Billionaire investor and Warren Buffett protege Guy Spier is a graduate of both the Harvard Business School and Oxford University. He came to Wall Street in the late 1980s and soon become a convert to Benjamin Graham-style value investing. Spier is the founder and managing partner of of the Aquamarine Fund, a long-term focused Buffett-style investment vehicle.
Spier and fellow value investor Monish Pabrai said they fulfilled a lifelong dream when they bid more than $650,000 in 2007 in a charity auction for lunch with Warren Buffett.
Guy Spier condenses Chapters 10 and 11 of his recent book “The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment” (Palgrave Macmillan Trade, 2014) into nine rules thoughtfully designed to structure an investor’s environment to minimize the Wall Street noise and make self-discipline easy.
Guy Spier on nine rules
1. Don’t check stocks price so often
Many investors check their stock prices not only on a daily basis but also sometimes minute by minute. We may have a nagging fear that if we stop paying constant attention, something bad will happen to our investment. Seeing the stock price on the monitor gives an investor false reassurance that everything is okay.
Spier admits if you’re speculating on a biotech or Internet stock, it makes some sense to follow the price movements more closely (even daily) ad things can change fast. Otherwise, he suggests “trying to invest in a more measured way, buying stakes in companies that I can hold for years, if not indefinitely.”
In fact, Spier suggests establishing up a system where you only check stock prices once a quarter, or maybe even once a year. He notes even as a fund manager, he checks the price of his holdings “no more than once a week.”
2. If someone is selling you something, don’t buy it
Spier points out that the human brain is likely to not make rational decisions when dealing with a well-argued pitch from a gifted salesperson. He suggests adopting a no-exceptions no-sales policy when it comes to investments. He says: "I adopted a simple rule that has proved extraordinarily beneficial. When people call to pitch me anything at all, I reply in as a pleasant a manner as possible, “I’m sorry. But I have a rule that I don’t allow myself to buy anything that’s being sold to me.
3. Avoid speaking to management
Although it sounds counter-intuitive, Spier says he avoids speaking with the management of the companies he researching.
He argues: "The trouble is, senior managers—particularly CEOs—tend to be skilled salespeople. No matter how their business is performing, they have a gift for making the listener feel optimistic about the company’s prospects... Knowing my own rational limitations, I’d prefer not to expose myself to this potentially distorting influence."
4. Do your investment research in the right order
Guy Spier says the best place to start your investment research is by looking at the firm’s public filings, especially the annual report, 10-K, 10-Q, and proxy statement. He points out that these documents are not sufficient in themselves, but they do provide a lot of valuable information you can rely on, especially for U.S.-based companies.
It is also very important to carefully read the accountant’s audit letter as it can provide a hint of potential problems.
Following a thorough review of corporate filings, Spier says he then starts to look over "less objective corporate documents, such as earnings announcements, press releases and transcripts of conference calls."
5. Avoid discussing your investment ideas with biased people
Spier says bouncing your investment ideas off of others is important, but your need to be careful who you choose to share with. He suggests you: "Pool your knowledge with other investors, but stick with those people who can keep their ego in check."
6. Do not buy or sell stocks during market hours
Another one of Spier's investing rules (inspired and shared by Mohnish Pabrai) is to not trade stocks during regular market hours. He says the best plan (under most circumstances) is to call up your broker the day before you want to buy or sell stock and request to trade the stock at the average price for the upcoming day.
7. Do not sell after a big drop
Spier rightly points out that selling a stock that has taken a big hit is "emotionally fraught". He says he follows a rule to deal with the psychological forces aroused in these situations that Pabrai pioneered: If he buys a stock and it goes down big, he will not sell it for at least two years. Spier argues that this "rule acts as a circuit breaker, a way to slow me down and improve my odds of making rational decisions."
8. Avoid talking about your current investments
Experience is the best teacher, and Spier said he's learned it is "a bad idea to speak publicly about stocks that I own. Once we’ve made a public statement, it’s psychologically difficult to back away from what we’ve said—even if we’ve come to regret that opinion."
9. Develop your own investing checklist
Guy Spier says that that most investors need a written checklist to stop them from making the same mistakes. In fact, he spends an entire chapter in his book developing the idea of a personal investing checklist.
A list of all the investing mistakes that you have made in the past is a good starting place. Afterwards, every time you consider buying or selling a stock, carefully review your list to be sure you are not going to make the same mistake again.
Spier describes his version of an investing checklist: "A checklist is not a shopping list of the desirable attributes that we’re looking for in a business. It’s a list of predictable errors. My checklist includes items like: Is a top executive going through a tough time personally that might cloud his or her judgment? Is there a key part of the company’s value chain that is vulnerable? Is the stock cheap, not just based on what I think will happen in the future, but on where it is trading today?"