Value Walk Exclusive Interview: Guy Spier PM of Aquamarine Fund

I hope the readers will enjoy this special treat. I had the privelege of conducting an interview with Guy Spier. This interview is being published in conjunction with The Manual of Ideas, which is a great value investing site run by run by my colleague, John Mihaljevic.

Guy Spier is 45 years old and for the last 14 years has been the manager of Aquamarine Fund, an investment partnership inspired by the original 1950’s Buffett partnerships with market beating returns. Since inception in September 1997, Aquamarine returned a total of 221.6% versus 36.7% for the S&P500 and 12.8% for the FTSE100 (data as of December 31st2010).

Guy Spier is married with 3 children. In June of 2009, he moved to Zürich, Switzerland from New York City. He completed his MBA at the Harvard Business School (class of 1993) and has a First Class degree in PPE (Politics, Philosophy and Economics) from Oxford University, where he studied at Brasenose College. Upon graduating, he was co-awarded the George Webb Medley prize that year for best performance in Economics. He spent two years working at Braxton Associates (now part of Deloitte Consulting), and 6 months as a stagaire at the Forward Studies Unit of the European Commission in Bruxelles. He has appeared in various articles and magazines – with commentary on various issues, and also in connection with his charity lunch with Warren Buffett and Mohnish Pabrai.

Coverage of lunch with Warren Buffet, June 2008

Interview with Bloomberg TV, August 7 2009

In New York, Guy served for 4 years at the President of the Oxford Alumni Association of New York, and was formerly on the advisory board of the Dakshana Foundation and is an inner circle sponsor of TED India.

Hi Guy thanks so much for your time I greatly appreciate it.

Hi Jacob, I am ecstatic to meet you and to be doing this interview.

What attracted you to value investing? About how old were you?

I was about 28 years old when I came across The Intelligent Investor ,and then pretty quickly after that having read the introduction to the book by Warren Buffett, I read the Roger Lowenstein biography (Warren Buffett: The Making of an American Capitalist ).  Afterwards, I ordered all the Berkshire Hathaway annual reports. There was no, or little email at the time, so I remember calling up the company, and ordering the report which came in the mail two or three days later.

From there I started ordering the annual reports of the companies that Berkshire Hathaway had investments in; Geico, Coca-Cola, Cap-Cities, and ABC. What attracted me was that I was an investment banker at the time raising money for start-up companies and in order to be successful I had to be extremely aggressive about projections and in explaining what I believed those companies delivered. In this role I believe I was being put into situations where in order to do my job, I was being forced to mis-represent the truth and overstate what actually happened.

What came as so obvious about the whole value investing thing is it allowed you to be a mild, quiet, conservative person which was much more in tune with what I was.

It was a real revelation for me. I remember sitting in my office located at 44 Wall Street, and feeling like I wanted to be doing what Warren Buffett and Charlie Munger were doing, not what I was doing at the time. This was within three months of reading The Intelligent Investor, and I was already planning on leaving my job.

So I started interviewing with Value Investment firms like Tweedy Browne and finding ways to meet people like Carley Cunniff of Ruanne Cunniff, and Tom Russo, and I was just figuring out a way to get into that world. Now value investing and the Buffett phenomenon are better understood and widely accepted, but at the time, I was extremely impressed by how successful Warren Buffett was, and how different an animal he was to most corporate and financial titans such as corporate raiders, for example, who were normally the ones that I read about having success in the investment world.

Why did you decide to start your own fund?

I was actually looking for a job as an analyst, and I thought that was the role for me, but strange things happen in the world. In my case, my dad came up to me and said, look I have been running this business Aquamarine chemicals, and now is about the time you should start thinking about starting your own business. Don’t make the mistake I did by working for someone else for the next forty years. I will start you off with some funds, and you start learning the investment business.

So I started learning about investments. Once I started investing his money, he brought a couple of his partners to me as well. While reading about the fund world, I figured out this was a great way to manage one account rather than multiple accounts. In turn, I left my job at the investment bank in 1995 and a year and a half later I had launched Aquamarine Fund. I launched it with no real investing experience, and by that I mean I had bought three or four stocks before I started the investment business and had not worked for anyone else in the investment business.

What would you describe your investment philosophy as? Is it Cigar butts, GARP stocks, etc.?

Pretty soon after I started, I fell in love with this whole GARP idea. I spent a lot of time around Ruane Cunniff of Sequoia Fund, researching his idea,s and attending their annual meetings where I had the chance to listen to, and meet some of their brilliant investors and analysts, including Bob Goldfarb, Greg Alexander, Jonathan Brandt and Girish Bhakoo. And learned more about why Warren had moved into the business of buying, and paying up for better businesses.

Something that I learned during the financial crisis was that when you pay up for a better business you can suffer greatly when the price people are willing to pay for that business goes down dramatically as it did in 2008. I think that many better businesses fell in price much more rapidly than other businesses because as the crisis came about, many investors were not willing to pay up for growth; or quality.

However, while I lost more money owning these businesses than I would have if I had owned the right cigar butts as you mentioned, I have gained an important insight which explains why I was in some of these garp stocks and it is this:

If you talk about your stocks it will affect how you think about them, and the portfolio decisions that you make about them. At the time, I did not believe it would skew my decision making.  But if I go back over the life of Aquamarine Fund and examine at my letters to investors, I can see clearly how this created a bias for better

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