’, as I mentioned earlier! So, for all the honesty in this book, and there is a lot, he is not immune from talking up his winners and being a bit less direct about his losers. This is a shame. I once read about a firm where they put up a plaque for every total loss they suffer and I thought that was an excellent idea. I kind of expected the same kind of thing from Spier. Maybe he has never had any bad losers, but I find that an unlikely explanation!
Spier makes an interesting critique of the limitations of elite education, which I found to be interesting and to resonate with my own experience. He also poses an interesting question about why so many privileged and highly educated people go into such venal jobs like he did and ultimately end up doing damage in society. He writes, “why did so many highly educated people from elite business schools and privileged backgrounds contribute to and exacerbate the financial crisis of 2008-2009? Did our education fail us? Or did we fail our education? These questions haven’t been answered adequately by the prestigious universities that groomed all these high powered creators of economic mayhem” (p21-22). These are fascinating questions and ones that he might be expected to offer some answers to, but he does no such thing. He makes some very astute comments on the shortcomings of this type of education as it relates to his personal life and experience but doesn’t go on to analyse or criticise the culture of these institutions in any meaningful way. This is perhaps fair enough insofar as it is a book about his development and education as a value investor. What is a little more striking is the fact that he goes on to trumpet his support for “my Oxford college, Harvard Business School, and the Weizmann Institute”, which are exactly the sort of high octane, privileged institutions he criticises for “measuring people by an external scorecard” (p26) and seems to, at least partly, find culpable for producing irresponsible and self-serving alumni. So what on earth is he doing supporting them and blowing his own trumpet about doing so? It didn’t really spoil my enjoyment of the book but I felt like he should explain why he does this or say something positive about their existence rather than, broadly, identifying them as part of the problem and then saying he’s endorsing them. It’s contradictory. Perhaps he does it because it is good for networking. This is a pretty uncharitable interpretation but he doesn’t offer any alternative explanation and in the context of his criticisms it is weird that these are the institutions he chooses to support.
There are other sections of the book where I saw Spier as a bit self-serving and self-congratulatory. To be sure, I think he goes about investment in an honest and straightforward way, putting his money alongside his clients and genuinely considering their best interests rather than his own fees. I’m sure he could have made a lot more money as an asset gatherer if he wanted to so it’s unfair to say he is totally motivated by money. What he is doing is much better than most of the industry and also a hell of a lot better than the kind of stuff he was doing at D.H.Blair, which he paints as fundamentally dishonest. That having been said, fund management is essentially about helping people with money get more money and while this can be a worthwhile cause in the case of pension funds and charities it is also possible to make positive arguments about why investment banking is worthwhile and societally valuable. I don’t think much of these arguments but there are exceptions to every rule! However, sometimes his evangelical enthusiasm for value investing is a bit sanctimonious. At the end of the day, he is a highly privileged man, who got his seed capital from his millionaire father (which he is at least honest about) and drives a Porsche! Not exactly Mother Teresa, although he talks about his journey using the same kind of salvation narrative as a religious convert who’s found God. He clearly could have taken a far more venal, and damaging, career path and I, for one, have respect for prudent and honest fund management as I think it is a necessary and societally valuable job. On the other hand, I think it’s easy to see there are more valuable jobs and I couldn’t shake the feeling that all he is really doing is making rich people richer. In the same vein, his sycophancy for Warren Buffet and, to a lesser extent, Mohnish Prabai can be a bit vomit inducing. Some sections read like he is writing them a love letter. During his charity lunch with Buffet he quotes him as saying, “I’m never wrong”, which is a categorically incorrect and outrageous thing for any investor to say, even in jest. But Speir ratifies this by writing, “in his case, this might be true, or almost true”. Yuck!
Another, similar, aspect of the book that made me feel a bit uneasy was Speir’s obsession with ‘restoring’ his family’s wealth. This is a highly sensitive topic and one I am completely unqualified to comment on having never had anything like this happen in my own family’s history. As Spier tells it, his great-grandparents were wealthy German industrialists who had everything taken from them by the hateful and destructive Nazi regime. It is, to my mind, preeminently understandable that this would produce feelings of outrage and a desire to restore what once belonged to one’s family. His grandfather escaped to Israel and was a chicken farmer before his father had a successful career as a businessman in the chemical industry. However, when Speirs says, “the story of my family and money has been one of restoration...I feel a tremendous sense of responsibility when it comes to my family’s finances (most of which are invested in my fund), not least because I’m attempting to repair what was shattered more than 70 years ago and to provide enduring security in an insecure world” (p191) I can’t help feeling a bit uneasy. Let me repeat that I find these sentiments wholly understandable in the context of the horrendous family history but why must his family be SO wealthy and is that, ultimately, really any more secure than being moderately wealthy? It all struck me as a bit greedy and money obsessed. He boasts about buying a house in upstate NY for cash, something most people can never dream about doing but still feels he needs to make more and more money? The Aquamarine fund has c. $200m in assets if the results of a Google search are accurate. Who knows how much of this is his family's money but the impression is that his thirst for wealth will never be sated. Equally, he seems to be a total control freak. He writes about how his father bought some Lehman bonds and lost all the money he’d invested. Although his father still had substantial holdings in Spier’s Aquamarine fund so it was hardly a life or death situation. He writes about how he, ‘let loose an angry tirade’ and felt, ‘I’d failed, and I was hurt that my father inadvertently disempowered me by neglecting to inform me before he bought the bonds’ because ‘a big part of my identity is...as the protector and builder of wealth for my family and friends’ (p88). I almost choked on my tea! How could he be so egotistical and uncharitable to his father who had given him the money to start his fund in the first place!? It’s as if he feel he should be in charge of everything and is the only one who can make good decisions. Not knowing everything about the situation, I’d feel pretty miffed as a father to have the embarrassment of a financial mistake, which everyone makes even if they don’t admit it, compounded by a bollocking from the son who I had raised and given the seed capital to start his fund. The phrase, ‘monster ingratitude’ from King Lear springs to mind! What have his Dad’s personal finances got to do with him anyway? Notwithstanding his seeming belief that all the assets in his entirely family should be controlled by him. When his father tries to defend himself by saying that the bonds were rated triple A by Moody’s, a business Spier invested in, he says he replied, “I like Moody’s business, not their ratings. They always lag the market” (p88). This seems, to me, to be at odds with his claim that he only invests in businesses that don’t ‘prey on people’s weaknesses’ and present a ‘win-win proposition...for the consumer and society at large’ (p165). The ethics of investment is an almost infinitely complex area; but these are pretty big claims. I was left wondering what was ‘win-win’ about a business purporting to sell certainty, preying on a weakness almost all investors exhibit, when what it was actually doing, according to one of their investors, was nothing of the sort? If he knows their ratings are garbage, as he claims to, how can he hold this out as an ethical investment with a straight face?
I should be clear, I don’t make these criticisms to judge what’s right and what’s wrong as I am woefully ill equipped to do so. As Tolstoy writes in War and Peace, “what’s right and what’s good must be judged by one who knows all, but not by us.” I’m simply writing my impressions having read this book. It’s highly enjoyable and very valuable from a fund management perspective and very honest too and most of the criticisms in the last three paragraphs don’t detract from this. On the whole a good and refreshingly honest read.
