Investing lessons from Guy Spier's annual letter and my unpublished book
In yesterday's e-mail, I shared excerpts from my friend Guy Spier's final annual letter. (You can read all 15 pages here.) After 26 years, he's closing his hedge fund, Aquamarine Capital, because he's battling grade 4 glioblastoma (brain cancer).
The few sections I shared yesterday were on life lessons. Today, I want to highlight some of his wise investing lessons. Pay attention, because Guy generated a market-beating return of 1,185.6% for his hedge fund...
Guy's nontraditional journey as an investor is similar to mine. Both of us got into the business after graduating from Harvard Business School. (He was in the class of 1993, and I was 1994, though we didn't know each other then.)
We each spent a few years investment banking at an elite Wall Street firm, then worked for an established investment firm or hedge fund. Only then, after five to 10 years, did we strike out on our own.
Guy describes how he learned on the job from some of the best teachers:
For better or worse, I came to [manage] Aquamarine Fund with no direct experience in investing. I did have a background in economics, management consulting, an MBA, and investment banking – but I needed to learn on the job.
Thankfully, I had the best teachers. First and foremost were Warren Buffett and Charlie Munger, but there were many others in the mix, including Ruane Cunniff, Lou Simpson, Tom Russo, Tweedy Browne partners, Peter Cundill, Tom Gayner, Nick Sleep, Mohnish Pabrai, Li Lu, and more recently the amazing participants in the VALUEx conference. I read their letters, attended their meetings, and watched what they did with their capital.
He then shares how he applied their lessons early on:
I looked to reverse-engineer their thinking and where I thought that I could understand their reasons, I invested. I also looked for similar companies in emerging markets and elsewhere that bore the same characteristics. Most of my investments came from this style of thinking.
It led me to many of the businesses that produced most of the 12X result. For example, from Tom Russo I learned about the power of brands, which resulted in successful investments in Nestlé, Weetabix, Alaska Milk, Heineken, and McDonald's. Through Girish Bhakoo I learned about the credit rating business, with investments in Duff & Phelps, Moody's, CRISIL, and CareEdge Ratings. Through Berkshire Hathaway I learned about insurance, which led to investing in Berkshire Hathaway, RLI Insurance, Aflac, American Safety Insurance, and AIG.
I have a similar story, which I wrote about in my fifth, as-yet-unpublished book, The Rise and Fall of Kase Capital. In it, I detail my 18-year hedge-fund career from 1999 to 2017. Here's a draft of the cover:
I wrote roughly 80% of the book in 2021, then lost steam and never finished. One of these days I'll get around to it...
However, I'm happy to share (for the first time ever) an excerpt. Here's the first 10 pages, in which I discuss my background, how I launched my fund at the beginning of 1999, and my experience in the first 15 months.
Like Guy, I had good teachers, starting with my college buddy Bill Ackman of Pershing Square. As I recall in my book:
I wanted to invest [the first $10,000 I saved], so I called my college buddy Bill Ackman... I asked for his advice and remember exactly what he told me: "Read everything Warren Buffett has ever written. You can stop there. That's all you need to know."
I took his advice and was immediately hooked. Buffett's idea of trying to buy dollar bills for 50 cents immediately resonated with me because my parents knew how to squeeze a dollar until it screamed. We rarely went out to eat, only bought used cars, and shopped for our clothes at thrift stores.
I continued reading everything I could by (and about) Buffett and started attending every Berkshire Hathaway annual meeting. Soon, I felt confident enough to start buying a few stocks.
To my delight, most of them went up – some by a lot! I remember investing the entire $20,000 in my wife's retirement account in AOL stock in late 1997 and watching it turn into $120,000 a year later. Making $100,000 so quickly blew my mind!
But I was just like the bull market "geniuses" of today, who speculate madly and have been conditioned to buy every dip. They're no doubt making the same mistake I did back then:
I soon came to believe that I was God's gift to investing. That's what making some quick money will do. (Plus, I was pretty full of myself, with my fancy Harvard degrees and all.)
But in truth, I now realize that I was, as the old investing adage goes, confusing brains with a bull market.
In reality, I had gotten lucky and stumbled into the last blow-off phase of the long bull market that started in 1982 and ended with the insanity of the Internet bubble 17 years later.
With quick success, little experience, and Harvard hubris, Guy and I made plenty of mistakes. In his letter, Guy confesses:
There were plenty of mistakes of various kinds along the way. Sometimes I sold out way too soon: CRISIL, for example, in which I turned what could have been a potential 200X+ return into a mere 7-bagger. I also did not manage to hold on to Aflac, Discover Financial Services, Moutai, Liberty Media, and McDonald's, despite their being fine compounding machines.
Reading about the seven-bagger Guy sold way too early puts a knot in my stomach...
It reminds me of when I nailed Netflix (NFLX) at the bottom in late 2012, rode it up seven times – selling all the way – and exited because it had moved up so fast and I didn't want to be greedy. (The whole point of investing is to be greedy when you're riding a big winner!)
Then, I watched the stock go up more than 20 times from where I sold... It was the costliest mistake of my investing career, which I analyzed in depth back in 2024 on June 7, June 10, and June 11.
As Guy continues, fear also made him sell too early:
At times, I was spooked out of the name at the wrong time. One example is Moody's in the aftermath of the 2008 financial crisis, for fear of litigation. In the case of LabCorp of America, I missed out on 200X for fear of insolvency that never materialized.
More than once I was lucky to have made the money that I did. It was only in retrospect that I realized I'd been running through a bomb factory with a lit match.
He also talks about the opportunities he missed – where he saw something obvious yet, as Buffett says, "sucked his thumb" instead of buying:
Then there are many mistakes of omission – where the company was right there and I had the analysis at hand but I did not act. Over a Cornish pasty on the King's Road, Nick Sleep and Qais Zakaria shared their analysis of Amazon and Costco. I did not bite. Although I understood the economics of credit ratings, payment systems, and financial exchanges, I never invested in Visa, S&P Global, MSCI, or any of the big financial exchanges like the New York Stock Exchange, CBOE, and others.
Longtime readers know how many of these mistakes of omission I've had in my career...
Guy concludes his investing lessons by sharing how he pivoted – as I did – to buying and holding high-quality, low-risk businesses for the long run:
I began shifting away from "binary" outcomes – where the range of results is wide and uncertain – and toward durable or time-friendly compounders, where time is our friend and the range of outcomes runs from "decent" to "superb" with a very low chance of permanent loss.
That is where the portfolio is already positioned and many of the names are inevitable (as Warren Buffett might call them) and familiar to you – Berkshire Hathaway, Mastercard, American Express, Nestlé, Moody's, and others.
You can also expect me, over time, to exit investments where there is more of a binary outcome. Companies where outcomes are less certain, like India Energy Exchange, will likely be de-emphasized or removed.
He emphasized the importance of investing in businesses that can be winners again and again over time:
By contrast, expect me to concentrate on companies where they can rinse, repeat, and grind through. Berkshire Hathaway, for example, now sits on $350 billion in cash, quietly doing incremental acquisitions – most recently, Occidental's petrochemicals business. As with other "glacial moves" (like swapping Procter & Gamble shares for Duracell), these are subtle but accretive deals, the benefits accruing steadily to Berkshire. Even the much-questioned Kraft Heinz will, in time, likely accrue value to Berkshire...
We might own some and study others but whether they're credit rating agencies, luxury names like Ferrari and LVMH, or categories I've studied for years, such as elevators and the unglamorous, cash-generating carpeting and flooring industry, the thread is the same: Wait long enough and you win – maybe a lot, maybe a little, but you win.
This is exactly the approach my team and I take at Stansberry Research and in our flagship monthly newsletter, Stansberry's Investment Advisory. We're always on the lookout for undervalued, high-quality businesses to hold for the long term.
Subscribers have access to our model portfolio of open recommendations, our historical archive, and our best new investment idea each month. If you're not already subscribed, you can do so by clicking here.
Thank you once again, Guy, for sharing your wisdom.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. Greetings from Kenya! It has been a crazy week since I was in Kyiv...
After the 18-hour train ride from hell back to Warsaw, I flew to Milan and stayed with a friend and his family. We went to five Olympic events (ice dancing, short-track speed skating, pairs figure skating, and men's and women's hockey). Between the events, we had three days of fabulous skiing at Crans-Montana in Switzerland.
I flew to Amsterdam yesterday morning, where I took a canal tour and spent time with a friend (from whom I have purchased 27 ambulances for relief work in Ukraine). I met his girlfriend and their baby James, who was born a month ago at 32 weeks. He was only 5 pounds at birth but is up to 6.5 pounds now. He's doing well, so they're taking him home from the hospital tomorrow. I love little babies!
Last night, I flew to Nairobi to visit my parents for the third time in three months. Readers may recall my last trip was a few weeks ago, when my dad was in the hospital due to African tick bite fever (he's now doing much better, thankfully). My parents and I took a nice walk through the tea farms in Tigoni, and they're heading down to their beach house in Lamu tomorrow morning.
Here are some pictures from my recent travels, and I posted more on Facebook here and here:
