By Guy Spier
|Original Publication Date||2014|
|Topics||Psychology, Value Investing|
|Similar Titles||The Dhando Investor|
|Works from Same Author||N/A|
I classify this book as essential reading for anybody with an interest in investing or trading, regardless of experience level or investment style. To me, it’s about how to organize a successful and fulfilling life around something that you’re passionate about. The author’s passion happens to be value investing but much of his process would translate well to almost any other field. In that light, my only real criticism here is the inclusion of the words “value investor” in the title, lest the potential reader might think this is a book about the specifics of value investing.
With a freshly minted MBA from Harvard Business School (in addition to his degree, from Oxford, no less!) the author easily finds an investment banking job at an aggressive, albeit non mainstream NY firm and… totally hates it. Though he says that he was never explicitly instructed to do anything underhanded, the incentives at the firm (like many firms on Wall St. at the time) were structured such that bad behavior was implicitly endorsed. His value to the firm, he figured, was his gold-plated credentials which could be plastered all over investment research reports to add an extra shot of credibility. Needless to say, he didn’t stick around in this role.
Much to my surprise, a pivotal point in the author’s career came from attending a Tony Robbins seminar. Spier was a self-proclaimed skeptic but attended with an open mind and to his surprise, immediately found value and usefulness there. In fact, he implores the reader that if they take only one thing away from his book, it be an idea that he’s directly borrowed from Robbins – model your mentors. When faced with any problem, ask yourself “what would my role model do here?” and try to answer with as much detail and specificity as possible. I’ll leave it to the reader to discover who Spier’s models are.
He listened to Tony Robbins audiobooks regularly until discovering audio recordings of famed investor Charlie Munger on “The Psychology of Human Misjudgment” which then became his obsession. Based on many of the subsequent changed he decided to make in his life, Munger’s wisdom seems to have had a foundational impact.
Spier launched an investment fund with seed money from his father and was met with success, posting solid performance and growing the business. He soon, however, found himself succumbing to the trapping of success and even the envying his more famous peers. His expenses grew needlessly and he found that he was jealous of former classmates who had built larger businesses than his. Having bowed to industry pressure when setting up his business, he also found that alignment between his objectives and those of his investors left something to be desired.
At this point, he took inventory; his business, his goals, his personality, his life. Based on his assessment, he began to make a series of fundamental changes to how he operated. To me, this is where the real value in this book is found; not just in the changes themselves but in the process that drove the changes. Some highlights:
- Taking the time to identify what was important to him allowed for him to transition to measuring success using his own “internal score card” rather than an external one. He includes a funny quip from Warren Buffett to help explain the concept: “Would you rather be the best lover in the world, but publicly known as the worst, or the worst lover in the world, but publicly known as the best?”. He is adamant that former is much preferred to the latter, because, at the end of the day it’s your life – and who cares what others think? Spier’s internal score card appears to be focused on a happy, secure enjoyable life for him and his family, meaningful relationships, giving back as much as possible and freedom from the franticness of a more traditional Wall Street lifestyle.
- He takes to heart the idea of finding good role models, understanding them as thoroughly as possible and emulating them; another idea he exemplifies with a quote from Buffett (paraphrasing): “hang out with people better than you and you can’t help but improve.” An interesting, if not crucial aspect of his thought process on this concept is the idea that you are NOT your role model. You can learn from them and emulate them, but you cannot be exactly like them… and that shouldn’t be the goal anyway. The challenge is to integrate their wisdom into your own process. A solid example: One of Spiers mentors has a much higher risk tolerance than Spier himself. He can take larger positions, get into position sooner with less conclusive research and withstand more volatility than Spier. As such, rather than trying to get comfortable with taking more risk, Spier wisely avoids trying to copy his mentor exactly, but integrates the parts that work for him. He takes smaller positions, he often likes the same ideas as his mentor, but needs more conclusive research before investing – and he’s fine with that!
- He doesn’t discuss his holdings or ideas publicly anymore and advises others to do the same. He feels doing so introduces a subtle commitment bias into his process and that this bias isn’t worth the reward of being perceived as smart by other should his idea prove correct (i.e. external scorecard validation). He discusses a time when he spoke favorably of a stock in a television interview and subsequently made a cognitive (and monetary) error by holding on too long… all because he now felt an irrational commitment to the idea based on the public interview he’d given.
- When he DOES discuss stocks or ideas with others, it’s generally a small group of trusted friends and fellow value investors. Interestingly, all of these conversations are generally “view agnostic” to the extent that neither party will know whether the other is bullish/bearish or long/short the idea being discussed. They just seem to focus on objectively dissecting ideas on merit. “Is XYZ a good company?” “What do you think about their marketing strategy?”
- He moved to Zurich to get away from the hedge-fund scene in New York. He found the being “too close” fostered irrational comparison of his own success against the successes of others, which he viewed as wildly unproductive. When in Zurich, after initially settling in a glitzy part of town, he even ended up relocating his office as he felt that being too close these excesses of the rich part of town would have a subtle impact on his psyche.
- He re-structured his fund with a share-structure that put his interest and shareholders interest in much better alignment. He only gets paid when he does a good job, which is how he wants it. An added benefit here is that the structure incentivizes investors to stick around for the long term.
- He recognized that the considerable “noise” produced by Wall St. and the financial media is generally unproductive and he has set up his office so as to avoid it.
- He focuses on 10-Ks and 10-Qs as a primary (i.e. factual and objective) source of information and tries to avoid meeting with management, reading analyst reports etc.
- He has a Bloomberg terminal which he has deliberately set up in a way that makes it physically difficult to access. He’s changed the color scheme to make it muted and unexciting so as to make it minimally enticing. He check markets rarely.
- He trades infrequently and when he does, he uses VWAP orders.
- He makes no investment decisions when markets are open.
- He started writing letters to people who’s made any meaningful difference in his life. He views these as “value investments” where he has a low cost (the time it takes to write a note) with a potentially large payoff (a life-long relationship, for example). Personally, these seem more like call-options to me, but to each their own. The point is, he risks a little and might get a lot.
- He takes time for himself to do things like travel, exercise and even nap. He finds that not only does it make life more enjoyable, but also that a fresh mind leads to higher quality decisions.
- He has somewhat systematized his investment process via checklists. In order for him to consider an investment, it must check all the boxes on his list. He provides justification for this using examples from other fields (medicine, aviation) where simple checklists dramatically reduce errors. I tend to agree and suspect the same effect exists in the investment world. He doesn’t share his exact checklist and stresses that his specific checklist items are based on his own process and biases, and thus are probably not of huge values to others. His point is that everybody should try to learn from their mistakes and build their own unique checklist, specific to themselves.
The above touches on some of the highlights of his journey but there’s a lot more value in this book than I can list here. I suspect that having the author take you through his personal trials and tribulations, ultimately emerging as a smashing success based on his own internal scorecard will be of infinitely more value than my brief review. Readers both novice and experienced can learn a lot from the experience that Spier shares here. One worth reading.