“Table 6 is the record of a fellow who was a pal of Charlie Munger’s — another non-business school type — who was a math major at USC. He went to work for IBM after graduation and was an IBM salesman for a while. After I got to Charlie, Charlie got to him. This happens to be the record of Rick Guerin…” — Warren Buffett’s introduction to Rick Guerin in his essay: The Superinvestors of Graham-and-Doddsville.
Rick Guerin: Background, bio, returns & philosophy
Rick Guerin was made famous in Warren Buffett’s Superinvestors of Graham-and-Doddsville essay but little is known about his life and investment philosophy after the essay was published.
Like many of the ‘Superinvestors’ Rick Guerin never went to business school. He majored in math at USC after which he went to work for IBM as a salesman.
Soon after Warren Buffett convinced Charlie Munger to leave the law business, in favour of money management, Charlie Munger convinced Rick Guerin to do the same, leave IBM and start managing money.
Luckily, he was rather good at it.
The results speak for themselves. Between 1965 and 1983, against a compounded gain of 316% for the S&P 500 Rick Guerin achieved a return of 22,200% — that’s not a typo. Warren Buffett was quite convinced that Guerin’s education, or lack of it helped he achieve such lofty returns:
“…idea of buying dollar bills for 40 cents takes immediately to people or it doesn’t take at all. It’s like an inoculation. If it doesn’t grab a person right away, I find that you can talk to him for years and show him records, and it doesn’t make any difference. They just don’t seem able to grasp the concept, simple as it is. A fellow like Rick Guerin, who had no formal education in business, understands immediately the value approach to investing and he’s applying it five minutes later. I’ve never seen anyone who became a gradual convert over a ten-year period to this approach. It doesn’t seem to be a matter of IQ or academic training. It’s instant recognition, or it is nothing.” — Warren Buffett
What happened to Rick Guerin?
Little is known about Rick Guerin and his style of investing, but after 1983 he virtually disappeared and readers of the ‘Superinvestors’ essay started to ask, “What happened to Rick?” Even Buffett was once asked and he attempted to answer this question by saying that Rick Guerin wanted to get too rich too fast. As a result, he used margin to leverage his funds excessively, magnifying both profits and losses. This increased volatility could have been a reason for pushing him out of the money management business.
You can see in the chart above how volatile Rick’s returns became over the years. Indeed, Rick Guerin suffered a 62% cumulative loss in the period 1973 to 1974 due to high levels of leverage and as a result of these two disastrous years, Guerin’s CAGR collapsed to 3.7% between 1972 and 1977 — that’s a compound return of 19.97% over five years, hardly ‘Superinvestor’ performance.
There’s no doubt that these poor returns were a direct result of Rick Guerin’s excessive leverage, not bad stock picks. Many of the shares Rick Guerin held during his time as a money manager were also found in the portfolios of Buffett and Munger.
As fate would have it, Rick Guerin and Charlie Munger are now working together as board members at the Daily Journal Corp. Between 1985 and the early 2000’s he also held several other management positions at various companies.
Mr. J. P. Guerin served as Chairman of PS Group Inc. (PSG) from 1985 to 1991. Mr. Guerin has been Vice Chairman of PS Group (alternate name is PS Group Holdings Inc.) since 1997. He has been the Vice Chairman of Daily Journal Corp. since 1977. He served as Vice Chairman of PS Group from 1991 to 1993. He serves as a Director of PS Group since January 30, 1996. Prior to retiring in 2002, Mr. Guerin served as a Director of Lee Enterprises Incorporated, a company owning newspapers. He served as a Director of PSG from 1978 to the 1996 Reorganization was consummated.
Now Rick Guerin and Munger manage the Daily Journal’s share portfolio, as the following statement, found the in the Daily Journal’s most recent SEC filing describes:
“The decision as to particular investments will be driven by the Company’s belief about the risk/reward profile of the various investment choices at the time, and it may utilize government securities as a default if attractive opportunities for a better return are not available. The Company’s Chairman of the Board, Charles Munger, is also the vice chairman of Berkshire Hathaway Inc., which maintains a substantial investment portfolio. The Company’s Board of Directors has utilized his judgment and suggestions, as well as those of J.P. Guerin, the Company’s vice chairman, when selecting investments, and both of them will continue to play an important role in monitoring existing investments and selecting any future investments.”
Rick Guerin: Articles
- Rick Guerin | Base Hit Investing
- Mohnish Pabrai on Patience, Advice from Buffett
- Munger’s Daily Journal Broadens Investment Portfolio
- Damn Right E – The Economist
- If Charlie Munger Didn’t Quit When He Was Divorced, Broke
- Small Stock Investing: The Path to Riches? | Greg Speicher