What has a bar to do with finding investment ideas? Guy Spier on idea generation, process & research

hello YouTube we just learn what the bar has to do with his research process and so the curious about it and subscribe to our channel thank you hello guy welcome back to our interview yes this time we want to talk about process yeah so let's start with the beginning where do you get your ideas from exactly where do I get my ideas from I thought you might ask how do I get my ideas and the answer is with great difficulty and I'll give you an analogy that I actually used it in my annual meeting but I really think it's true so I feel that the way people want to talk about their investing process is they want to put themselves into the shoes or into the mindset or describe themselves as being like a fighter pilot fighter pilots highly trained has all the instruments right there has this finely tuned machine and he selects the target he flies towards it and he drops a precision bomb on the target that is our idealized and subconscious idea of how an investor goes about selecting stocks and managing the portfolio so I want to give you a different idea and I hope this doesn't reflect badly on me but I think that a better model is of a drunk stumbling around in a bar trying to find the drink and he's trying to grab a drink not a handle and he's sort of stumbling around and he says mind is all confused and why do I say that I say that because we have a very bad model of how our brains actually work and the reality is that our brains are we are highly rational and the worst is I think when you're smart because if you've had what do I mean by smart I mean smart grades at things like mathematics and other subjects which require you to be highly focused so that develops the subjective sense that you like a fighter pilot and so you can start believing that through superior intelligence analytical ability that you can sort of hit the target and I think a better self-image is of being a drunk and if you perceive yourself as being a drunk in a bar you're gonna set up different rules for yourself and so I believe that the vast majority of what I think you would call process and what I'm doing is I'm trying to set up an environment in that bar such that when I finally launch for the drink or say call the drinks in this analogy the investment I've launched for a good one so that process starts with just don't do anything to the portfolio don't engage in trading fees allow stocks to live in the portfolio for an extraordinarily long time select stocks that you can allow in the portfolio for an extraordinarily long time without looking at them too hard so the process is all assuming I am assuming that at some point I will be irrational or that I'm continuously irrational and you know I'm trying to also set up my investing life and world in such a way that I don't ever have to be smart I would argue that the abilities that were needed to bring berkshire hathaway from where it was today when it were was when it started to where it is today are far greater than the abilities that the current managers will need to bring berkshire hathaway from where it is today going forwards you want to create an environment where you need less and less intelligence and ability over time so that's what I'm trying to build in multiple ways around me but specifically to where do I get my investment ideas here's another thing that I believe that all investors should throughout the window so I I cannot I have to accept that I come from a particular background I have a particular set of ideas and knowledge about the world in my head and I need to work from where I am not where I'd like to be I would tell you that if I was starting my investing career again or if I was starting my business career again and with the intent of becoming an investor I would not have studied PPE at Oxford and I possibly wouldn't have done an MBA at Harvard Business School a course that I would very much have liked to have done is called symbolic systems at Stanford and it's the same course that Reed Hoffman did and it's a combination of computer science and and then sort of general subjects around politics and psychology and sociology I think that I'm at a huge a disadvantage because that is a world that grew up mainly after I graduated from business school and it's not a world that I have engaged with as much as I would have liked but I can't start analyzing all the different parts of the world that I don't know there may be some extraordinary companies in Indonesia there may be some extraordinary there have been some extraordinary companies that have come out of Silicon Valley so I have to start with the world that I know and work incrementally and I think that I have to accept and my investors have to accept that that's where I'm coming from but within that where do my ideas come from so I'm trying to look at business models that have moats that are growing to the extent that they have moats that are growing I'm trying to get to know the managers I'm trying to get to know the people who invest in those companies I'm trying to get to to get more insight into whether it's really the case that the moat is growing or not I'm trying to find other businesses where maybe the motors growing better and faster and so I'm going from if you consider the island of knowledge that I have my circle of competence I'm trying to see where I can grow it into other directions and that involves many different kinds of activities I've only really started understanding I think well in a way that can really help me now so when you ask where do my ideas come from it comes from an acceptance of my own limitations and then but then work to expand my circle of competence in ways that I know how to do that so just to summarize or to share with you that the places where that goes so what is you know learn about new ideas read about them but then a new thing for me is develop relationships with other investors who know about areas that I might want to learn about so later this year I'm going to visit with Sarah Madden in in Richmond Virginia I already talked earlier that I spent time with Josh Tarasov and I spent time with Nick sleep and developing those relationships is finding ways to add values and in their lives so help them try and understand what they're interested in the world and see if I can help them I've also discovered that my investors not all of them the some of them are some extraordinarily interesting people I didn't spend enough time learning from them and there are some of my investors that I can really learn from and I have some really I've started having some really good conversations with them and then something you know for those of the people who watch this interview do not learn from my book that you should not speak to company management one should I simply simply got that wrong and if I write a sequel or a an extra sort of like couple of chapters to the book that's one of the first things I will talk about so talking to company management's not just about their businesses but trying to be a source of value in their lives and helping them with what they need to find whether that's you know help with their children help with where to go on holiday Restaurant choice but also what's going on in their business and what their professional challenges are but to be a source of value in their lives so that they can then reciprocate with insights into their businesses I think are always and all of those ways I would tell you are and something that I figured out is human intelligence so I think there are a lot of people who are in with acting with the belief that artificial intelligence machine learning other kinds of kind of number crunching approaches to the world are going to help them deliver better investment results and I actually believe that that's not the case I think that it's going to be human intelligence and actually Berkshire Hathaway is a model for that and I've been working hard to do that around me and so the main part of the process I would I officially argue if you wanted me to summarize is investing in the people around you creating goodwill is the expression that I like to use invest in your surroundings invest in people help the people help help the people who will help me get insights into where to direct a current funds investments make them feel happy that guy Spier exists make them feel happy the aquamarine fund exists make them wake up one day and feel compelled to send me a great insight or a great investment idea because they're grateful for the genuinely grateful not pretend grateful genuinely grateful for things that I've done for them value that I've delivered in their lives so I would argue that's the most important process if you like you know you talk which is now you talked about working together with other people how much time do you spend like to sit in the room and think for yourself to put it in this kind of picture not enough you know Pascal is the famous mathematician who said all of man's problems come from the inability to simply sit in a room and think for oneself that's what this room is about is sitting in here and thinking for myself and I I would tell you that if I get half an hour a day that's really really good really good but something else that I think that is really important for viewers of this video the Gaudi community to think about is that we have this image and I'd only know exactly where it came from that Warren Buffett is sitting in a dark room just thinking and you know it's perhaps not helped by Todd Coombs saying that he reads 500 pages a day or something and I think that's something that again is something I learned over the last few years Warren Buffett maybe spends more time thinking in a room now than he used to in the past he used to go out a lot meet people talk to people get to know who they are find out what insights they can give you the we well know they used to travel to New York and go visit all sorts of people in their offices so I don't think that you can do this job well by just sitting a room and thinking and getting out and meeting people I would actually argue that I travel a lot but I think that I could do a better job at meeting people meeting the right people and actually I've invested in that so I used not to be a client of an expert network I've now become a happy client of expert networks which are basically dating services for industry experts and the insight that I got though that in one of the reasons why I was willing to use them is that I I go through the expert networks I work on a disclosed basis so I I let the opossum on the other end of the phone know who I am they're welcome to Google me and so it's some people used expert networks they use them anonymously so the experts they get put in touch with don't know they're speaking to I don't do that and then over and above that I try if to the extent that the past is interested to develop a relationship with them bring them into my circle of people often those people are interesting they're often former CEOs former former CFO's former marketing officers of either the company that I'm investing in or perhaps a competitor and they're worthwhile people to know and they can benefit so I can't remember what that was Nance to but I'll tell you something that is perhaps again one of the more important things that I could say to the valued our community if we if I want to be an investor I need and and feel good about myself I need to justify my existence on the planet I need to justify my existence to the communities that I'm a part of they need to genuinely feel like I'm adding value so if you talk about investors hopefully I'm delivering good returns better than they could get elsewhere and hopefully I'm charging them less for that that's kind of the little strategy or the Costco strategy applied to investing but we also need to be value added investors to the corporations that we invest in and that means I think taking a genuine interest in the health of the corporations the their leaders and their employees and to think long term about those companies in ways that maybe the managers don't have time to think and that is both a moral imperative if we're to justify existence on the planet it also is a way of making the world a better place if we had really good owners with businesses then managers of businesses could think more about how to deliver to their stakeholders so we have an important role to play I would actually say that there are some there's a style of aggressive activist investor that you get out of the anglo-saxon economies that I don't think long term is value added that's not that's not helping us build better Ziya teas and stronger democracies how many companies do you research every year do you have a rough learner and how many of them do you miss it so not enough is a simple answer look so having having talked about human intelligence I really enjoy running screens I used to run screens on on Capital IQ I ended up deciding that I couldn't afford both Capital IQ and Bloomberg know some things I liked about Bloomberg more I ended up sticking with Bloomberg they have their screening is really good so you know I'm fully aware that there's this concept of a company that screens wealth but it's not actually a good investment and I think that the world has become far more difficult for those of us who studied accounting because so much so many of the businesses that do well or that are extraordinary businesses today come out horribly in the accounting so what is the point of analyzing them through accounting I had a conversation with a I think highly respected investor that you should interview Jeremy deal who talked about learning about companies from podcasts and I've shared with him back a guy who runs a newsletter out of Taiwan called Ben Thompson he runs a newsletter called strata quarry find myself having to read these things because the company accounts don't give us what we're asking for and I started you asked me one question and I'm answering a different question reminder the question is I have many Calculus do you research yes so the reason why I went to screens is that screening is a way of glancing at a company and seeing what's going on with it and you know just to rewind on a little bit on process or sort of like putting myself in the bar and trying to reach for the for a good drink if you like I'll constantly see companies on screens that I think look interesting and I kind of filter them down in in a couple of kind of like watch lists and the first watch list well the first of the screens will throw out few hundred companies but the watch lists go from like sort of 200 companies to 50 companies and I try to be discerning about moving them between those watch lists and I try to look at those watch lists extremely and frequently so I think that you could say that I have a broad universe of maybe 200 to 250 companies something like that but many of them make getting less than 5 minutes of my time and so it's a I don't know what kind of distribution it is but there is a small number of companies I'm spending an awful lot of time with there's a large number of companies I'm spending very very little time with and but I'd say that very broad universes is 500 but the ones I really spend time with is maybe 20 30 having said that I think that there's an enormous amount of fundamental analysis that I could have done of the last 20 years that have not done and mainly I would tell you Tolman the reason for it is that there's running an investment business and then there's actually doing the investment research and one of the greatest challenges that I've had is getting the investment business running well enough that I can spend my time on research and I think that that's only really happened for me over the last year or two actually it's got something to do with scale it's because things to do with having the right stuff I can tell you that getting regulated here in Switzerland was an enormous amount of work it happened two or three years ago and only now is everybody around me and myself comfortable so I think there's a lot more that I can do there and one of the things that I've learned is do the analysis yourself but go find people who can help you do the analysis interestingly enough you a company whose shares seem to have imploded recently as well I'm not gonna name the name I was almost going to name the name but maybe that's not a smart idea but I realized that I didn't understand their economics particularly well so rather than plow through their 10ks or do endless and internet searches I've gone straight out to net expert network and I said I want to find somebody who's probably a former senior exec at one of these three companies who can explain the global economics of the industry to me so analysis can also be reaching out to find the analysis find me somebody who can show me you know you don't have to reinvent the wheel but there's a lot more that I can do on that front north a lot more it makes you put the company in this small pocket with I do research in it and I spend time my time getting deeper into it so so you know I'm gonna mention the name of a guy that I'm wondering how many in that value - audience no but it's really fascinating personality and I have no idea how I came across him but so I discovered reading probably Sports Illustrated something there's a man called Dan Bilzerian you know who Dan Bilzerian is so you you're gonna look up hey this guy needs no more promotion I don't know why I'm bringing his name up but look up Dan Bilzerian now amongst many things he has a theory around women so when he has a when he has a party you know his ideal ratio of women to men is like sort of ten women to one man and he basically says straight their interviews where he just says straight look yeah I've just found that it's much easier to get a nice girlfriend if I if I if I get myself in environments where the ratio of cute women to men is ten to one I wish I'd thought of that when I was not married and looking that was something that I didn't do I went to places where there were 50 50 but I'm looking to serrated so what do you do you're drunk in a bar who wants to reach for a good ring well one of the things you do is you go to the person who runs the bar before and you say listen I'm gonna be in the bar I'm gonna be drunk and you're gonna help me just to reach good good drinks you just take all the bad drinks you're gonna put them far away but all the good drinks you're gonna put them within arm's reach so what am I trying to do I'm trying to find those quote good drinks or good companies and put them within arm's reach and of course it's really hard to tell and I think that other people have better skills in this regard so what I'm trying to do is to pull into these smaller and smaller watch lists the things that are good companies that ought to do well that where if there's something some kind of price drop or if there's some development I'm more likely to pick up on it and to buy into it and that's what sort of like pulling them in but it's a so so this is descriptive not prescriptive in my case it's a rough and haphazard process and I don't I don't know if being more disciplined about that would make it any better if you like but that's that's what I'm doing I'm just trying to what you know in the times when I can I'm trying to walk around that bar and put the things that are more likely to taste good and to be good drinks a little closer to me that's what I'm doing with those watch lists if you like but in a certain way you know be careful who you pick as your friends so if if we just you know those watch lists can exists in the minds of friends so you know why did I spend time with Nick sleep and Josh Tarasov I think that they both have extraordinarily good filters they have an interesting way of looking in the world looking at the world so the companies that I discuss with them in a way of sort of keeping them on on a certain kind of a watch list a mental watch list if you like in making them more present in my mind making it more likely that I will invest having said that I've had many conversations with mainly with Nick sleep and not so many with Josh Tarasov on Amazon and I've never Amazon to my great shame and to my great you know in a certain way um unrecognized costed severe missed opportunities but so the watch list it doesn't just exist on a spreadsheet or in a in a monitor it also exists in the minds of the people that you hang out with who'd you choose to hang out with how long does it take for you to grab a drink or buy into a position so the fastest that I remember was Bank of America where I read that Warren Buffett had given them five billion dollars and I instantly understood that that had dearest the company and made it extraordinarily cheap with no risk of bankruptcy so that was very quick that was within days but then there are companies where I have a similar kind of flash of insight but there are other aspects that I just find myself not able or willing to get comfortable with so you know I do Maine but there's well actually it may not be public public domain but it took me a long time it took me more than six months to figure out that I actually ought to own fiat-chrysler at the time which has been a great winner for me and so that took and Bank of America has been a great winner for me but both took one took one week one took six months I think it's hard to tell because because if you're genuinely interested in the industry then in a certain way you're doing research on it all the time if you like my big insight is to stop actually trying to absorb information from reading stock now there's nothing wrong with reading but combine it with a knowledge of the personalities and the people involved because then you can kind of get a stereo vision and you see what's being written about them or by them and it was being written in the industry and then you hear what they're saying both publicly and privately and that becomes far veteran I have not I don't I just don't think I've spent enough time talking to people actually and it's fun to talk to people so I need to find more opportunities to talk to them in the right places and you know Omaha's an amazing place to meet people and talk to people I think that actually Tillman so here's an interesting thing and again something for your listeners or viewers so is to go back to the idea of cloning what part do you clone I and forgive me for mentioning him so many times but Nick sleep is the most famous investor you've never heard of he's extraordinarily successful and he's achieved an enormous amount of success without being very well known at all and he's been highly effective and but I having learned at the altar of Warren Buffett Warren Buffett there's a side to Warren Buffett that likes to be famous that enjoys the crowds in Omaha and I thought that that must have something to do with being a successful investor so to some degree after writing the book I sought out sort of opportunities to develop a fan base if you like because I thought that's what was necessary one of the problems with having lots of people who know who you are is that if I show up in Omaha a lot of people want to talk to me but I don't have deep and interesting conversations with them they all want to meet the guy who wrote the book they want to press the flash and it's hard to create the time to have real learning so if you have minor celebrity status you can actually be a very I wouldn't say lonely but it can be a what's the word a I want to say alienating but it's not even that you're alienated it's you're distanced normal conversation and it's in normal conversation that you get to learn about the world so I realized that actually anonymity can be a very useful way to learn about the world and when you're not anonymous the conversations all turn into the same thing they want to know about the same set of things that you wrote about you know the famous story of Siddhartha is that he was a prince that he disguised himself as a common man he disguised himself as a common man so you could have real conversations and I think the point that I'm making to you is that being well known is not actually a benefit when it comes to being a good investor in fact it can be a great cost because you can't get real information and you know it's interesting for me that Charlie Munger likes to travel economy class and almost in semi anonymity because he learns things about the world that he doesn't learn if he is traveling privately or first class where you know now the world's a stage if you're walking through a stage constantly everything's been staged you don't have real interactions with people and so I went through a phase after my book I believe where I was having less and less real conversations with people and now I'm finding ways to read to reset that partly through the expert networks and partly through various jeffersonian dinners that I've had so when I put together a Jeffersonian meal I pull together nine to twelve people in a private room where there's only one conversation around the table and and everybody learns from each other and you learn an enormous amount and so I found ways to get that back actually and but more conversations real conversations with real people you know what how do you limit holding so when is it enough that percentage of a portfolio for certain holding and how do you protect yourself from compounders too early yeah exactly I think that my problem is not selling compounders too early it's selling non compound it's not selling non compounders so I think that one of them the slope so you know where does the simple insight come from not self compound as this is a study that I read about 20 years ago in which they tip picked dozens of ran that well this has appeared in The Wall Street Journal and I'm sure that Jason spike has written about this but they were looking at dead people well no they were doing studies of portfolios of Bro some brokerage firm and it turned out that dead people so people where the had they died and the portfolio had run for a few years before they distributed the funds in the portfolio did often way better than live people they started awesome selves how's this possible so the reason why is that if you leave take a random portfolio and do nothing with it it will outperform many many portfolios even if you just run it statistically but then when you examine those portfolios and ask why did that portfolio outperform my memory of the article and it influenced me a lot was that in every portfolio there'd be one or two bankruptcies companies that went to zero and there'd be like the vast majority of the portfolio where the company did absolutely nothing for a decade but then there'd be one or two companies which were rocket ships which did a hundred x and those were the companies that delivered all of the returns and so if you apply that to if I play that in my own life that's this idea of just let your winners run so the idea of portfolio rebalancing is a really bad idea you're selling your winners and buying your losers potentially and so I've taken that idea on board very very strongly and I'm very very reticent to sell anything to do any moves in the portfolio I think that I often buy things so from time to time I buy things that are solid double or triple but they're not the world's great businesses and now I should be far more trigger-happy and what will happen is that I will own it for way longer I mean that was the case for me with General Motors for example where I got some returns out of it but it took too long for me to realize that this was never going to be a longer-term compounder so my answer to your question is first of all develop a habit of just owning forever now there I'm just learning the lesson of Warren Buffett you know he tries to their favorite holding period is forever and then actually be rare very reticent to buy businesses that are not long-term compounders yeah interesting you said you're very cautious investor what makes you feel and comfortable with the company and sell so I think that first of all I've gone it wrong too many times but you know what I really ought to have done in the case of Horsehead was realized that the management was gambling with all of the shareholders money and it would have been hard for me to see but there are worse in retrospect indication so I think that the minute you realize that the management the minute I realize that the management's interests are not aligned with mine that really is the time to sell pretty much you know if you're only selecting so I would anyway only select a business where I think that the moat is at least the same but hopefully it's improving so you know if you've got that going on for you you feel like there ought to be able to hold this business for the rest of time now the focus is on the management and management don't wake up every day and say I'm gonna get things wrong they want to try and get things right but the minute you realize that they're trying to get things right on a different time scale they have it their interests of diverge from mine because they're in a different security or they're focused on taking cash out of the business because they're getting a divorce whereas I'm focused on them leaving the cash in the business because that's how we'll all make money long term when there's a divergence like that that is probably the right time to sell not that I've been successful in implementing that much of the time so thank you very much for the second part of all of you thank you it was fun

Channel: Good Investing Talks

Views: 23,501

Rating: 4.9648504 out of 5

Keywords: Value Investing, Value Investors, Value Investment, Valueinvestment, Investing, Warren Buffett, Charlie Munger, guy spier, aquamarine capital, investing concept, value investor, stock market, mohnish pabrai, investment process, long-term investing, berkshire hathaway, investment philosophy

Id: pjLNxxmf_dM

Length: 35min 51sec (2151 seconds)

Published: Mon Nov 18 2019

Reddit Comments

[u/mikechama]

Great stuff here. Thank you for posting!

[u/mag300]

Nick Sleep - never heard of this guy before, anyone could share more about him?