How did Mohnish Pabrai inspire Guy Spier? What are Guy’s mistakes?

At the beginning of October 2019, we had the chance for a series of interviews with Guy Spier of Aquamarine (www.aquamarinefund.com and www.guyspier.com) in Zurich. In this part of the interview, you can understand how Guy became the investor he is today.

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What mistakes made Guy Spier the investor he is today

[00:00:00] Tilman Versch: Hello YouTube. I just learnt what Guy Spier learnt from Mohnish Pabrai and Charles Manger so you can learn it, too, and if you like it, subscribe. Thank you.

[00:00:20] Tilman Versch: Hi, nice to meet you in Zurich. Thank you for inviting us to your library.

[00:00:24] Guy Spier: It is only a pleasure and it is also a pleasure to see German quality and precision being used. I should have expected it, but I am still mildly surprised.

[00:00:36] Tilman Versch: I try my best.

[00:00:39] Guy Spier: You are doing very well.

[00:00:41] Tilman Versch: Thank you. I named the topic of our first part of our interview “Becoming Guy Spier”, and I want to ask some questions that are broader. Let us just start with it. What mistakes made you the investor that you are today?

[00:01:02] Guy Spier: How much time do you have? I would need to talk for hours and hours and hours. You know, I think that, and by the way for the listener, they should know that I did not know what these questions were beforehand. It is a key approach to life, is to take your mistakes and learn as much as you possibly can from them. It is through our mistakes who we become who we are. I would say that I wrote about it in my book.

The mistakes that I made to go and work for somebody that I did not respect and admire. Not only did I not respect and admire him, but I also think that some of his behaviors exhibited the worst of what the financial markets are. That taught me an awful lot, but it only taught me an awful lot because I was able to find a way to get into a state of mind where I was willing to learn from that. I think that the worst thing that I see from time to time in people is that they feel that when they have made a mistake, that is it. Mistakes are the most beautiful blessings or if you see mistakes as the most beautiful blessings then you will get the opportunity to improve. I do not think I would have discovered Warren Buffet. I do not think I would have become an ambassador. I think I would have done many other things. It was the fact that I was sitting in my office on Wall Street in Downtown Manhattan and was just thrown back on myself that gave me the space to start exploring other things. So that certainly was the biggest mistake.

So, we go from one of the first mistakes that I have made to the most recent mistake I have made. I have talked many times about investing in Horse Head holding and I think I got some new insight into that recently which is important. I have had a couple of investments in my portfolio that have performed horribly over the last year or two, but it does not bother me in the slightly because I sized them right. I could not have foreseen many of the things that happened at Horse Head holdings, but I could have sized the investment right and the investment was clearly wrongly sized, and I think I have become a lot more aware of how important it is to size your investments to the right degree. We all know the Kelly formula but we “kind of know” it in theory but putting it into practice is an art that I am learning more about.

How Guy Spier changed his view on mistakes

[00:03:56] Tilman Versch: How long did it take for you to find this blessing or dealing with mistakes as a blessing?

[00:04:02] Guy Spier: So, I think that where it started for me, and it is why when I meet people who have not lived in the United States, I kind of want to encourage them to go live in the US. Because I think that the US is sort of in the air, this idea of succeeding against the odds and using failure to succeed.

At the time I was at D H Blair, I had been living in the US for two or three years, so I was starting to really absorb what exists in the atmosphere. Then I had just discovered Anthony Robbins and Anthony Robbins has been a controversial figure. Many people do not enjoy either his seminars or other things about him. I found that he gave me just what I needed, which was the ability to reorient my brain to see failure and to see mistakes and setbacks in a different light.

In a certain way, so many times when something bad happens, we have this natural and very fast reaction in our body to start feeling bad about ourselves. It is almost a timing issue that we must get there before that sets in and stop it and I just to give an example, not to do with investing. You go out running. I went running this morning before I saw you where it is a beautiful day but what if you go out raining and it starts raining? There’s a body reaction that says, “Oh it’s raining. I should not go running. Let us go home.”. You need to step in before that and say, “Yes, rain!”. You get a different reaction going in your body you can start that. So, I think I started learning that from Anthony Robbins 20 years ago, and there are all sorts of places to learn it.

Neurolinguistic programming, I think is powerful just studying the use of words. It is the people you get around. I got very angry at somebody a couple of days ago who started feeling sorry for me because my children are no longer in my home, they are in boarding school. I got angry at her for even starting to feel sorry for me, to encourage those feelings inside me. Not because I wanted to be angry at her, because I wanted to get myself as far away from those kinds of influences. I do not who if that is helpful.

[00:06:26] Tilman Versch: It is very helpful.

Which concepts did you copy?

[00:06:27] Tilman Versch: You mentioned that you copied some concepts for your work and your thinking. What are the concepts and people you have copied?

[00:06:38] Guy Spier: I think we must copy everyone, all success that we see all the time. I think that the biggest thing for me is not so much who but getting to the idea that we should copy.

There is this idea that we get at universities and at schools that your work must be original. In an academic setting, that is true. We should not plagiarize other people’s work. But the minute that we get into the world of business, copying or as Mohnish Pabrai says, cloning, is the ultimate thing to do. It is the thing that we do not do enough of and one of the many things I did not understand is that there is a strange thing that happens that when you copy other people, that when you copy success, you make it your own. So, it is in a certain way, not copying, it is learning from other people.

So, in my book, I wrote about how I was not into meditation, and it was not really something for me. Then a lot of people wrote to me and said, “Guy, you have that completely wrong, meditation is certainly something for you.”. Now the book is five years old. So, this thought slowly peculated down on me and I started trying, not consciously, but I started thinking more about some of the more thoughtful, meditative investors that I know. I reached out and spent some time with a guy called Josh Tarasoff.

Josh is a very thoughtful guy and is meditative in a certain way. He spends far more time thinking than I do. Another guy that I reached out to, is somebody who is no longer a professional investor. His name is Nick Sleep and I just recently had lunch with him in London. I really enjoyed seeing how he creates a quiet environment around him and then there is somebody else that you must go interview if he will give you an interview. Saurabh Madaan, who finally has gone to work at Markel insurance. He works closely with Tom Gayner now. He finally connected me up with some people who going to teach me the Posner medication. So, I am going to be Tom at the beginning of November, spending ten days with zero contact with anything other than my own mind.

If you admire somebody, you want to be like them. All those three people I admire for all sorts of reasons and if you pull them into your life, the ideas that will enable you to copy them pop up naturally. I know that in the case of Saurabh Madaan, for example. He will be one of the first people that I get in touch with after my ten days of the Posner meditation because he will be curious to find out now that I have become a little bit more like him in that regard. Funny enough, the first guy who got me going on that is a German guy, Reimar Scholz. At my ValueX conference, he sat down with me, and he said, “Guy, I know you don’t think it, but you should go and do some of the Posner meditation.” He said that about four- or five years ago, maybe three years ago.

So, now finally I am going, and quite excited as you can see. So, cloning or copying people happens just from being around them and finding ways to be around them. Sorry, these are long and meandering questions.

[00:11:11] Tilman Versch: It is great. It is very interesting

Guy’s German skills

[00:11:13] Tilman Versch:  How German or Swiss are you, Guy? What is the “German” or “Swiss” part of you?

[00:11:20] Guy Spier: Honestly, I must admit that I am talking less and less German since I have been living in Switzerland. I have been living here for 10 years. Many people around me speak English and our work language is English. Even if I can speak good German, people generally use English as a working language.

At home, I speak English to my wife. When am I speaking German? Less and less. This is a bit sad because I like German very much. I do not speak German at home. My kids do not want to speak German, even if they speak to them in German.

And then German and Swiss German (speaks Swiss-German): I am allowed to speak Swiss German because German is not my mother’s tongue, however, the Germans cannot speak it. When am I speaking German? We have some meetings that are in German, especially if we are meeting with the regulators.

What is the German part of Guy Spier?

Tilman Versch [00:13:10]: What is your German or Swiss part?

Guy Spier [00:13:15]: I have a German passport, that I was born with. One of my parents is German. My mother originally comes from South Africa. My father was not born in Germany. He was born in Israel. His parents have been Germans that moved away from Germany in the 1930s. There is history there. I am very proud of my German history.

I am proud of the German state today, as they have a very good relationship with Israel and did a lot of work about the German history. When I am in Israel and say: “I am a proud German”. There are some people that dislike it, but I say this anyway: I am proud that Germany has a good relationship with its history.

For me, German is not my mother tongue. I grew up in England, more or less. With Brexit, I might run into big trouble. I have family and a lot of friends in the UK, but I might run into the problem where I will not be able to live in the UK anymore with a German passport. So, this is the German part in me. That has helped me to move to Switzerland.

With Berkshire Hathaway meetings, I started going to the German-speaking value investor meetings. This has helped me to find a relationship with Switzerland and Germany. It was also helpful to move from New York to Switzerland.

My Swiss origins. I moved here a few years ago, where I learned some Swiss German. I tried to better understand how the locals speak here. I gave that up some time ago. I did not want to try to speak Swiss-German fluently, because I do not need it. However, if I try to speak Swiss German here, people here are happy about it. Now, we have been here for ten years. We may get Swiss citizenship. If people ask me, if you were born in Brooklyn, grew up in Manhattan, and now live in Jersey, what are you? Are you from Brooklyn, Manhattan, or New Jersey? The answer is: I am from all three. So, if people ask me: Are you German, South African, or British? I am all of that. My identity is complex.

Which people had the biggest influence on Guy?

[00:16:37] Tilman Versch: Which people had the biggest influence on you?

[00:16:40] Guy Spier: I feel like I want to go about answering this question further than just renaming people that have influenced me that I have already talked about, but just to summarize.

There is no question that my father has had a huge influence on me, and we can go to why. We all, all of us, who are in this community are enormously grateful to Warren Buffet and Charlie Munger. You know for me, the learning curve that I went up when I met Mohnish Pabrai was enormous. In fact, I write in my book and I would hold onto that today, that in a certain way I learned more from Mohnish Pabrai than I learned from Warren Buffet.

The proximity to Mohnish Pabrai helped me enormously. I would say that even though I do not know Charlie Munger, and he is not a friend or anything. There are some things in Charlie Munger that I react to, I hate to say it, slightly negatively. I do not agree with Charlie Munger that it is wrong to read fiction. Funnily enough, I saw Charlie say that and I specifically decided, that even though I had not read a lot of fiction, I would start reading more fiction. There was more me to learn from fiction and I would not want to die without having read certain books.

I would tell you that now I have been married 15 years. My wife has had an enormous influence on me, just an enormous influence. I am much more aware when I meet people than my wife of whom they are, what position they hold, how wealthy they are. While I wish it did not happen, my reaction changes based on that knowledge. My wife is not like that. She treats everybody the same. I think that over 15 years I have become much better at that. And so, my wife has had an enormous influence on me.

Three lessons he learned from Mohnish Pabrai

[00:19:10] Tilman Versch: What did you learn from Mohnish Pabrai? Can you maybe name three things?

[00:19:15] Guy Spier: Yeah, so one is and not much has been written about this, there is an art to cloning. If you copy the wrong things, you are not actually cloning what you should be cloning. If I want to copy Warren Buffet, or if I want to become more like Warren Buffet because I want the success that he has in the world. I could choose to wear the same clothes as him, or I could choose to drink diet coke. But that is not really what makes Warren Buffet, Warren Buffet. It is fun and it is funny to do and there is nothing wrong with it and it is harmless but, you want to be a close student and observe what it is that you admire in Warren Buffet and how can you copy what he does and drinking diet coke might not be the most important thing. So, for example, in the case of setting up an investment partnership, one of the things I failed to clone Warren Buffet in, was this zero-management fee, 0 and 25. I did not realize that there is no point in drinking the diet cokes or coco colas or eating the peanut brittle if you are not going to clone those more important things. So, figuring out what you are going to clone in somebody, what is relevant, and what is not I think is one extraordinarily important thing that I learned from Mohnish Pabrai.

The second thing that I learned from Mohnish Pabrai, is to achieve success, practical success in life, you need to figure out what behaviors can you engage in consistently that are going to work overtime. So, the one thing is to learn those behaviors, and then the next thing is to do it consistently over a period of years and I saw Mohnish Pabrai doing that in various ways. Not just doing certain behaviors consistently but building an organization that will do it.

How do you build an organization that makes the world happy that you exist? You know a book that influenced me a lot that I think that all valiant ambassadors should read is by a guy called Tony Hsieh called “Delivering Happiness”. Basically, he builds Zappos around the idea that what he wanted to do is have a company that quote: “delivers happiness”, but unlike many people, he scaled that up. How did he scale that up? What did he do? He had a system in hiring the customer service reps early on, that if they did not meet certain criteria that he wanted in the employees, he would pay them to leave. He would give them a $2000 cheque to walk out the door. So, he had some unusual ways of building an organization that does what most of us think.

In a second lesson, I learned from Mohnish Pabrai in how to scale up. It is not enough to read in a book, this is a good behavior. Writing thank-you notes, is a good behavior, sending holiday cards is a good behavior. You need to discipline yourself to do it, and even better, you need to scale up an organization to do it. When I say an organization, that does not mean hundreds of people, it could be a small team of four or five people and if you look at the behavior of Debbie Bosanek, obviously warren buffet selected her, but she helps amplify Warren Buffet. She is doing for Warren Buffet, what he could not do for himself. So, we all need to find people to help us to scale up what we want in the world. So that is the second huge lesson that I learned from Mohnish Pabrai. I am searching around my mind to find the third lesson, but my mind is blanking, so let us see if I come up with something.

[00:23:45] Tilman Versch: Then two lessons are okay.

[00:23:48] Guy Spier: Well, no I will give the third one. I will give you a theory which I see Mohnish doing in practice, and I think that we all know the theory but the lesson of doing it in practice is something I am still not very good at, but at least I know what I am aiming for.

The theory is this; so, a false positive is much more expensive than a false negative. What does that mean? If I hire the wrong person that is a false positive, it is going to be far more expensive for me than to not hire a great person. To say no to somebody who turns out to be a fantastic person does not cost us anything because we said no and they are out of our lives, but to say yes to somebody who turns out to be a negative in our lives is extraordinarily expensive because it just takes time to get rid of them and sometimes you cannot get rid of them for years. That means we need to be extraordinarily biased to when it comes to saying no. It is okay to say no to something that turns out to be okay.

I have an element inside me that wants to be fair and wants to be inclusive and wants to bring all sorts of people into my life who end up being false positives, so that is the theory. I think that what I have seen in Mohnish, is that he is very quick, very quick to do it and he does not feel bad about having done it. I think that I have learned to be better at that. So, you must learn not to worry about whether the person is a good person or not. It is okay to just say that the person does not meet the criteria, my criteria, so all these ambassadors do not meet my criteria, or this investment does not meet my criteria.

Just one other perhaps even better lesson to learn. So, here is a lesson that I learned through Mohnish Pabrai but also from his observations of Charlie Munger. This is kind of a gem. This may be the best part of this conversation. So, we all know Adam Grant’s idea of being a giver, being a matcher, or being a taker. Just very briefly, matchers will say; “Oh, you scratch my back, and I’ll scratch your back.”. A taker, when you do something for a taker, they will say; “Oh, wow he did this for me, I wonder what else I can take from him.”. A giver is somebody who says, “Oh, he did this for me, what can I do for him, what can I do for that person?”. The bottom line is that we want to be around givers, so that’s Adam Grant’s book, “Give and Take”. A very worthwhile book to read.

So now Mohnish gave me an observation of Charlie Munger. I do not know Charlie Munger well, but Charlie Munger has a very rough exterior. He is not a friendly person to approach and what Mohnish Pabrai says, is that when you become friends with him, and Mohnish is his friend, his demeanor completely changes. He becomes extraordinarily warm, and generous, and giving in a way that he is not in the general public. So, here is the insight, which is really a profound insight. If you are a giver in life, which Charlie Munger is, you will have a lot of people coming at you and so you will often have to develop a very rough exterior to keep them away. Many of the world’s greatest givers are not particularly pleasant on the first meeting because they must keep people away from them. By contrast, takers are often the most extraordinarily friendly and warm. They must do that to draw people in. The world has these kinds of strange inversions where what you think you are getting is not actually what you are getting. The nicest talking person at the cocktail party may be the least worthwhile friend and the most worthwhile friend is not talking to anybody at the cocktail party because he has so many people coming at him. I think that was the most profound lesson. Just because someone has a rough exterior, do not assume they are not givers to the people who are close to them

[00:23:37] Tilman Versch: Interesting.

A typical day and a typical week

[00:28:39] Tilman Versch: How does the typical day or week of yours look like?

[00:28:43] Guy Spier: Yeah, so I can describe two things; my ideal day and my typical day. The reason why I say that is that I am traveling more than I would prefer. The reason why I am traveling is for good reasons. My children, much as they enjoy being in Switzerland, have decided that they like going to boarding schools in the UK. So, I am in the UK a lot to visit them. We are going to figure out, we will have to find a place in the UK that will make it better.

But my ideal day. I’ve worked out that if I am going to do exercise, I am much happier and more relaxed and the only real-time for me to get the motivation is in the morning, so I try to start each day with exercise. I also leave the shutters relatively open, and I try to wake with the morning light, so rarely I will wake at 6:00 or 7:00 am. I might wake at 8:00 or 9:00 am, I allow the morning light to wake me up and I do not set meetings for the morning. So, I will not have any meetings before 11:00, if I must have a meeting.

[00:30:09] Tilman Versch: I can confirm that.

[00:30:12] Guy Spier: Although I did have a doctor’s appointment before I saw you. So, I get up and I do sport. If I am doing intermittent fasting, I will try not to eat before I do sport and eat after. Then I come home after sport, I shower, and I really like to read in the morning. I have various places where I read, and it might either be investment reading, or it might just be the books that I am reading. I have a couple of places where I do that but, depending on the morning I will try to get to the office, sometime mid-morning, but it may be as late as 1 or 2 o’clock if I am really enjoying the reading or what I have going on at home.

Here at the office, I have things that usually turn very differently in that I still have at least two key people who work for me in the United States, so there is quite a bit of me that is tuned into the US time zone, so things tend to get busy around 2:00 PM. People are waking up on the east coast in the United States. 2:00/3:00 PM, there’s often conversations and things going on with the United States and so that’s kind of a busy time, as much as I would like to nap in the afternoon, and we are here in the library where I spend far too little time. That usually lasts till 6 or 7 o’clock. If my children or wife are home, I want to get home for dinner with them and then after dinner, I will do either work or reading at home. That is my ideal day.

What disrupts it is travel, but when I am traveling, I try to keep to the same kind of routine. It is getting up in the morning and doing sport, then reading, and then after lunch, busy with work. I think if I lived on the west coast of the United States and most of the world was getting up before me, I might be able to change it around to the morning. Early morning would be filled with busy type work, and then the afternoon would be more reading type work. Ever since high school, I learned that absorbing new information happens best in the morning, in absorbing new ideas and concepts, so it is good to read in the morning.

The right incentives in life

[00:32:49] Tilman Versch: What are right incentives for you and which incentives are important for you in life?

[00:32:53] Guy Spier: So, something that I see a lot, and it is completely understandable, is that the incentive of many people is to make money, get rich, get richer, and why do we want that? We want that for security, we want that for self-actuation and achievement, and I do not think there is anything wrong with that. I believe when I have looked at billionaires, the motivation just to make more money when you are already rich seems to me to be a little bit ridiculous. I mean imagine saying, oh I am going to pile up oxygen, more oxygen than I could ever breathe in my lifetime. It would a little ridiculous, wouldn’t it? In a certain way, money is a bit like oxygen. It is the fuel that makes things happen in the world, but you cannot use more of it than you need. So, why would you try and pile up more than you would ever need in your lifetime? That is something that I have struggled with a little bit over the last few years where I have suddenly realized that if you take that oxygen analogy, I have around me, more oxygen than I would need in my lifetime. I think that what, and I am not saying that I am doing a good job at it, is the motivation to make the world a safer place for myself and my children.

It is a reason why I like living in Switzerland, it is a place that so much of my taxes that I pay here goes to really making this a society a safe and happy place for everyone to live, including the plumber, the electrician, the guy who cleans the road, which are important. I have not spent much time in Germany recently, but when I go to the UK, and I am spending a lot of time in the UK. Even though it is an advanced and rich society, by comparison to Switzerland, I think that there is an enormous amount of pain there. Pain because of the inequalities between rich and poor. Pain because people cannot get onto a good career path and I think that the real motivation for many people who do the job that I do, is to make societies healthier where there are less unhappy people, and more content and happy people. I think that Switzerland has done a great job. By reputation, I think that Sweden has done a great job. I think that other large demographic economies like the United States, the United Kingdom, France for sure, and quite probably Germany have a long way to go. That is really what ought to motivate people like me if that is helpful.

[00:35:59] Tilman Versch: That is very helpful. Thank you very much for the first part of our interview.

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Tilman is a very enthusiastic, long-term investor. Over the last years he has taught himself important investing concepts autodidactically. He tries to combine a positive climate and environmental impact with his investments.
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