We Study Billionaires - The Investor’s Podcast Network - TIP 014 : Guy Spier - The Education of a Value Investor (Investing Podcast)

Starting point is 00:00:00 This is episode 14 of The Investors Podcast. And I just want to say that this was our interview with Guy Speer, and he was very generous with his time. He afforded us about an hour and 50 minutes of his time during this interview. And so what we did is we split this interview into two parts. So this episode is going to be about 45 minutes long. And then next week we'll release the second part, which will be about another 45, 15 minutes. Broadcasting from Bel Air, Maryland. This is the...

Starting point is 00:00:29 Investors Podcasts. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish and Stig Broderson. Hey, hey, hey, how's everybody doing today? This is Preston Pish, and as usual, I'm accompanied by my co-host, Stig Broderson. And today, we've got two guests for you.

Starting point is 00:00:58 Hari Ramachandra from Bits Business is with us. and he's helping us interview our guest, who we are just thrilled to have on the show today, and that is Guy Speer. So I know I sent out a couple emails to some of the people in the audience, giving people an idea of who Guy is and that he was going to be coming on our show. So let me just open up by saying that Guy is the best-selling author of the book, The Education of a Value Investor. And I can say unequivocally that this book was Stiggini's favorite read for 2014. In fact, I was talking to one of my close friends calling Yablonski on the phone the other night, and he told me that he was recently reading Guy's book, and he said that he finished two-thirds of this book in a single day. And he quoted something like, you know, Preston, whenever you're receiving that much value,

Starting point is 00:01:43 it's really hard to put something down and walk away from it. So I know it might sound like we're really promoting Guy's book pretty hard here because we're literally looking at them and have them on the show. But if that's how you feel and you don't want to put up with our perceived bias, on how good guy's book is. I encourage you, go to Amazon, pull up the general public's comments and reviews of his book, and you will see how many five-star reviews there are for this book.

Starting point is 00:02:08 So in one phrase to the audience, this is a must-read book, and we highly recommend that you go out and get it. And if you forget the name or you want to be able to pull it up later on, we'll have that in our show notes, and you can link to that and check it out. So here's a little background on Guy. So Guy graduated the top of his class from Oxford University,

Starting point is 00:02:28 with a degree in economics. After graduation, he was awarded the George Webb Medley Prize for best performance in economics that year. In fact, his performance was so stellar that during that time, he became a contemporary of David Cameron, who was the prime minister of the United Kingdom. After he attended economic tutorials with the man in charge of the entire UK, a guy decided to take some time off, so he went to Harvard Business School. Like Stig, everyone's got a slack off from time to time.

Starting point is 00:02:56 So that was obviously a really bad joke on my part. But hey, we'll keep moving here. So then in 1997, Guy started his own fund. It was the Aqua Marine Fund, and he styled it after Warren Buffett's 1950 partnership. Guy is well known for bidding 650K with Monich Pobri for a charity lunch back in 2007. And for all of our dedicated listeners, yes, that's Monish Pobri, the gentleman we discussed in episode four with Hari. So if you're wondering, Guy and Monish are close friends, and we are of the opinion. that both of these gentlemen are the up and rising stars within value investing community.

Starting point is 00:03:30 So without further delay, I extend my warm welcome to Guy Spear. So, Guy, what did I miss? Oh, first of all, Preston, Stig and Harry, it's such a pleasure to meet you. And thank you so much for having me. And I just want to know, with all those kind words for the book, my publisher definitely thanks you very, very much. And who knows, me, if I get some residuals at the end of the year, even I will thank you, but that's extremely kind.

Starting point is 00:03:56 I think you've done quite a bit of work on me. So you've done quite a bit of research and you seem to have gotten the bio part pretty correct. So thank you for doing that. I think it's probably what I ought to expect from a graduate of West Point, you know, totally thorough and not going to miss anything. So thank you for doing that. Well, thank you, sir. We are just so thrilled that you came on the show and that you're sharing your time with us and more importantly our audience because I know that they're really going to greatly benefit. it from your comments. So without further delay, Stig's got the first question. So Stig, just fire away.

Starting point is 00:04:32 Okay. Thank you, Preston. And Guy, we are so thrilled to have you. But I think that Preston probably presented you a lot better than I can. So I think I'll just get to the first question. You know, one thing that was really, you know, amazing about this book and I discussed this with Preston before the interview was there were so many parallels between our own path to to belly investing and the path that you're describing. So like you, you know, you know, You had an MBA in economics, studied at Harvard. And while I was starting as the way I understood it, you had this idea that you needed to have a career in finance.

Starting point is 00:05:08 And that was like the one goal with, if not with your life, then it was really one thing that you were aiming for. And I had the same feeling. And I spent, Hold Your Horses, exactly 18 months in this high-powered financial sector job. And then I slowly figured out that this company, I wouldn't say it was compromised my value, but it was definitely not something that I feel authentic about working for. And without speaking too much about myself, sorry for that.

Starting point is 00:05:38 A question that I've been asking myself over and over again is, where would I have been today, not so much financially, but more importantly personally, if I had stayed in a job like that. And I think that was really in parallel to what you experienced at D.H. Blair. So I'm very curious about, like, you have a few years on me. Where do you think you had been if you had stayed there at least like five, ten years? And I just want to throw something out there for the audience that maybe haven't had the opportunity to read your book yet, Guy. And what Stig's question was referencing at D.H. Blair is where Guy originally started out working in Wall Street. And he talks about his experience at working for this company where,

Starting point is 00:06:18 the company would basically dress up a new company that they were trying to sell to different investors, and they would highlight the few strengths and just neglect to even mention a lot of the risks associated with the investment. And then they would have a person like guy who has all these incredible credentials from Oxford and Harvard and everywhere else, kind of standing there, selling the investment to different people, and it put him in this position that was not him. It was not who he really wanted to be as a person. And he talks about this experience in the book, and it's just extremely profound.

Starting point is 00:06:56 And so just to add a little context to it in case you aren't familiar with what we're talking about. Yeah, you know, just before getting into the answer to that, I think that what's interesting is, you know, my editor at Palgrave, Lori Harting, said time and again, don't tell your audience, show the audience. And I think that, so I worked really hard at sharing my experiences. And it's just very rewarding for me to see somebody like you say, oh, that I had a similar experience.

Starting point is 00:07:25 Because I think that it sort of brings the reader and the writer together. You're like, oh, you know, we're sort of we're in the same boat. And on another level, I think it's rather sad how many of us started off at a financial services business with kind of high hopes. and sort of moral hopes. And we gradually discovered as we unpeeled the onion what lay behind all of the smoke and mirrors. And it's deeply unpleasant, I think, slightly disconcerting to many of us. But then, you know, where would I have been? I mean, obviously, it's the counterfactual.

Starting point is 00:08:05 We don't know the answer to that. But as I thought about your question, I thought, you know, one thing is that I think I might have become quite depressed. I just would have been not consciously depressed but just an unhappy person and I think we've all come across people who are so unhappy in a certain way that they don't realize that they're unhappy

Starting point is 00:08:25 or you know perhaps I would become twisted and what I mean by twisted is that there was a good person struggling to get out but he just couldn't get out given the environment that he was in and I think if we think of plants if we take a plant and put it in the wrong

Starting point is 00:08:41 environment it would be shriveled you need to really give it the water and the light and the fresh air and the right things to make it blossom. And I think that I would have just in some way been shriveled. That's the best of it. I'd like to believe that I wouldn't have ended up in prison. But I can't tell you how many times I was at home just sort of in a certain way looking in the mirror saying, what's wrong with you, Guy?

Starting point is 00:09:07 Why can't you figure it out like some of the more successful people at your firm can? And I think that I'm glad and lucky that I didn't actually act on the kinds of conclusions I was drawing because I would have acted. That would have been the path to hell, basically. Wow. That was a really, really insightful answer. And something that I really thought about, that you were talking a lot about, was authenticity. There was something you spoke a lot about.

Starting point is 00:09:37 And I think this is the thing about the inner and our scorecard. I don't know if you could just elaborate a bit on that. Why is that so important, especially where you used to work at the ESPLA? You know, I mean, that was about the most inauthent environment you could have ever been in. And, you know, people were saying one thing to one person and another thing to another person in that environment. I think the first time, like Craig, you know, our mothers always tell us to tell the truth. And we just think it's something that our mothers are telling us because that's what mothers do. And I didn't realize that she was imparting this really profound piece of wisdom.

Starting point is 00:10:16 And, you know, but the message, this message of authenticity has now come at me from various different, really important thinkers. I mean, it started with this dinner that I had with Monash Pabry, and he talked about his book, Power v. Force, by David Hawkins, where he basically, a big part of the book is about authenticity. see. And we were speaking earlier about the autobiography of Mahatma Gandhi, where, you know, even the subtitle, the story of my experimentations with the truth. And he is, Mahatma Gandhi is utterly truthful in that book. But then, you know, when you go to Charlie Munger, and you hear Charlie Munger say, it's better to tell the truth because you don't know, then you don't have to remember what you said to whom. So it's almost like I've been getting this message on being honest with the world and being authentic and having who we are on the inside, be reflected by who we are on the outside from so many

Starting point is 00:11:15 different places. Interestingly enough, all of those places connected up with the Berkshire Hathaway crowd, you know, but I would tell you that at D.H. Blair, I didn't have any indications that that was the path to follow. In a some way, this idea of seeking to be authentic is almost, or maybe you could argue that it's the same as value investing, but it's almost goes far beyond because it's not just about finance. And I really do just thank my lucky stars that I came across, well, it was the intelligent investor for me that helped me onto that path. And it comes back to original question. Once I started on that path, I got more indications that I needed to become a more authentic version of myself. But if I had not started on that path, God knows where I would

Starting point is 00:12:00 have been certainly less happy and less healthy. You know, but Preston, what I would say is that I think that all of us, certainly the four of us on this conversation, and probably many of your listeners, have been in situations where, you know, one person in the room is expecting us to be one way and to say one thing, and another person in the room is expecting us to be another way and to say something else. And we've felt that conflict. And I don't think I realized, I mean, I was extremely conflict. at this investment bank that I worked.

Starting point is 00:12:34 And I didn't think, I don't think I realized at the time that when I, when you feel that you're conflicted in that way, then there's nothing wrong with you. There's something wrong with the environment and you need to start. It's not something that happens in a, in a heartbeat. You need to start figuring it out, basically. And so I guess, you know, just a, just an additional gloss on this idea of being authentic. If we're in situations, if your audience or either of you three are in situations where you don't feel like you can be authentic, then that's a likely indication that there's something wrong with the environment that you need to start making changes.

Starting point is 00:13:11 Yeah, and the longer you stay in that kind of environment, the more you become that environment. And I really do think, I mean, I was very concerned in writing the book because we ended up mentioning the man who ran the person. place. We ended up having three, I think, or two out of his four sons-in-law imprisoned as a result of violations by B.H. Blair that were investigated and they were caught to court by the NASD. But I don't think he, like the rest of us, I don't think he won't entered Wall Street a bad man. He entered Wall Street with the desire to, the same desires that I saw. I saw, I think he saw himself in me, I saw myself in him. And it's just, it's just scary because it shows how warping that environment can be. And I think that something,

Starting point is 00:14:07 a point that I've tried to make to a number of journalists is that they like to think of these kind of rogue traders and every now and then somebody's paraded up in front of the lights as being people who are kind of like different to the rest of us. And I think that my point is no, they're the same. It's the environment that we're. warps. Yeah, I completely agree with you because it's not like you're sitting behind your trading desk or whatever you're doing and thinking I should do something illegal. It's just that crazy thing happens when you're under a lot of pressure and you don't have time

Starting point is 00:14:39 to breathe. And I know it may sound like, well, one month or 18 months or how long you work there, but you're under so much pressure that you just, you know, can't always separate right from wrong. Yeah. I just think, I mean, that's really just a takeaway. I want to give us to people because, you know, I've met the same prejudice about, you know, these evil people that just want to hurt us. I don't think people work on Wall Street and necessarily evil people.

Starting point is 00:15:04 But I think that sometimes they don't know the difference between right or wrong because they're under so much pressure and can't think about anything else of themselves. I think that just one closing thought there is that I don't think that where we were, which was like entry-level positions and maybe just relatively junior positions in the front. I do think that the people at the top of these firms need to think and behave differently, and they do bear responsibility and should work. I think that at the end of the day, businesses have to be prepared to be smaller and less profitable in order to have a more moral environment.

Starting point is 00:15:43 And I'd like to believe that people at the top of these firms can make a difference. Completely agree. Yep. Okay. So let's go to Hari with the second question. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer.

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Starting point is 00:20:21 Give and Tape by Adam Grant and read it. And it's very interesting because most of the time when we used to, at least when I used to think of givers, I used to imagine Mahatma Gandhi or mother Teresa and I would never aspire to be a giver because it's it almost sounds impossible to be a mother Teresa but your book basically brought out the practical aspect of being a giver and that was that was very enlightening however in the book give and take Adam Grant talks about you know successful givers and unsuccessful givers and one of the things that he says successful givers do is that they surround themselves with other givers and then also they're very good at filtering out takers so my immediate motivation was how can I

Starting point is 00:21:19 be with those givers and and more importantly I wanted to know am I a matcher or a giver because it's easy to identify a taker and in his book he does a good job of identifying them but how do you differentiate and I wanted to know from you, how do you differentiate matchers and givers and how do you bring in more givers into your circle? And how can I

Starting point is 00:21:46 be a giver? So here, a few things on that. So first of all, I was not a giver until I read Chaldean's book. And even then, I wasn't a real giver. I was what I think Adam

Starting point is 00:22:01 Brand gives us sort of a fake giver or a guy who seeks to dupe into other people into thinking that he's a giver. And I was, I was, if you would have asked me at the time, my sort of approach with, like, I used to go and buy boxes of chocolates, small chocolates and hand them out to people as I met them. And if you would have given me truth serum, I don't think I would have admitted this in general. But I would have said, I am doing this in order to manipulate the world into helping me out, basically. But what I really didn't expect was that in doing this, and we're talking about

Starting point is 00:22:41 probably over a five-year period many thousands of times, I actually did change on the inside. And that was really surprising to me. And it didn't happen in one day. It didn't happen consciously. But at some point I started realizing, I think that there's something about when you talk about the handwritten notes, literally writing the note, forcing myself to think of the other person. I mean, I think that part of the power of that is not the impact that the handwritten note has on the recipient. It's the power that writing that note had on me because it forced me to take a moment to think about that person and to think about what made them special or what was what special idea or thought I wanted to convey to them. And then suddenly they'd be

Starting point is 00:23:31 become more precious and dear to me. So I think that the question of how to become a giver, I mean, I actually think the answer is fake it till you make it. And the act of faking it will eventually, I mean, there's psychological research that shows if you fake a smile, there are genuine processes inside your mind that believe that you're feeling better. So this is a great example of faking it until you make it. But then I think that on the house to surround yourself with givers is so I think that what happened to me earlier on was I would start giving and then you know the takers would take and that's a horrible feeling when the takers take and then I'd be like you know giving stupid and I'd stop and it was only because of what I'd read about this Joe Girard guy in the Childini book that I said no I'm going to keep doing it and I think that then you go through a dick of

Starting point is 00:24:27 very difficult dip because I don't think you know in many circumstances. I don't think I would have known if somebody is a giver, a natural or a taker until I do something for them. So the first, I would argue that the first sort of gesture on my side is actually an opportunity to learn how they respond. And sadly enough, the vast majority of people respond in a taking kind of way. It's sort of like, I do something for them. And they're like, oh, this is good. This is I found Father Christmas. What else is this guy going to do for me?

Starting point is 00:25:03 Let's see what, let's see if I prod him some more, what happens. And I think that I, what I've learned there is just to manage my emotion is not to get angry or upset about that. But just to just to try and, you know, and these are often perfectly decent people who have wives and families and, you know, pay their taxes and obey the law. And so it's not about getting upset at them. It's just about becoming a little bit more distant from them. And even then, I mean, so I think that the first thing that happens, this is what makes it so hard, is you become a giver and you're surrounded by takers.

Starting point is 00:25:39 And that's no fun at all. And you can't change the network of your relationships overnight. So it's sort of like a process of hard work to quietly, to slowly, you know, and it comes down to very minor things, I think, like, just answer the other person's email. Somebody's clearly a taker. Just don't flame them or anything, but just take a little bit more time before you answer them.

Starting point is 00:26:04 Maybe drop them from the Christmas part of this. Just let them be a little bit more distant, a little bit further away. And then over time, now it's just between the matches and the givers. And I think actually the givers are extraordinarily rare. It's not that hard to identify them, because when you do an unexpected act of kindness to them,

Starting point is 00:26:27 they immediately respond with something generous back, or their first thing is to be generous to you without any request from you, so that that's often a very, very good sign that they're givers. And then I think just over time, so surrounding yourself with takers, I don't think, sorry, surrounding yourself with givers is not something that I think happens in a, you can't force it to happen. And what you have to do is slowly and gently remove the takers from your life.

Starting point is 00:26:57 And as I remove the takers from my life, there was more space for givers to enter in. And I think that as I distance myself from some of these takers, I started noticing some of the givers that were around that I just wasn't paying attention to. And that actually was sort of quiet wallflowers in the corner. And I should have just paid attention because they're actually wonderful people who weren't trying to insinuate themselves in any way. So I guess I think there's a certain wonderful sort of beauty in this that it's just not something that you can switch on or off. It's something you have to work out over a long period of time, basically.

Starting point is 00:27:34 And I would say that I'm still working at it. It's not easy. And it's, you know, it's really counterintuitive to a lot of people. And I think that that's one of life's biggest lessons is whenever you finally reach the point where you realize if you want to have something or you want to rest, receive something, you've got to give it first. It's as simple as walking in, ever walk into a building where there's two sets of doors like that control the air conditioning that goes in and out of the building. And whenever you walk up to that first door and you open it for the person who's coming behind you and you let them go through first, what do they do whenever you walk up to the next set

Starting point is 00:28:09 of doors that are there? I'd argue most of the time, 90% of the time, that person opens the second set of doors for you and then you walk in. And so in order to receive the luxury of having somebody open the door for you, you have to open the door for them first. And I think a lot of people try to do that in reverse where they want the door opened for them before they open it for somebody else. And I know that that's a really generic example. But I think in life, it's truly, that applies to everything you do in different forms. And whenever you start figuring that out, and it's taken me a long time to figure it out, but that I have, you know, slowly figured that out, that I've got to open the door for the other person before they're going to ever open it for me.

Starting point is 00:28:51 And it's just, it's an amazing piece in guys book where he's talking about the power of giving and, you know, just an amazing question, Hari, and a fantastic response guide. I think it's really something important to highlight to the audience. But I would also say that I think that we're living in a world, I think, where before the advent of the internet, before the advent of radical openness, you could fake being a sort of a giver by being a matcher, and that would work because people didn't find out about you so fast. I think in a radically open world, this being a giver is just much more powerful, and it's in a certain way, it's the only way to be, because people just find out about you that much faster, basically.

Starting point is 00:29:37 Okay, so I'm going to move on to the third question, which is mine. And we talked about this a little bit in the first question about surrounding yourself with people that you admire. And so it's just incredibly important. I know this is like one of my biggest things, and that's probably why it's my first question, is if you could go back to the time when you were 18 years old guy and you could pick only three role models and you could study them and really kind of understand their essence in the way that they make decisions, who would those three people be?

Starting point is 00:30:12 So, you know, I was looking at this before. And obviously, I think that any, you know, there's so many people that I would have loved to have picked that would end up discarding for one reason or another because, you know, they were, you know, Marcus Aurelius was a military leader. He was a hell of a wise guy. He was a military leader. And I don't much that I want to model myself over and after a Roman military leader. I am so deeply impressed with Sauna's Chackleton for the way he handled his mistake.

Starting point is 00:30:42 and the way he brought his men home. But at the end of the day, I'm not an Arctic explorer. And I think that it's sort of a sort of a slice of his life that I'm taking. I think there's some aspects of what Sir Charles Shackleton did that were utterly crazy. And if we talk to Hari for a second about Mahatma Gandhi. Again, there's just no way in hell that I would want to model myself after a guy who almost killed his child. I mean, he describes in the book that, so his son was, was, was, was, was had, I don't remember what he was ill from, but the doctors came and said that it was really a good idea to give us some, some, some beef broth.

Starting point is 00:31:24 And Mahatma Gandhi just couldn't bring himself to do it, even though that might have. So I would not want to model my life after Mahatma Gandhi either. So I think that what we get to is people who are very similar. So the three names that I put down very easily were Warren Buffett, Charlie Munger and Ben Franklin. And I don't think that that's most particularly surprising to the audience. I think that they have lived such full and complete lives as a rich, each one of them provides a rich scene to mine for ideas and insights about how to live one's own life. So those are the three. sorry Mahatma Gandhi sorry Samitz

Starting point is 00:32:06 Shackleton sorry Marcus Cyrillius a guy who's life I just don't know well enough but I think funnily enough it sort of refers back

Starting point is 00:32:18 to the previous question is Abraham Lincoln and you know I think that he you were asking Harry about how to be a giver in a world of matches

Starting point is 00:32:30 and takers And I know that there were a number of times in his career where he did that. He acted as a giver in a world of matches and takers, and he was willing to suffer the consequences and only wreak the benefits many miles down the road when these people came back to support him. So I think that, but I just don't know his life well enough. The next question, that is about investors and great investors. So Preston and I have studied a variety of investors. And we surely learned a lot about compounding capital over the years.

Starting point is 00:33:06 Then we stumbled across you, Guy, and someone like Monish Paprai. And suddenly you started to talk about compounding Goodwill, which was a completely new concept for me. So I was just curious, what was the trigger for you? Was it when you found Dale Carnegie, How to Win Friends and Influence People? Or was it another book? Or was it when you met a certain person that you started to send out these thousands of thousands. Thank you notes. I think I saw somewhere on YouTube that you sent out. I think you said 20,000. Thank you letters. That was impressive. What was the trigger for that?

Starting point is 00:33:41 Well, very suddenly, the triggering the force sending out those notes was the story of Joe Girard in Chilene's book. And literally, I mean, I had, I also had a book of Warren Buffett's letters at the time. I'm not Warren Buffett, sorry, Ronald Reagan's letters at the time. And I'm like, my God, if this works for him, I book for Joe Girard and even Ronald Raven does it in the White House, then I just have to do it. It was that, the sort of sending out notes, certainly it just came from that combined with a slightly unbalanced aspect to me that if anybody's around knows that, you know, my wife is just socially much more intelligent than I am. I'm capable of doing some things that make me look pretty stupid. And so, you know, I went about this note writing thing in a pretty unhinged way. And then this sort of the idea of compounding goodwill, I only got to it.

Starting point is 00:34:42 And I don't know whether I don't think I read about it anywhere else. I got to it when I was writing the book. And, you know, and I just thought about it. And I thought about the way in which goodwill around me had compounded. And I just realized that, you know, the great thing is that it doesn't even require capital so it can be compounded at a very, very high rate. I'll give you, you know, so I've had the opportunity to observe relatively close-hand the work of the Dachana Foundation. And, you know, every Daxana scholar, and they number in the hundreds now, are people who, if it was not for the intervention of the Dachana Foundation, would not have been able to. to go to the IITs of India.

Starting point is 00:35:27 And they get put onto a path where they now have a very, very improved lifetimes earnings expectation. And the gratitude that those guys have to the Dutchana Foundation and to Monash Pabri, you know, the acceleration of goodwill that Monash Pabri is going to experience through that is just mind-bothering because these are the guys who are going to be running, you know, Microsoft, Google, Intel in 20, 30 years time, and they're all going to have the soft spot in their heart for Monashpa Brian the Dachana Foundation. So that is the best example I've seen to date of the compounding of the will. But the good news is that you can do it in a very,

Starting point is 00:36:11 very small way and it can still lead to extraordinary results. So, I absolutely love this part of the book. I mean, this is just, this is something that When you talk about real investing, this is real investing, folks. I don't even know what to say. I just love this part of the book so much. And I'm excited that the audience could potentially benefit from it. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 00:40:08 seeing these extraordinary results. And, you know, one of them I describe is that I would never have met Monash Parvai for dinner, had I not been writing in the habit of writing these thank you notes. but people would see these good things happening in my life and they usually students or younger people and they say, oh, that's because you go to great education or that's because you know Manish Pabri and I was like, no, no, you don't get it.

Starting point is 00:40:35 It's because I've been writing these thank you notes and they'd still be like, now that's that's a garbage you're just sort of saying that to sort of push me away and so part of the motivation was like, no, I'm going to write it down. And then maybe when I've written a book about it, some of these people will believe me, but I really feel this way. And I think that here's, so that example of meeting Monashkar-Bry and for those who haven't read the book, I talk about, you know, I was determined to write three notes a day or 15 notes a week. And so I was looking for opportunities to write thank you notes.

Starting point is 00:41:12 And so if I attended somebody's meeting, that was certainly an opportunity to write thank you known. And the key is, it's not just that I wrote a thank you note to Monash Babrai after his meeting, going to his annual meeting. I was writing thank you notes to every single speaker at every single conference that I attended. So I'd sit through some presentation on, you know, God knows what it might be. And I'd write to that speaker and say, thank you so much and find a reason to thank them. So even if I thought the speech was boring, I'd find a reason why that was a good thing to do. So what is not conveyed is how you have to do it thousands, well, maybe hundreds of times, if not perhaps, thousands of times before you get one hit.

Starting point is 00:41:57 And here's another idea that is, you know, so you ask the question, have you got stories of how thank you notes have actually had an impact? And I think in many cases it's very hard to tell. So imagine, and I think it's happened to me a number of times that somebody has, you know, they've got a dinner party for 12 people and it's them and their wife, so now there's 10 people they can invite. And they've invited five couples. And then it turns out that one of the couples can't make it or just one person can't make it. They can invite one person a short notice. And they would have, there's any one of a dozen people that they could invite.

Starting point is 00:42:44 what's going to make them pick one person over another one? You know, a minor thing like the fact that Guy Speer sent them a note wishing them a happy birthday or wishing them a New York card might make the difference between whether they invite Guy Speer or somebody else. And that dinner party may be the event at which I meet somebody that has a huge impact on me. So I think that you're playing with probabilities and you're just improving the probabilities by a very slightest. amount that people are more likely to ask you. And so what I think I can say is that since I started doing it, the good things happen and the good luck happens just that slight bit more frequently. But that slight bit more frequently is just all that you need to have an extraordinary

Starting point is 00:43:31 life. And these things, and just to give practical examples of these things compounding. So, you know, people sort of say, well, how comes you attend a tech conference guy? I wouldn't have attended the TED conference if I hadn't met Monash Paprai. I tried to attend the TED conference on my own and they had no interest in me attending. So we know the story about me meeting Monash Paprai. Then Monash Paprai, through the hood will that he created, gets a request if he's interested in being a donor to the TED India, the first Ted India that took place. And he invited me to join. And I, of course, now, know the power of giving and I say, oh, sure, I'm happy to sponsor that. It was not much more

Starting point is 00:44:18 than it would have cost to attend the TED conference on its own. And at that conference, I meet somebody who, he's just, he's one of the guys at TED. He's a guy called Bruno Jasani. So Bruno Jasani, he meets me, but he must have met six or seven hundred people at that conference. But of course, I wrote him a thank you note. It's a pleasure to meet you. And as a result of that, he invited me to co-found TEDx Zurich. And as a result of being part of TEDx Zurich, I met a whole slew of people. And actually it was through Bruno Jasani

Starting point is 00:44:52 that I met somebody who was deeply helpful with the book, somebody called Jesse Gamble. So, you know, all these, I'm sort of like probably confusing a little bit, but there are all these webs where I can see that me putting out goodwill to the world just increased the probability that something good would come back to me.

Starting point is 00:45:10 But part of the key, and I see Preston nodding away is that you can't expect anything. You just, you send it out. And, you know, a bit like this is an approach to the world that is not like mammalian mating. This is more like a, you know, a frog swimming over a bunch of eggs and just sending a sperm everywhere and wait and see later to see what develops into a tadpole and what doesn't. And so, but you know, what I would tell you guys, and this is this is probably heretical, is that I am so addicted to that, that if you had to ask me to choose between, if you wanted

Starting point is 00:45:51 to distinguish between the philosophy of value investing and this is goodwill creation strategy, I'm, I'd probably choose the good will thing because it's so applicable in so many more circumstances than value investing. For very investing, you need to be in developed market. and, you know, all sorts of things have to be working for you, whereas I'd like to believe that with this goodwill stuff, you could be the guy in China working on a key offloading boats and still end up very successful. And the great part about it is it only cost the cost of a piece of paper and an envelope,

Starting point is 00:46:29 unlike value investing where you might have to have, you know, a couple thousand dollars to put something in the market. Absolutely. And here's something that I, you know, there's something that I, you know, Because it's come up, so your audience may be asking you themselves at this point, yeah, but, you know, what am I going to write this is going to be meaningful to some wealthy, powerful, influential person? And I just want to, you know, here's something that's really important that's hard to believe. So what can I write to Warren Buffett, let's say, that would make me feel impacted by what I've written? Because he doesn't need anything from it.

Starting point is 00:47:05 absolutely nothing. And the answer is that everybody feels better about themselves in the life that they're living if they know they've had a positive impact on somebody else. So a short note, and it should be short, because they don't necessarily have a lot of time to read it. It says, you have had an impact on me. I have now lived, and they're now living a different life because it is something that we can do to the most powerful and influential and rich people on the planet, even if we have nothing. So sharing that sentiment is valuable. I'll just say one other thought with you, which you'll find funny, is it?

Starting point is 00:47:42 So I write about the power of thank you notes and the importance of doing it in the book. And so after the book was published, I've been getting quite a high rate of handwritten notes coming into my office. They're all coming back to you. You sent them out there, and now they're all coming back to you. So here's my problem is that now I can't very well ignore them. I mean, you know, that would be not walking the walk. So I feel obligated, and I do want to respond personally to every single one. And so I spent, when I came back from my U.S. book tour, I spent two weeks just writing

Starting point is 00:48:20 Andrew King. Wow. Back to be written to me. And so be careful what you wish for, I guess. But I think that, and it's very funny, because some of my, my, my, my, My assistant in Zurich, she's like, you know, we can respond to them. And my answer is no, I have to respond. And she says, why do you just give me the formula?

Starting point is 00:48:41 And my answer to her is, and I don't know that if she fully internalized this, is that I have to write it because I have, if I don't write it, then I won't learn. And in the process of writing it, there's this idea that the writing changes you. And I need to read these notes and then write the answer myself for my own benefit. I can definitely testify to that because I initially reached out to Guy and I just have this vague hope that he watched Coe on our podcast. And to my surprise, he actually responded himself. So, Yacan, doesn't testify to that. But, yeah, I don't know. I think most people, if they had the privilege of having an assistant, I think most people would probably let the assistant respond.

Starting point is 00:49:25 But I was pretty impressed that you responded and you did it fast. And then Stig forwarded me the message. I'll jump through my roof. Don't do that. Your children won't be very happy with you. And Preston, there's a letter from you at the office with a book that I have not yet opened that's sitting with a pile and I still need to get to some my apologies for that. That was sweat.

Starting point is 00:49:47 Okay, so as you can see, that wraps up our first portion of our interview with Guy Spear, and you can see that his wealth of knowledge is just amazing. For right now, what we're going to do is we're going to go ahead and play our question from the audience, and I'll go ahead and answer that for you. Hey Preston, this is Flavio. I've been following your website and value of investing lessons for a couple of weeks now and decided to give the practical side a try through a simulator. By the way, the quality of information is nothing short of amazing. After sitting through the various companies, I decided to take a look at Lockheed Martin's since it's a company that I deal with on a daily basis. When I was looking at it, I noticed that the EPS is stable and rising. However, the book value is unstable at best.

Starting point is 00:50:27 I understand that this can be due to the company not being able to manage their equity well, but what sparks my interest is, is why, when you look at a dividend payout, is it consistently increasing? I would assume that as a company, your priority would be to retain or at least stabilize your equity rather than pay out most of your earnings in a dividend, but it doesn't seem to be the case with Lockheed. Now, I know that a lot of their work is contracted by the government,

Starting point is 00:50:49 and you can see that the return on equity spike in 2012, which is when the midlife refits began. I was stipulating that because of this, the company has a sense of security, and that they will always have that guaranteed income from these government contracts, and that's possibly why they may be less careful about incurring liabilities than other companies. This leads me to the second part of my question.

Starting point is 00:51:10 Since the company has a stable, increasing dividend payout and a higher intrinsic value than the current market price, would it be wise to disregard the drastic changes in the book value, knowing that they are protected by this government's safety net? So, Flavia, this is a really good question, and it's something that I think a lot of people just kind of take for granted. it, whenever they're first learning how to value a stock, they're looking at the book value a lot. That's a common theme that I see with people. And the thing that I'll tell you is, if the book value is increasing, and I'm not going to talk

Starting point is 00:51:43 specifically to Lockheed Martin, but just kind of valuation in general, if the book value is increasing, let's say over a 10-year period, and it went from $10 to $20 over that 10-year period, which you'd want to see that would correspond with that. And this is the point that I think a lot of people miss is you've got to see the earnings take a very similar path with that book value in order to value that book value with some of the calculators. For our example there, let's say the book value went from $10 to $20. So let's just say that the EPS was $1, 10 years ago, whenever the book value was corresponding at $10. So that would give you about a 10% return on the value of those assets. So what you'd want to see is that trends up to $20 in book value.

Starting point is 00:52:30 You'd want to see the earnings or the profit of the company go up to $2. If you're not seeing that, if you're not seeing that corresponding increase in the profit that the company produces to the assets that they're accumulating, that means that they're not keeping that efficiency level that they had of, I'll call it 10%. So if, let's just say that the book value went from $10 to $20, but the EPS stayed at $1, and it remained $1 throughout that 10-year period, I would make the conclusion that that company

Starting point is 00:53:02 is making poor investments with the retained earnings that they're keeping and that it's not producing any more profit or value to the investor. So that's the part that I think you really got to look at is the EPS trending with the book value growth. So after you determine that the EPS and the book value are growing in lockstep with each other,

Starting point is 00:53:23 then you've got to make the conclusion of, okay, what is this company going to earn into the future and how do I discount that back appropriately? And I think for a company like, let's just say, any type of government contractor in the United States during this time frame, end of 2014 timeframe, I think the biggest concern is that the U.S. government has said that they're going to continue to have budget cuts. They're going to continue to downsize. And that's where I would probably have the most concern with a company, you know, a defense company or something like that. because that's what's really going to truly impact the future cash flows of the business.

Starting point is 00:53:59 So I know that's a really qualitative thing to say, but I think that that's where you've really got to have this balance between qualitative and quantitative analysis whenever you're determining the value of a stock. I know I didn't speak specifically to the company that you were addressing, but I'd rather make it more general for people to kind of understand the essence of valuation and security analysis. So a fantastic question. We're going to send you a free sign copy of the Warren Buffett accounting book.

Starting point is 00:54:25 and for anybody else out there, if you want to go ahead and submit your question to our show, we'd love to play it on the air. So just go ahead and submit that on our website, Asktheinvestors.com, and you can submit your question there and record it for us. So that wraps up our episode for today. We really enjoyed having you, and thank you so much for tuning in. And we'll see you next week on the second part with our interview with Guy Speer. Thanks for listening to The Investors podcast.

Starting point is 00:54:49 To listen to more shows or access to the tools discussed on the show, be sure to visit www. Investors Podcast.com. Submit your questions or request a guest appearance to the investors podcast by going to www. www.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted by the TIP Network and must have written approval before a commercial application.

We Study Billionaires - The Investor’s Podcast Network - TIP 014 : Guy Spier - The Education of a Value Investor (Investing Podcast)

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