August 18, 2024 • 2hr 30min

TIP653: Track Record and Risk w/ Guy Spier

We Study Billionaires - The Investor’s Podcast Network

In this episode, host Stig Brodersen interviews Guy Spier, founder of the Aquamarine Fund and author of "The Education of a Value Investor." They discuss Spier's investment track record, his thoughts on luck vs. skill, how he approaches risk, and lessons learned from royal families about building influence. The conversation also covers Spier's ValueX conferences and how he manages being a public figure in the investing world while staying true to himself.

0:00

-0:00

Key Takeaways

Guy Spier's Aquamarine Fund has outperformed the S&P 500 since inception in 1997, returning 9.3% annually vs 8.7% for the index
Spier believes it's important to be authentic and true to yourself as an investor, rather than trying to optimize solely for returns
Recognition and symbolism are powerful tools for extending one's influence and building loyalty, as demonstrated by royal families
When evaluating investment performance, dollar-weighted returns that account for position sizing are more meaningful than simple averages
As an investor gains prominence, it becomes necessary to develop systems and boundaries to manage requests and protect one's time
The ValueX conferences Spier founded aim to create a community to help participants succeed and live better lives
For introverts in the public eye, it's important to manage one's "social battery" and set limits on public appearances
Spier advocates being a "giver" but in an intelligent way that doesn't allow others to take advantage

Introduction

In this episode, host Stig Brodersen interviews Guy Spier, founder of the Aquamarine Fund and author of "The Education of a Value Investor." They discuss Spier's investment track record, his thoughts on luck vs. skill, how he approaches risk, and lessons learned from royal families about building influence. The conversation also covers Spier's ValueX conferences and how he manages being a public figure in the investing world while staying true to himself.

Topics Discussed

Lessons from Royal Families on Building Influence (2:05)

Spier discusses what investors can learn from royal families about building influence and loyalty:

Recognition is a powerful tool - Titles, honors, and acknowledgments given by royals create loyalty
Symbolism and rituals matter - The settings and ceremonies royals use reinforce their status
Authenticity is key - Being the same person in public and private builds trust
Pay attention to associations - Where and how you appear impacts perceptions

Spier notes: "Recognition is a way of exerting soft power and extending your moat. The more people I can recognize in my life in a genuine way...is going to actually enhance their loyalty to me."

Evaluating Investment Track Records (26:43)

Brodersen and Spier discuss how to properly evaluate investment performance:

Dollar-weighted returns are most meaningful - Account for position sizing and timing of investments
Luck vs. skill is difficult to separate - Even with long track records
Mistakes are inevitable - Focus on learning and improving decision-making
Be honest about performance - Don't try to present an overly rosy picture

Spier emphasizes: "I'd love to cut out the mistakes...but I think that actually those mistakes to 50-50 that I would have done them. And so I would place my performance in the very middle of the distribution of those thousand times."

Authenticity as an Investor (40:20)

Spier discusses the importance of staying true to oneself as an investor:

Don't optimize solely for returns - Being authentic is more important
Align investing approach with personality - Play to your strengths
Be honest about mistakes and shortcomings - It builds trust
Focus on being the best version of yourself - Not trying to be someone else

As Spier puts it: "Stop trying to optimize yourself for something that, for who you think you want to be and become who you're destined to become, and let that be your adventure."

Approaching Risk in Investing (49:49)

The discussion covers how to think about and manage risk:

Risk is subjective and hard to measure - Traditional metrics like volatility are flawed
Focus on permanent loss of capital - Not short-term price fluctuations
Understand business fundamentals - To assess true risks
Position sizing is key - Reflects conviction and manages portfolio risk

Spier notes: "We're all trying to take less risk in our portfolio relative to the returns that we expect to get. And once we move away from a very, very imperfect measure, who's to decide what is more risk and what is less risk?"

The Importance of Honesty and Authenticity (56:40)

Spier emphasizes the value of being truthful and honest:

Don't try to present an overly polished image - Be real
Admit mistakes and shortcomings - It builds trust
Share genuine struggles and challenges - Others can relate
Focus on personal growth - Not just projecting success

As Spier puts it: "If you're living a boring life or you're probably not telling the truth. And this beautiful phrase by Jordan Peterson, if you want an adventure, tell the truth."

Position Sizing and Portfolio Management (1:14:31)

The conversation touches on Spier's approach to position sizing:

Allow winners to run - Don't automatically trim successful positions
Consider investor expectations - New investors may want more balanced allocations
Concentration can happen organically - Through compounding of successful positions
Be mindful of overall portfolio risk - Despite allowing individual positions to grow

Spier explains: "It's not that I woke up one day and said, I want this huge position in Berkshire or American Express or BYD, it's that they went up ten x and I didn't sell any and I didn't portfolio rebalance."

The ValueX Conferences (1:21:53)

Spier discusses the ValueX conferences he founded:

Goal is to create a community - To help participants succeed and live better lives
Combines elements of other successful formats - Like TED talks and YPO forums
Focuses on investment ideas worth sharing - In an intimate setting
Has grown organically - Now with multiple global events

On the origins of ValueX, Spier says: "I wanted to move to Zurich...But all of my network was centered around New York and perhaps a little bit London...And I kind of like said, what if we could bring some of these investors?"

Managing Fame in the Value Investing Community (1:37:23)

Brodersen and Spier discuss the challenges of being well-known figures:

Set boundaries on time and accessibility - To protect ability to focus
Develop systems to manage requests - Can't personally handle everything
Be strategic about public appearances - Limit "public persona" time
Maintain authenticity - Don't create separate public/private personas

Spier advises: "Apply it in a dynamic way and apply it intelligently...We have to say no, have to set up barriers, have to set up gatekeepers, have to set up processes that protect you. You will not be effective [otherwise]."

Balancing Being a "Giver" with Self-Care (1:55:46)

The discussion covers how to be helpful to others while protecting one's own time and energy:

Be a "giver" but in an intelligent way - Don't let others take advantage
Develop systems to manage requests - Can't personally handle everything
Focus energy on what moves the needle - For your own goals and growth
It's okay to say no - Can't help everyone all the time
For introverts, manage your "social battery" - Set limits on public time

Spier emphasizes: "It is an enormous betrayal of ourselves and we have to be true to ourselves. To lose ourselves in helping other people, that is actually kind of a sin. It's a grievous sin. Put on your own life jacket before helping somebody else."

Conclusion

This wide-ranging conversation between Stig Brodersen and Guy Spier covers many aspects of Spier's approach to investing and life. Key themes include the importance of authenticity, honesty, and staying true to oneself - both as an investor and as a person. Spier emphasizes the value of building genuine relationships and communities, while also protecting one's time and energy. His insights on managing fame, being a "giver" in an intelligent way, and learning from diverse sources like royal families offer valuable lessons for investors at all levels. Throughout, Spier's humility and willingness to discuss his own challenges and growth provide a refreshing perspective on success in the investing world.