Good Investing Talks - Guy Spier, how would you invest 1 Mio $ in China?

Episode Date: March 23, 2023

What is Warren Buffett's dark side he does not want to discover? Find the answer in this interview with Guy Spier.

In this interview, you can get to know why Guy Speer did not invest in Apple, what he would do with one billion he gets to invest in China, and where Warren Buffett does not invest, do not get to know what he's capable of doing. If you enjoyed this video, please leave a like and subscribe to this channel. Thank you. And warm welcome to the Good Investing Talks podcast. I'm your host, Tillman Fiersh, and I'm very happy that you're discovering underfollowed investors and underfollowed companies together with me. Before we jump into this conversation, I want to thank my supporters. They help me to keep this channel free and public for everyone. Thank you very much. If you also

want to join the Good Investing Supporters Club, please click on the link below. You're very welcome. And now, one last step. Here's the disclaimer for you. All we are doing here is no advice and no recommendation. Please always do your own work and now enjoy the video. Guy, it's nice to have you back to the second part of our interview. I already teased that we might discuss a topic where you draw a line or you set no to a certain investment. We already explained some criteria that you want to be a Swiss-oriented investor. And there's one question coming from the audience that I found very interesting.

And it's also leaning into the influence Buffett has in your portfolio because some of The idea is you took from him or you used from him. And one idea you didn't use, and mainly Monge also didn't use, was Apple. And at the time, the investment was announced publicly. So you could have gone into the rabbit hole of Apple and followed it. And why didn't you decide to invest in Apple as well at that time? Or what held you back there? Yeah, it's a source of, it's not a source.

of as much pain as it would have been a few years ago. But to take you to the history of my knowledge about Apple, somebody that I met at the Berkshire meeting, who's an incredibly private guy, but I think that he won't mind if I bring up his names, a man called Steve Walman. Steve lives in Madison, Wisconsin. And in summertime, I believe that Madison, Wisconsin has a lake. He has a summer home on the lake. And he is, well, as you can imagine, you know, way more introverted than most of the people I know, and I think I know quite a few introverts, and extraordinarily thoughtful. And really has learned Warren Buffett's lessons in a way that is really special, Tillman, because I can, you know, you've been relatively easy

to find me and put me in front of a camera. You know, if you put Steve Wilman in front of a camera, I'll buy a bottle of wine or something. But Steve is one of the most thoughtful investors that I know. And so I'm with him at the Berkshire meeting, and he talks about Apple. And we're talking about Apple. This must be about 2004 or 5. And he says, look, I've had this simple insight that, Microsoft is all about text and words and doesn't handle images and video very well.

And what I see with Apple is they've really oriented their whole computing towards doing images and videos. And he said it's so obvious. And he pointed out some things at the time. It's so obvious that that is where the world is going. And the whole Apple ecosystem is far better set up to take advantage of that. computing is going to be visual. It's not going to be about BlackBerry keyboards. It's going to, and that made so much sense to me. And I did nothing about it. And I think that probably because he was the kind of guy who made big bets, small but big bets, or small number of big bets,

I suspect he had at least 10 or more percent of his portfolio, which was substantial, I think, at that point in Apple, and I think that like Nick's sleep with Amazon, you only really need one. And you end up, Nick, you could say had Amazon and Costco and probably a few others that we don't know about. But when you have one investment like that, that from, I don't know what the multiple is from 2005-6 in Apple, but it's probably at least 50.00X. And so that was something, and he's buy and hold investor. He would not have sold any of his Apple. And so that is something that I missed well before Buffett and Berkshire Hathaway invested in Apple.

And then, and I kind of like part of my dismissal of the idea was, oh, that's nice, Steve. You understand these tech businesses. And the thing for me is that today it's Windows and tomorrow it's some other operating system. Who knows? and I don't want to kind of bet on devices, I don't want to bet on software. And I couldn't see through that period how the Apple ecosystem

was coming together in ways that kind of locked it in place in a very, very profound way if you think of all the different aspects of Apple's businesses and the way that if you're on the Apple platform, everything just becomes a little bit easier. And I remember going through the learning curve

of discovering how simply being able to have your app on the Apple screen, and then to have your app integrate just a little bit better with the Apple OS. So then when Berkshire Hathaway revealed its position, so now I've done nothing with this incredible insight and it's playing out, but I'm still stuck in this mindset of, oh yeah, but I don't do tech or something like that. And then Berkshire Hathaway goes and buys Apple.

That was a difficult meeting for me because I had to acknowledge that a whole bunch of things that I was holding in my mind as a kind of dogma had to be discarded. And Charlie Mugger talks about discarding your best-loved ideas. And so this was a case of me having to discard some of my best-love ideas. And I think that it's an enormous mistake of a mission. and it's a mistake of a mission that was sitting right there in front of me and I didn't do it

when Steve Orlman talked about it and I didn't do it when Warren Buffett talked about it I think to some degree I kind of said I have a significant position in Berkshire and I kind of said well Warren's doing that for me which is a legitimate thing to do and so but yeah it's a huge mistake of a mission actually I Monash's eyes

practically popped out of his head when I told him I think I'm going to be talking about one of your Turkish companies is a mistake of a mission. Because if we talk about my Turkish, my desire not to invest in Turkey, what I'm being paid to do, what I need to do professionally, is to evaluate things dispassionately and rationally. And I think that on the one hand, you have these personal experiences around Turkey and kind of certain views about where Turkey, years. Then on the other side, you have the fact that I have a front row seat into a specific

selection of a specific company with a specific set of people. And there's nothing in the rule book that says I don't put one or two percent of my portfolio into it. And if I had put one or two percent, I think that company for Monash's 20x. So one or two percent could have turned into 20 percent, all other things being equal. So it's a missed opportunity, a significantly missed opportunity. I don't think I feel either about Apple or about this Turkish company. I don't think I feel that terrible about it because that's the nature of the world. We have to live in such a way that these opportunities are going to pass us by and it's okay because we've done enough other things right, if you like. So, mistakes are always or often a chance

to grow and to change things. What have you changed? based on the mistake with Apple? So I think that, you know, I had a, I had a, I can't start talking about my passwords to the general planet, but I think that when I do passwords, so they've become far longer, but if you, for example, on last pass, which we use, you need to have a very long password so you could use a phrase.

And I will use phrases as a kind of self-hypnosis. So use a phrase that is going to help me go in the right direction. And about 2020, 2021, I think I was forced to change my password. And I changed my password into something that would orient me towards thinking differently about these new economy companies. And rather than discarding them out of hand, and rather discarding an Apple or Microsoft to recognize that this is part of a very important part of our industrial economy that needs to be analyzed.

And so, you know, that's a very, very minor change, but from minor changes, you can get big changes. It's not like I jumped all over tech, but I think that I would be more open to investing in tech now. I probably still need to learn more lessons from that, you know. and maybe change your password again after we did the interview well i didn't i didn't talk about what the exact phrase was so no we don't do this yeah maybe i will change the password because what is your password towards china here you have to question that's a bit challenging

i would say i bring you one million dollar you have to ask me this money in china what would you do with them but maybe you can also say it more about the password framework you mean you mean if I were to come today and do the experiment with you, you have one million dollar, you can invest it for me in China. What would you do? So, you know, I don't speak Mandarin and will, at this point in my life, I think it's unlikely that I will ever have a good grasp of Mandarin and I haven't grown up in China. But I think that there are things that I can do in countries that are not my home country that can make sense. We can start with, which is not a strategy I particularly like and is what Warren Buffett did

in Korea in which he invested in a basket of net nets, a famous case of him putting $100 million into a basket of net nets in Korea. So you can diversify in that way. I think that the investments that I've made successfully in countries that are not my home country, and for me I consider home country, there's a Western Europe and North America and a few other mainly Anglo-Saxon economies like Australia, New Zealand, which I think operate in a very, very similar way. So when Berkshire Hathaway made the investment in Petro-China, I think that there's an analysis that you can do that there are so many eyes on it and there's so many interests that are deeply, that company is embedded in so many different institutions with so many eyes and

interests there that you can make predictions about how it will evolve and concerns about corporate governance and concerns about expropriation or concerns about other kind of random things happening in that country can be attenuated. And I think that you think that for the majority of them, the successful investments I've made in non-home markets have had that kind of analysis that one can do around them. And to give one of the first ones for me was Crizzle where there was a 40% shareholding from Standard and Poor's, and there was a 40% shareholding from ICICI Bank. And was I'm worried about minority expropriation? Yes, I was. But it wasn't one big institution versus a minority. It was too big institutions.

that we're going to watch each other. So that's the kind of analysis that I'd be seeking to make in China. And I think that there are a number of businesses in China where one can relatively easily say, as one used to say about General Motors in the United States, what's good for General Motors is good for the United States. What's good for the United States is good for General Motors. You can say that same thing about those companies in China.

what's good for China is good for Alibaba what's good for Alibaba is good for China and I would go even farther to say in the case of Alibaba what is good for the world is good for Alibaba and what's good for Alibaba is good for the world and so I would look for those kinds of businesses where I sitting from my perspective in Zurich

can make those kinds of inferences without having to get on the ground and get into detail that I will never really be able to evaluate properly. It's time for a quick Advert Tillman. Here we go. Are you looking for a beautiful and efficient way to analyze stocks? Then please check out what my friends at Stratosphere are building.

They have built a great tool to visualize data, to get ideas about ownership of stocks, and many more information that's helpful in the analysis process. You can find that tool where the link below, and feel free to sign up, it's free. Thank you for your attention. and now edward tilman ander you have this jewish background and in our pre-talk we talked about that your family had real estate in berlin and you got it back after the fall of the wall of

berlin and you already went through with your family it was this experience of probably taking away having to flee and stuff like this which was really bad how is this fear affecting your thoughts in china because there's always this thing thinking that in the end, what you're investing in China is for the Communist Party, the Chinese people, and it's maybe not for the outside investment. And before we get there, that story with my family's relationship to Germany is really special, I think, and I get into huge trouble with my, I have gotten into huge trouble with my Israeli relatives by saying that I'm a proud German, and there are people who will

have problems with Wagner being played in Israel because they feel like Wagner was a big supporter of national socialism. And I will take any opportunity to say that I am proud of, I think historically when we look back at the post-war period, Germany will be held as an example of how a country can deal with its history. And I'm not saying that Germany was perfect. I think that where When I look at the history of the Munich Games and the hostages that were taken, there are some very difficult questions to be answered about exactly what happened there. But in the overall, if all you have to do is go to Berlin and see that vast area of real estate that is given over to a memorial to the murdered Jews of Europe to say, wow, this is a country that is.

And, you know, the key is that, you know, right now Britain is going, it's not Russia, is going to have to do at some point in its history a similar job on itself for what is happening now in Ukraine and perhaps the actions of the Red Army after World War II that many historians say wasn't properly dealt with. This capacity of a country to carefully look over its history, we're being challenged to do that in the West over slavery. And there's a very high standard that is set by Germany. So I would also say that it's an unfortunate fact of history that people do get expropriated. People do have to move for all sorts of reasons. And by the way, if you go back to previous generations of my family on my mother's side, they were economic

migrants. They weren't expropriated en masse as an ethnic group. But they moved for economic opportunity because there was nothing for them in the country that they left. So after a generation, or two, you have to get over it. But I think that, so that happened in, so, and I think that what's really important, and I really do believe this, and just to go to something, a discussion that we're having in the office the other day, so, and to bring it, to bring it slightly, to bring it back a little bit to investing. So what happened in Germany could have happened in any country. I strongly believe that. All these people who say, well, there's something unique in the

German mindset or spirit. I disagree with that. Any human, humans are capable of extraordinary cruelty and destruction. It's nothing to do with whether you speak the German language or the English language or any other language under the Son. If you look at what happened in Algeria under the French, you can see terrible things. And so we always have to kind of arm ourselves as humans against our capacity for terrible evil. And sitting in the launch, the famous charity launch with Warren Buffett, I will never forget these words. He said, we're talking about debt.

And he said, I don't want to get into a lot of debt ever because I don't want to discover what I'm capable of. I don't remember whether I said it. But in remembering it, what I would have wanted to have said is, are you serious, Warren? Are you telling you, one of the most respected business people, not just on the planet, but he was ever lived. You're saying that you're worried about what you're capable of.

But that is a single lesson. When we look at Sam Bankman-Fried or there are comparisons being made between him and Burley Madoff, the correct thing to do is not to say those evil people, I could never have done that. The correct thing to say is, that is what a human is capable of. And I sharing the same humanity as that person, incapable of that for myself, myself. How do I make sure that I never do that? That never happens to me. You don't want to say, those evil people, look what they did.

Say, I'm capable of the same evil. How do I make sure that it never happens to me or around me? So that's a long story. And that's the right approach to the history of Germany in World War II. How do we as civilized people arm ourselves? How do we make sure that that doesn't happen in our societies ever again? And it's happening right now and it doesn't seem in Ukraine and it doesn't seem like there's much we can do. So humanity is a long way to go. When it comes to China, that was all fun and

interesting. When it comes to China, I think that the one kind of like exogenous variable, you know, the economists, they say, they say assume dot, dot, dot, and those assumptions are often heroic assumptions, we will call them. And, you know, they're all the jokes about how do you change a light bulb and, you know, the psychotherapist patients like, you know, can change the light bulb, but the light bulb's got to what to want to change is one of the jokes. And, you know, the economist answer is assume a light bulb or assume a tool. And so the big heroic assumption that is just a black box for me that I think will turn out correct, but we will never know, is everything assuming provided that the Communist

Party of China behaves rationally. And the rational interest, of the Communist Party of China is to stay in power. The way they've stayed in power and the way they succeed in staying powers by delivering for the people of China. It's in a very different way to a liberal democracy. But they have delivered, and it's a fact that's been stated many times, never in the history of the planet have so many people been lifted out of poverty. And the fact of the matter is, that is to the credit of the Communist Party of China. For one reason or another, for reasons that I don't fully understand, They're getting things right.

They have gotten things right historically. The record shows millions of people travel out of China and voluntarily come back to China. So it's not so unfree that people don't want to be in China. They have delivered on prosperity for the Chinese people. And that was hard for me to understand because my educational background was that the world tends towards liberal democracy. And at the end of the day, liberal democracy is the right way to do

things, and liberal democracy works for Europeans and North Americans, but it also works for the Koreans, also works for the Japanese. So this is a model that is transplantable across cultures. But now we have a different model that on key measures has delivered for the population, and it seems that it has the capacity to self-correct. So what is scary about authoritarian governments and regimes is that perhaps they cannot self-correct. And so as long as they're aiming towards a goal that everybody agrees and understands, they get there very fast and very effectively. But what happens when you need to make new decisions and take a new direction?

Example would be that China under the end of the Ming, I believe it is dynasty, went into a period of decline where the system could not rejuvenate itself. and a key strength of democracies is that they seem to be able to, very inefficient in their decision-making, but we seem to be able to rejuvenate ourselves to reboot after we've made some bad decisions. I'm still waiting for the United Kingdom to reboot after having taken a terrible decision on Brexit. But an interesting point on China is that having realized that they'd made an enormous mistake in their very, very severe lockdowns over COVID, that did self-power. correct. And there was an argument that I heard recently that Xi Jinping wanted his third term.

He didn't want to do anything that would get in the way of his third term. But now he's understood rationally that the, you know, getting people prosperity is actually very important for his third term and he can now stand back and allow that to happen. So he's relaxed the COVID restrictions. The huge scrutiny of some of these large tech firms has. has been relaxed as well. And so I think that there is at least an indication that the Chinese Communist Party will continue to make rational decisions. Very long answer to a very good question. I hope that I didn't lose anybody along the way. It was a really long answer, but it was going into detail. And I think there's also a nugget in it. The quote on Buffett is very interesting.

It is very interesting and really, really important. And if you allow me to dive in on that, it may be the most interesting thing, worthwhile takeaway from this is don't live your life assuming that you're not capable of great evil. You are, we all are. And we should live our lives understanding that part of us that is capable of great evil and then harness that for good and protect ourselves against that. And I have that conversation internally. I say, I've said, you know, if you think that we're just not capable of doing what Bernie

Madoff did or what SBF may or may not have done, we don't know, you know, think again, the reason, you know, I strongly believe that I'm not capable of it, but I don't want to live my life that way. I want to live my life as if it might be possible and take all the measures, all the the measures necessary, which are kind of like, and it starts at the very, very most basic thing. It didn't actually save Bill Gates, but I used to say about Bill Gates, if you name your foundation, the Bill and Melinda Gates Foundation, in a certain way what you're saying to some aggressive female who might want to win your love is you're never going to get the

foundation. The foundation is with me and Melinda. So you can place things into your life which make it impossible. You know, if I say to my, to Chantal whom you met, hey, you know, if ever I, you know, get on to, if, if ever I start trying to cheat on my wife, you know, I'd like you and I say in front of everyone to please put a call into my wife right away. In a certain way I'm placing, I'm making it okay to do that as something that I do here is that I tell people if any regulatory agency from Switzerland, the United States, developed country, calls up. You do not have to speak to a lawyer. You do not have to speak to me.

Just answer the questions, honestly. That's kind of saying we want to run this place where at any minute. And because I do think that we need to put all the protections we can against bad behavior. And one of the best protections is to not assume that we're not capable of that, as Warren Buffett doesn't assume that he's not capable of it. So making the point again. Yeah. It can also be a certain level of, if you know, conscious about it, know that you have the potential to be like this. It can't be also a resource that you can, like, manage it.

Yes. Maybe at some point of time you have to be in some situation where others are cruel. You could use this as a resource. Yes. And so the person that I have not paid close enough attention to who talks about this is Jordan Peterson. and he talks about recognizing the evil inside you or recognizing the capacity to do harm and to harness that. And so he's somebody who understands it a lot better than I do.

I mean, I think that what's really hard is that there's just like an explosion of content on YouTube and a lot of it is really, really good. But there's a limit to how much we can listen to. So, you know, I'm not sure where to go. I mean, Jordan Peterson's books are great, but he's got a lot more content on the internet that's in his books. So I would actually say that Jordan Peterson is a really, really special human who I think that

I don't want to give him the status of biblical profit, but he's a kind of a seer in that way. In each generation we have people who connected to something that's very, very profound about our humanity. And I think that he's, for one reason or another, connected to that. We all do well to pay attention to him. I mean, I don't think we have to try. I think that because of the nature of his message, he will find his way into our minds one way or another.

And I think that what really impresses me about Jordan Peterson, but it's also true of other people, I think that Prince Harry, although I've not read his book, I've watched a couple of interviews, but also somebody that I got to know, who's just a British just. She's a British journalist and she writes reviews for the Sunday Times. Christina Patterson, there's a sort of a class of humans.

Monash is this as well. They have a fearless dedication to the truth. A fearless dedication to finding out what is actually true and then speaking that truth without a fear of what will happen to them to the relationship or anything else. and those people are to be treasured by our civilization, because many of us, and I hate to put myself into the category, but I know that it's been true of me in the past. Maybe it will be less so in the future, is that we do what is expedient. So it starts with flattery or telling white

lies or presenting something that is not entirely the case, but it's just easier. And that is a divergence from the truth. But it is this searingly honest to the pentillo, to the very last bit of truth that I think that pulls individuals into incredible adventures and pulls civilization into a far better place. And Jordan Peterson is doing that. I think Monash Pabri does that Sam Harris has a very short monograph. I think he calls it online where he basically came to the conclusion that even telling white lies is not an ideal thing to do. Ideally, you don't do it. But it's very easy to fall into it because it's expedient. Last point on Jordan Peterson, I don't know where we started here, but it's like a motto to have on one's computer or to have

up there, do what is meaningful, not as what is expedient, is a beautiful guide for life. And when one's faced with a difficult choice, you know, we can ask ourselves the question, You know, what is meaningful to do in this situation? What is expedient? Am I moving towards what is expedient or am I moving to what is meaningful? At the end of this, follow of good videos, you already mentioned. There's also an interesting video on Jordan Peterson that also portrays his dark side. I will send it to you and we can discuss it, but not in this interview because I want to close it.

I look forward to that and I'm very curious to see that. When I hear your thoughts on it, it's quite long. But you can watch it with time. Maybe let's close this part of the interview with a question that's going back to the investing world. What is an unpopular now in the investing world that you think may offer attractive returns over the next five to 10 years?

Isn't that interesting? So how does Peter Thiel, he has a way of formulating that question that I cannot put into my head right now. But what is your, what is something that people believe today that is not true or what is not true? So in part, I think that the lack of portfolio moves is because I don't fully see and understand what that might be.

Obviously, it'll be easy in retrospect. fact. You know, I really, you've stumped me. I really, I, you could ask it again, and I would have to think long and hard. Let me reframe it. What do you as a value investor love right now? So I think that maybe a way of understanding, me understanding my own portfolio is to think of the Lindy effect, which has been brought up numerous times by Nassim Haleb. And I think that we've just come through a period where we had some, and when we get innovation, it seems that there are some companies that just hit a, they win the lottery in that they have a disruptive innovation that is also profitable. So Microsoft with the PC and

the PC software interface was disruptive and enormously profitable for Microsoft. We go to previous generations, American Telephone and Telegraph managed to benefit from extraordinary network effects and built a monopoly, very, very profitable monopoly. We go forward to Google and Amazon. And again, they were disruptive and they were extraordinarily profitable. But for every one of those, there are hundreds, if not thousands of businesses that are disruptive in one way or not, but are not profitable. And, you know, we can talk about the airline industry that Warren Buffett has talked about so much with the Wright brothers and how, you know, no money's been made in the airline industry for the longest time.

Or we can talk about the automobile industry where there were thousands of automobile manufacturers and only very, very few survived. And in this period, we have, you know, many businesses that looked like they were in the next great big disruptors, but perhaps they turned out or they clearly turned out not to be whether that was we work was one great. example and I think that people have general agreement now about that over Uber. So I think that, you know, where I, a far happier place to look, there are some disruptions that happen so unbelievably quickly if you think of TikTok and very, very short video formats where you think about how, you know, you just go straight to not even using the person's social network, but just the content of the videos to give them stuff and where the penetration happened in like six months, very, very hard for an investor like me to react to an innovation

that's happening that fast. But I can say that when you think about cable TV, John Malone, company TCI, and ultimately Liberty Group of Companies, that was an innovation that was kind of spreading the route through the economy at on a year-by-year basis that resulted in the people who were tuned into it, including Ted Wexler, who's been an investor in the Liberty Group of companies, you could kind of follow it and it was happening over a multi-decade period, which is a kind of a much easier pace of change. So I think that there are probably quite a few innovations or changes that are unfolding at a far slower pace, but a far more investable pace for us. It's still not really answered your question because I really don't know. I wish I did,

but I don't. Maybe that's awesome an answer. I don't know. But thank you for the things you know and you shared in our interview. Thank you very much. Yeah, thank you, Tom, and thank you for asking some great questions. You're an amazing interviewer. Thank you. You're an amazing guest.