Tag Archives: guy spier

The Education of a Value Investor Part III: The “Ugly”

Posted on September 25, 2014 | 11 comments

The-Education-of-a-Value-investor

Everyone has a plan ’till they get punched in the mouth. —Mike Tyson

The author describes in Chapter 7: The Financial Crisis, Into the Void, his trauma. He learned not to be leveraged and to turn off the Bloomberg to avoid the daily carnage.  But I wonder why—if the experience was so searing—he didn’t reflect deeply on the causes for what had happened. Like after seeing the dead and wounded in your safari camp after an elephant stampede and then wondering if changing the color of your tents would stave off disaster.  Perhaps studying elephant migratory patterns would help. Value investors like Seth Klarman and Jim Grant were howling about rapidly burgeoning mortgage debt and centrally-planned interest rates.  Mr. Spier should dust off his Mises and Rothbard texts on the Austrian theory of the business cycle.

On page 80, he believes that people’s human excesses and moral compromises helped cause the financial crisis. Poppycock!  And even if true, then what lessons could be learned? People are always and everywhere greedy, kind, cruel, amoral, and just plain human. Forget the inner scorecards, Robert Cialdini, author of the book Influence, would be saying, “look at incentives.”  The U.S. banking system is inherently flawed.  Since 1840 the US has had 12 major banking crises, while Canada has had none—not even during the Great Depression. See Fragile by Design by Charles W. Calomiris and Stephen Haber. I don’t believe Canadians are less prone to humanness than Americans? Ever been to a hockey game?  The author makes an assertion without theory, evidence or fact. That’s ugly.

The author seems to lack curiosity as to what happened to him.  However, he did listen to Michael Burry’s warnings about the mortgage crisis, but he didn’t share what he thought happened. He bet that policymakers would use every available tool to avert disaster.  But why should the politburo at the Federal Reserve intervene to pile more debt upon debt? To what effects and consequences? What about the crisis of 1920? The Fed did nothing and the result was the fastest and strongest recovery in US history. View: http://youtu.be/czcUmnsprQI.

Now the US labors under high private debt, too-big-too-fail banks, absurd Dodd Frank bank regulations (10,000 pages and counting of rules), and a $4 trillion dollar Fed balance sheet.   Imagine if the Fed did the right thing and shut down.   The panic of 2008 was a global banking crisis. Wealth would have been unaffected, however titles to that wealth would change from the profligate to the prudent.  Now, in 2014, bubbles and moral hazards abound.

My questions are not only asked of Mr. Spier but also of Mohnish Pabrai and Bill Miller.  Mr. Miller once mentioned how cheap housing stocks were at 6 times earnings during 2006 http://www.bloomberg.com. Yet homebuilder company earnings were at 200-year peaks.  Mr. Miller may have lacked understanding of how much mal-investment occurred along with a host of other reasons (community reinvestment act that forced banks to lend to poor credit risks so they could be rechartered). Mr. Pabrai can clutch a check-list but that won’t help in a credit crisis if he owns a subprime lender.

Ironically, Mr. Spier mentions sub-prime auto dealer/lender, Carmax (KMX), as a risk.  Now with massive Fed intervention with QE, QE2, QE3, and QE Forever, why be a value investor? Move over Graham and Buffett, own the most leveraged, subprime lenders you can find like: KMX

But be sure to sell in time:

Conn

Balance sheets matter when bubbles pop. Right now–for now–bubbles abound.

May Mr. Spier enjoy his nirvana, but I can’t recommend this book for anybody who is forging their own way.  You are better off to read Buffett and Graham’s writings while thinking of your own strengths and weaknesses. Follow Mr. Spier’s example and keep a diary of your progress. It’s YOUR journey.

I won’t be doing other book reviews unless I am 100% behind recommending the book to you. I would like to next look at DEEP VALUE by Toby Carlisle. Ten thumbs up.

—

Tutorial on Gold and the Mining Business from the Denver Mining Show

Very good overviews of gold and mining

Updating the Bullish and Bearish Cases For Gold http://bit.ly/1B6LHte 

Gold Bullion and the Need for Systematic Insurance. http://bit.ly/ZLb0pc  An excellent review of market risk.

How Not to Blow it Next Time http://bit.ly/1tYZYYI 

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The Education of a Value Investor: Part 1: The Good

Posted on September 15, 2014 | 6 comments

The-Education-of-a-Value-investor

The Education of a Value Investor: The Good, the “Bad,” and the “Ugly.”

Editor: In full disclosure I received this book from the publicist, and I actually read the book.

The title of this review has the words bad and ugly in quotes because I will define those words in part II and III of this review.

Part I: The Good

Here is a story of a young hedge fund manager on a Hero’s Journey (Joseph Campbell) to become a more integrated human being—to become, as the author says, authentic. Though managing money is the author’s profession there isn’t much in the way of investing strategy or techniques.  The author writes with honesty and humility about his journey through life starting as a young investment banker.  The author provides an example for investors and non-investors alike by taking responsibility for his failures and setbacks, understanding his weaknesses and then designing workarounds to improve his investing and life.  A person must develop self-understanding and go where his or her strengths can benefit.

Perhaps Nassim Taleb, author of Fooled by Randomness describes the main investing lesson I took away from the book, “We are faulty and there is no need to bother trying to correct our flaws. We are so defective and so mismatched to our environment that we can just work around these flaws. I am convinced of that after spending almost all my adult and professional years in a fierce fight between my brain (not Fooled by Randomness) and my emotions (completely Fooled by Randomness) in which the only success I’ve had is going around my emotions rather than rationalizing them. Perhaps ridding ourselves of our humanity is not in the works; we need wily tricks, not some grandiose moralizing help. As an empiricist I despise the moralizers beyond anything on this planet: I wonder why they blindly believe in ineffectual methods. Delivering advice assumes that our cognitive apparatus rather than our emotional machinery exerts some meaningful control over our actions. We will see how modern behavioral science shows this to be completely untrue.

For example, the only way for a chocaholic like me to avoid temptation is not to stop loving chocolate but to be kept here in a padded cell: http://youtu.be/pjProtBm4Dc.

Along the way, Mr. Spier shares life lessons such as:

  • The real goal, perhaps, is not acceptance by others, but acceptance of oneself.
  • Avoid groupthink—get out of the New York hedge fund vortex.
  • Environment trumps intellect—move to Switzerland
  • Turn off Bloomberg and check prices infrequently on Nestle, Berkshire and other global franchises.
  • Write thank you notes.
  • Surround yourself with people better than yourself.
  • It helps to know thyself—and to adapt thy setting accordingly.
  • If you don’t know your inner reality, you are likely to be mugged by reality.
  • Become more aware, strip away your facades, and listen to the interior.
  • Take a sincere interest in people. Value people as an end in themselves, not as a means to our own ends.
  • Try Tony Robbins fire walk—put your mind to it and unleash the power. https://www.youtube.com/watch?v=a2c8PMmQxJs (disturbing content, so children should not watch).
  • Play bridge because it is a game based on insufficient information like investing.
  • Try for a state of quiet contentment.
  • Think about your own investment processes in a structured, systematic way.  For example, gather investment research in the right order. Hint: start with the 10-Ks.  Less biased.
  • And finally, the greatest lesson Buffett taught Mr. Spier: “ The more you give love away, the more you get.”

Certainly, the above are excellent lessons, but information is not knowledge and wisdom may not translate into action. How to go from here to there?  The author suggests the Nike commercial, “Just Do It!”  If only action were so easy. But remember the author battles his own flaws and vulnerabilities not the readers’. You may be better off reading Dante’s pilgrimage in the The Devine Comedy. Perhaps Plato’s Dialogues or Nicomachean Ethics by Aristotle. My favorite: Watch Groundhog Day over and over. See:  http://youtu.be/6VF5P7qLaEQ (I’m serious).

There are flashes of good writing: “In hindsight, I can see with clarity that the real value to the firm of my Oxford degree and my Harvard MBA was to adorn its (D.H. Blair, an investment bank bucket shop) deals and documents with my pristine credentials. I thereby provided a kind of Ivy League fig leaf.”

But there are spots of overwrought description: “This book is about my journey from that dark place toward the Nirvana where I now live.”   Nirvana?  A tad over the top.

This is Mr. Spier’s particular journey and a beginning investor or those who need inspiration may learn how honesty and self-knowledge helped transform a hedgie into a better human being. Mr. Spier continues on that journey. Part II and III will describe a few of this reviewer’s disappointments.

More on Mr. Spier here:

https://www.youtube.com/results?search_query=mr+guy+spier

Greg_Speicher-Ways-to-Improve-Your-Investment-Process

2009.7.31_Guy_Spier_interview

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