BOOK REVIEW. This one’s for Buffett fans

If you are someone who is disillusioned with the avaricious ways of the financial market fraternity including investment banks, analysts, advisors, fund managers et al, then do read the book, The Education of a Value Investor .

Written by Guy Spier, this tome traces the transformation of Spier from a brash Gordon Gekko-wannabe to a virtual clone of the value-investing Guru Warren Buffett.

It is an endearingly honest account of the mistakes that Spier made in his academic and career choices.

The manner in which he clawed out of a mire by studying and then modelling his own investment strategies on successful money managers such as Benjamin Graham, Ruane Cunniff, Mohnish Pabrai and Warren Buffett makes for an interesting and inspirational read.

The words of the writer can not be taken too lightly as he has walked the talk by successfully running a hedge fund, the Aquamarine Fund for 17 years.

The fund delivered 463 per cent returns since launch, compared with 167 per cent return of the S&P 500 index.

Buffett worship The book is sure to please Warren Buffett’s fans as the author’s unabashed admiration, which sometimes borders on infatuation, is evident right through the book.

The narrative, in fact, progresses with Spier’s three meetings with the legendary investor at different stages of his life. The first meeting was when Buffett had come to give a lecture in Harvard Business School.

Spier admits that the only reason he attended the lecture was to win over a woman, who he was chasing. He had then dismissed Buffett as another speculator who had got lucky.

As he states pompously, “After all, the theoretical models I’d learned at Oxford made it self-evident truth that searching for under-valued stocks was pointless given that markets are efficient.”

The second meeting was after Spier had been bruised and battered by his stint at DH Blair, an unethical investment bank, and was looking for a intellectually honest role model.

He made the trip to Omaha to listen to the Oracle in Berkshire Hathway’s Annual General Meeting.

Spier bumped in to Buffett coming out of the toilet just before the meeting. Buffett smiled and said, “I always get a little nervous before these things” and walked on.

This down-to-earth manner absolutely floored the author. “Throughout the meeting I could see he had no pretences, no airs and graces. He is who he is.”

An entire chapter is dedicated to the third meeting of the author with Buffett. By this time Spier was already steeped in Buffett-ism and he along with another Buffett-follower, Mohnish Pabrai bid for the charity lunch that is hosted annually by Buffett.

The lunch that is won for $650,000 and attended by the families of Spier and Pabrai is described at length.

Becoming value investor The book is strewn with many advices that form the tenets of value investing along with a smattering of the famous Buffett one-liners. For instance, the importance of cutting out the noise in stock market is emphasised at various junctures. The writer’s love-hate relationship with the Bloomberg terminal is recounted in a very comic manner. He describes the terminal as “the information equivalent of smoking crack cocaine.”

In a later stage as the writer acknowledges that it is not possible to do without Bloomberg, he makes the chair in front of the terminal extremely uncomfortable so that he does not spend too much time in front of it.

The ability to stay away from the herd, in order to stand back and spot the value opportunities is also emphasized through the book.

In Spier’s own words, “Within one year of my meeting with Buffett, I let two-thirds of my staff go, stashed half of my family’s belongings in storage and shipped the other half to Zurich, where we went to live.” Spier moved from vortex in New York to Zurich where he could create an environment that could make him free from the ‘insidious’ comments of fellow fund managers, just as Buffett set up an ideal environment in Omaha.

The under-belly Anyone looking for an insider view on the dark doings of the money managers in the financial world will get their money’s worth in the initial chapters of this book.

Armed with a degree from Oxford and Harvard Business School, Spier joined DH Blair, the investment bank that had the dubious reputation of refusing to let customers sell when they wanted to liquidate a stock. The securities regulator in Delaware had even tried to revoke its license. At this company, Spier was exposed to the ugly under-belly of Wall Street. He portrays the mad rush for innovative ideas in mid-1990s, before the dot com crash.

As the author writes, the harsh reality was that companies with technologies or innovations that really worked were extremely rare. The job that the author was assigned was to sell atrocious ideas as cool and practical to gullible investors. “Our firm IPO’d a company that was going to build a new space station — in conjunction with Baikonour Cosmodrome in Kazakhastan… The companies only assets seemed to be sketchy contracts written in a foreign language that were unlikely to be enforceable in Kazakh court, let alone in New York or London. The probability that this thing would take flight was pretty low.” Spier writes the Cosmodrome was unlikely to make any money soon, but it had ‘sizzle’. These firms had ideas that could capture public imagination and that is all investment bankers want.

Even if the company eventually failed, the investment bank could cash in the warrants and make a profit trading on the shares. The situation has not changed in the past two decades; as the ongoing fancy for e-commerce stocks indicates. Many of these companies are yet to make profits and some do not have any revenue either. But they are sexy and can catch investor fancy.

Spier says that it is no different in elite investment banks such as Goldman Sachs and JP Morgan but the “shafting of clients happens with a much greater veneer of respectability”. What worked for Spier might not really work for all, but the book does offer tips on how you step back from the madding crowd so that your analysis can be free of external influences.

Spier’s unabashed advice to turn in to a clone of other gurus might irk some who believe in being original. But as Spier writes, “Indeed, this is often the way progress works: we copy the best ideas and make them our own.”

MEET THE AUTHOR

Guy Spier is an investor based in Zurich. In 2007 he made headlines by bidding $650,100 with Mohnish Pabrai for a charity lunch with legendary investor Warren Buffett. Since 1997 he has managed Aquamarine Fund, an investment partnership inspired by Buffett partnerships. Spier has also worked as an investment banker in New York, and as a management consultant in London and Paris.

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