The Education of a Value Investor

by Guy Spier

‘Reach enlightenment faster and with fewer missteps.’

The Book in 3 Sentences;

Guy discusses his personal shortcomings and the mental pitfalls he tries to avoid as manager of the Aquamarine fund. Particularly useful is his advice on restructuring your environment, and his investment checklists. He also talks about his admiration for Warren Buffett and Mohnish Pabrai, and advocates cloning those you admire.

Top Quotes:

• Structure your environment to counter mental weakness, and develop workarounds for mental shortcomings

• We like to think that we change our environment, but the truth is that it changes us

• Hang out with people better than you, and you cannot help but improve.

• The entire pursuit of value investing requires you to see where the crowd is wrong so that you can profit from their misperceptions.

Who Should Read it?

Both rookie and seasoned investors alike. It can be easily understood and serve to inspire a beginner who hasn’t yet bought a stock, while an experienced veteran may find some common ground with Guy and be able to apply his wisdom to his or her own process.

Actionable Info

Restructure your environment/workspace to increase productivity

Identify things you struggle with (focus/timekeeping etc).

Optimize your workspace: tidy desk, quiet room, uninstall certain apps.

Do whatever's necessary. It's not enough to just trust yourself to do it. Attention wanes and willpower is finite... It's paramount to allocate these resources as carefully as possible.

Guy mentioned that he split his office into two distinct areas - A library/thinking space, and a more active 'work space' where he would send emails and check his Bloomberg terminal. This is a great way to pre-commit to focusing on reading and thinking by not bringing any technology into that room. This pre-committal and environment rearranging is a common theme in a lot of books; Stolen Focus, Atomic Habits etc.

Get your habits in order

This is one of my favourites and is a prominent idea in 'Atomic Habits.'

Every action is a vote for the type of person you are to become.

Small, incremental habits will define you.

Charlie Munger has spoken about the brain being like a big ship with a small leak. If you fail to address your mental shortcomings and biases, you’ll be sunk.

Use circuit-breakers to distance yourself from investing

Money issues activate the instinctive areas of the brain - You are not capable of being truly rational.

• Stop checking the stock price

• Never buy something when someone is trying to sell it

• Don’t talk to management

• Gather investment research in the right order 1. Corporate filings, 2. Press releases, 3. Books + Articles, 4. Equity Research

• Only discuss investment ideas with people who have no axe to grind

• Never buy or sell stocks when the market is open

• If a stock tumbles after you buy it, don’t sell it for 2 years

• Don’t talk about your current investments

Guy adheres to this list so as no to make irrational choices. In checking the stock price, you are constantly receiving sensory inputs that act as calls to action. Similarly, our brain is bad at making good decisions when confronted with sales arguments - this applies to managers too, who have excellent sales skills.

The first idea to enter the brain is usually the one that sticks, so keep your mind blank and avoid other peoples opinions on the company until you have done your own research. Talking about your investments to others leaves you open to multiple biases, reinforcements, and commitments. Don’t do it.

Choose your role models wisely, and clone them

Find people you admire, who know more than you. Try to think and feel as they would. Study them, emulate them. What kinds of people do they keep in their life?

Strive to structure your social circle in a similar way.

Make friends with the eminent dead - study people throughout history who were successful and who were clearly doing something right. Emulate them.

Every serious investor must know how to read a company’s accounts

An obvious one, but overlooked by most armchair investors.

Accounting is the language of business. One must be capable of studying Annual Reports, 10-K’s, 10-Q’s, Balance sheets, and other corporate filings.

Studies such as the CFA, and MBA cover the basics well.

Read regularly and never stop learning

The school system and higher education in general can provide you with a false sense of security. Your learning about investing doesn’t end when you finish a business degree, and in some respects, it hasn’t even begun.

Beware of overly simplistic economic theories that look great on paper but fail to explain and predict reality. Interestingly, Guy, and Charlie Munger, have both found that studying Biology and Psychology help to fill in some of the gaps left by finance-specific literature.

Compound good-will

Perhaps one of the most important lessons. Do things for others. When you meet someone, ask yourself what you can do for them. This has the added benefit of helping you spot givers and takers, which will help you cultivate your own inner circle. Guy recommends a book called ‘Give and Take’ by Adam Grant.

Guy started reading a lot of self-help books; How to win friends, Think and grow rich etc.

He quotes Carnegie, ‘Carnegie explains that the best way of convincing someone of something is to appeal to their self-interest.'

- Use peoples names when you address them - Show a genuine interest in the person.

TLDR;

We are trying to do what we can to tilt the playing field in our favor.

Use self-help books, Re-structure your environment, Socialise with the right people, Make friends with the eminent dead, Clone people you admire, Get envy out of your life, Guard against letting in the wrong types of information.