Oxford Philosophical Club

Transcription

MALE SPEAKER: Hello and welcome, everyone, to another talk in our Google authors series. Today we have a special speaker. Guy Spier is going to talk about his book, "The Education of a Value Investor." I know at least a couple people in this audience who read this book in one night. And unlike most memoirs where the person who's writing is the hero, this is a strange book. This is a book where the person who's writing is highlighting his shortcomings and putting a magnifying glass to amplify the good points in other people that he's come across in his journey of investing in life. And there is much more than just investing in the book. And for those of us who met Guy over lunch shortly before this talk, it was just privilege and honor to share his company. He's a very lively, very enthusiastic person, and I'm sure you're going to get the same sense of candor in the talk. So without further ado, ladies and gentleman, let's welcome Guy Spier. GUY SPIER: Thank you everyone. I should tell you that I've done TV appearances for this book. I'm much more nervous to come and speak to you than I am to speak on any television. And I had the hardest time putting this-- I put some slides together-- I had the hardest time doing it, partly because I've never, ever given a talk to what is primarily-- I mean, I met some guys from finance, that does exist-- but I've never given the talk to engineers. And I feel like, especially on the Google campus, you, I feel, know a lot more than I do about the world. In fact, I'd like to sit down and interview you, but I guess that's not how it goes. I need to talk about me. So I'm really pleased to be here. I would also tell you that if you would have taken me eight years ago and told-- asked me if I would believe some of the things that happened in my life happened, I would've been quite surprised. And I was after success in my life, but I didn't really know how to go about it. And I feel like over the last few years, partly by stumbling across some things and staying with them, partly through a tremendous, very difficult beginning to my career where I worked at a terrible place, you will see, I started figuring out-- and I don't know. I'm with a bunch of scientists and engineers, and I studied sciences at high school, but I feel like I started figuring out the ways in which the universe works, maybe the laws of attraction, and I'm just blown away that I'm standing here. Sarab meets me at the airport yesterday and he's so excited to meet me, and he's treating me like I'm some kind of special person. I'm thinking, I'm just like you. I know as little as you do. So with that, I'm going to talk. I'm going to try and keep it to under half an hour. I'm just going to blast through some things, just to give those of you haven't read the book a sense of who I am, and what I want to talk about, and what I think I can talk about, and then we can try and make it attractive. So, what do we have here? I really think I don't understand-- well, I do understand, and it's got nothing to do with all the things that I thought success had to do with. So I really I'm blown away that I'm here, because I feel like I'm quite normal. Or I'm like everyone else. I'm not-- I'm not special in any way. And I never thought I could write a book, and there are some incredible things that came together for me to write a book. I'm not a natural author and I'm not a great writer. But that was the guy that I wanted-- When I graduated business school, I would never have said, if one of you would have asked me, what do you want to be, I would have given you some mumbo jumbo about, I want to get into the capital markets. And I find it really interesting to be at the nexus between where savings meets investment, and it's really fascinating, and maybe fund some companies. But basically I had an image of this guy-- and I see that now, I didn't see that then-- I had an image of this Gordon Gekko guy in my head, and I kind of fancy that lifestyle. I wanted to be a master of the universe. I'd read about people like George Soros and I thought that was pretty cool. And I wanted to be rich. I wanted to control companies. I wanted to control people. And I had an educational experience that I think that many of us have had. I know how to take exams. I'm quite good at studying. If you put me under pressure I do well. And so I blasted through my education and I thought the world owed me living. And don't ask me how-- well, I guess you can ask me, because I'm here for you to ask me. So I graduate business school and I end up working at a place. So, I don't know, I'm sure some of us have seen this movie. So the firm that this was modeled after is called Stratton Oakmont. And the firm that I worked at, where the large part of it is being shut down, is called, or was called, D.H. Blair. And there were people who came from Stratton Oakmont to D.H. Blair and vice versa. So I was an investment banker looking for deals, and I watched that movie and I thought, wow, that is really-- it's exaggerated, but accurate. So they take it-- they take exactly the same things that were happening at the firm that I worked at and they turned the volume up. And I ask myself today why on earth I went to work there, but then even having gone to work there-- I spent 18 months there. And so within 18 months of graduating from Harvard Business School with this great education, and I was unemployable, because once I left that place, and I did finally leave that place, people either said, either this guy who's willing to play close to the line the way people from Stratton Oakmont and D.H. Blair did play, or he's just stupid, either way, we don't want to hire him. And I also, when I go back and look at it, and I see people like this guy [? Mark ?] Martoma, who's just been given nine years in prison, I would like to say, and I think many people would say, oh no, well I'm completely different to him. And I'd like to stand here in front of you and say, oh, I was. I think there's a lot of me in him. There's lot of him in me. I was a greedy guy willing to make compromises and some-- the head of the firm two years prior had promised me the opportunity to make a lot of money very fast and I went for it. And I was in the place where in order to make a lot of money very fast, I would have to push the boundaries. That's the way it was set up. [? Mark ?] Martoma, the same thing. He was put in a position where in order to make a lot of money he would push the boundaries. The senior people at his firm, just as the senior people at my firm, knew exactly what situation they'd put me In. And I actually, to this day, I think that if I had not discovered this savior, Warren Buffett, who I started reading about while I was working at this firm, I don't know exactly what would have happened to me, and it kind of scary to think about. And I see [? Mark ?] Martoma and I think, maybe I would have gone in that direction. And it also bothers me terribly to know that I'm really well-educated, I studied moral philosophy, I was at Oxford, I had all these philosophers around me. That's what we do. We study right and wrong. And how is it possible that I am then finding myself in the place that is morally compromised and I don't actually get the hell out of there, or I don't blow the whistle, or I don't do something? I think that's a really important question for American society, global capitalism to answer. I don't think it's been fully answered. I think that there are people like me, the version of me 20 years ago, who will always go back. There will always be young guys who want to get rich fast. And so the [? Mark ?] Martoma's or the rogue traders will always exist. And so what do you do about that? Well, one thing you can do is write about it. Try and write about it honestly, and then maybe you generate a debate, and maybe the world sees a few things differently. So I was at an absolute low, and there I am, a highly educated guy, and I couldn't find the-- I couldn't find a job out of there. And so something happens to me which is absolutely wonderful. I discover Anthony Robbins. So I don't know who's been to an Anthony Robbins seminar, but the amazing thing is I was so arrogant. And I thought that I knew everything, and that everything to learn was to be learned from Harvard Business School and from Oxford and similar places, that I didn't believe that a guy like Anthony Robbins could teach me anything. But at around that time I came and did an Anthony Robbins seminar, actually not far away from here. It was somewhere in the Bay Area. And it kind of opened me up to a whole new way of looking at the world. And again, I think that I started figuring out rules for how to improve my life from that point. And then fast forward 10 years, I got some modicum of success and people start misattributing it. They start saying, oh yeah, you have-- you went to this elite educational, you're very smart. Or you have the right friends. Or you have-- there's a family business that invested with you. And I felt like they were misattributing any success that I had to the wrong things and I found myself time and time telling people, no, it's not like that. There are other things that happened. There are other things that actually-- this sort of sounds strange to say There's a technology of success. There's a top technology of going about succeeding in life that I didn't-- I learned it because I had this terrible fall straight out of business school. So if there's three ideas that I would love for you to take away from this talk, I'll feel like I've achieved something. So you thought you're coming to hear a talk about investing. Everybody understands compound interest and the key thing is-- and humans evolved to be hunter gatherers. That's how our brains are wired. A whole bunch of things we don't do very well, we don't evaluate probabilities very well. And we cannot conceive of compound interest. We cannot conceive of something gradually increasing and then the linear slope of that keeps going up. We just think in terms of linear slopes. And I feel like once I understood that I saw that all the time. So there's this idea that compound interest is the eighth miracle of-- is the eighth wonder of the world. And it's quite extraordinary that if you just compound-- and you can do the numbers, I show them to my investors every year-- if you just compound any rate for a long period of time, then the amounts get very, very large very, very quickly. But the point that I want to put to you is that you can compound goodwill over time. And so, as part of my journey, I started in-- I ended up starting to invest and I fell in love with Warren Buffett and Charlie Munger. Anything Warren Buffett and Charlie Munger I'd consume it. Charlie Munger gave a talk where he talks about the 24 standard causes of human misjudgements. Anybody who hasn't listen to that talk, believe me: it's better time spent listening to that talk than listening to me. It's really an amazing set of 24 things that once I heard it I started seeing those patterns again and again. So [INAUDIBLE] talks in the book-- talks in his book, "The Psychology of Human Misjudgement," about the power of reciprocation. And he talks about these Hare Krishna people in airports, where they handing out flowers. They're giving out free flowers and you say, well, why are you giving me a free flower? They say, this is just to a gift from us. 10 yards later there's a place where you can make a donation and it's just incredibly effective. So I started conducting my own version of that and I started just-- and it's partly born out of desperation, because the standard routes to career success were now closed to me-- I was handing out gifts to the doorman, the person I met in the street. I was writing thank you notes to people. And I was determined, because he describes also in the book the salesman who was the most successful car salesman who sold I don't know how many cars in a year, but he sent out thousands of notes that basically said, I like you. And so all of my friends are looking at that and they're saying, that's ridiculous. That's not a strategy for success in life. I mean, what is that going to get you? It wasn't going to get me anything short term, but I'm slightly crazy in that way and when something grabs me I just do it. Sometimes if it fascinates me I do it with a great intensity. So I set myself the goal of, I think it was five notes, three notes a day, five days a week, and just kept sending out notes and sending out notes and sending out notes. And if I sum up the number of pieces of direct mail that I've sent out to the planet, it's more than 10,000, it's probably more than 20,000 of 30,000 over the last eight or nine years. But I just think that so much of what is good has happened in my life, including meeting some key people, is the direct result of just compounding human goodwill. Simple as that. Just to take that third idea, and I'm excited to talk to a group of engineers about this, is-- I don't know if anybody's played around in bathtubs, but take a rubber duck or something in a bathtub, and if you start making some waves in the bathtub, and if you start figuring out, even with just a rubber duck, if you start figuring out the resonant frequency of the bathtub, even with the relatively small, not a very strong impetus, you can eventually get the whole bathtub moving in one single wave. And I can't explain this and I can't give you scientific backup, but I think that every person, or many of the people that I see have achieved success in life, is what they've actually done is that they found a way to interface to the world in a frequency, and I don't know what that frequency means, but it's a frequency that resonates. And once you start feeling that resonation happen things reinforce themselves and crazy things happen. Like Sarab calls out of the blue and says, do you want to come and give a talk at Google, which just blows me away. Or, in the book, some people who came out of the woodworks to help me to-- I'm not a great writer. I finished in December with a so-so manuscript, and then a friend came out of the woodworks who helped me to turn it into a really good manuscript. So that idea of finding what is the frequency with which I can resonate in the world that the world resonates back for me is a really fluffy idea, but I found it really powerful. And if we just go back to this idea of authenticity-- there was a sudden period in New York, I call it my New York vortex, where I was trying to be a big, swinging appendage hedge fund manager. And I was trying to resonate with the world in that way, and I'm a smart enough guy that I could do a pretty good job of it. And so the world started resonating back. And in a certain way I got money into my fund. I got all sorts of-- some good things were happening, but it didn't reflect who I was on the inside. And so I couldn't really be authentic about it. And I think that the people who achieve extraordinary things in the world are the people who manage to get the world resonating on the outside. And they also-- that's the same sort of resonance on the inside. And you have that amazing statement by Mahatma Gandhi, "Be the change that you want to see in the world." And it's just amazing to see. I mean, he had that, so what he felt the whole nation of India was focused on. What he felt about violence, for example, and he'd go on a hunger strike. And people like that can become extraordinarily effective. And it's just an interesting idea and I bring it up later. So whenever I was not succeeding in the world, what I eventually found out was that if I looked inside myself and looked to reorder, or to do work inside myself, the outside world took care of itself. So I hope I get that across. And I don't have a watch, because basically at around 30 minutes I am just gonna stop. So you know that I'm not an engineer, but-- yeah, but I want to make it interactive, so-- and I want to, at the half-hour, you just got to shut me off, because I could-- and I just think it's more fun to be interactive. And I had a hard time putting this talk together as well, because I could either tell a life story, but I didn't just want to tell a life story, and I think all of these things feed into each other. So the inner journey idea, or I'm an investor-- I was talking to some of the people at lunch-- the idea of optimizing something is not just an engineering idea or an idea from physics. It's an idea that's-- it's just deeply elegant to us. The idea-- you know, I was thinking, oh my god, I'm going to be meeting with engineers. I was trying out some of the maths I learned 30 years ago. So the biggest-- one of the things that I regret the most about not continuing on a science track is, I just remember that the first day, about 14 years old, we studied calculus. And I had this idea of at the limit. At the limit the slope of this curve becomes dot dot dot, dx/dy, I remember. And I was just like, this is kind of magical to me. But the real world is not like that. The real world is not like that, because it's unbelievably complex. There's complexity that's taking place that we just can't model. There's discontinuities that take place. There's crashes in the market. There's avalanches. There's all sorts of things that we just cannot predict how they will go. I learned more about the way economics works by stumbling across this idea of complexity. So this was, I think-- there's actually an investor, Bill Miller, started off on the complexity idea. But then the way I identified it with the most was this-- these ants. So there's a great book by Holldobler and Wilson, "Journey to the Ants," where it just comes down to these ants optimizing some pretty complex things using a very, very simple set of rules with distributed agents. And I realize that thinking of the world as like a rainforest, or as like ant colonies optimizing whatever it is that they're optimizing, is a better way to think things then. So that's the outside. Then if we go to the inside of ourselves, it's just a fiction to say that we're rational. We-- we're rational in very, very limited circumstances. It's a very good assumption to make, but there is so much evidence-- I mean Dan Ariely's book, "Predictably Irrationally." We know that we're not rational. So I think that there's this strange thing that happens, and again it's kind of a tool that I feel is a tool for success. At the minute I recognize my own weaknesses, and I'm honest and open and upfront about them, I can start doing something about it. So I think I'm a better investor because I just accept upfront that I'm not rational. I have to deal with it and then I can do workarounds. I can figure out what I'm going to do to make it better. And worth adding to that is that how many times has any of us-- or how many times have I, 'cause I'm the guy who's speaking, I can't project it onto you, I guess-- sort of like, oh, I'd rather have Stephen Spielberg's life, but we're not. I'm in my life. I can't have Steven Spielberg's life, but-- so everything's path dependent. And that's all against optimization. We're just not in a situation where-- we're not with the gas, we're not in a closed container that things are constantly developing. So I think I'm a stronger and better person to say that I'm not rational. I think teams work better when we're upfront about what we're not good at. And I don't how it works at Google, but I've had a-- I used to have a hard time with it. I'm better with a small team that I work in being upfront about the things that I'm not good at and having them be upfront about the things that they're not good at. It's pretty obvious, isn't it? I spent-- so I discover Warren Buffet. I also discovered something incredibly powerful, which Anthony Robbins calls matching and mirroring. So I'm sitting in the office of this "Wolf of Wall Street" type place. I've discovered Warren Buffett and I have this feeling, I want his life. I don't want my life. And what do I do about it? And Tony Robbins teaches this. Mohnish Pabrai calls it cloning. And I just started doing what I thought Warren Buffett would do if he was in my shoes. And literally I sat and I said-- well, I would read my own annual reports. So I read the Berkshire Hathaway annual report. And then I saw we had these investments in these various companies. I ordered up those various companies and-- I don't know how to communicate with you this feeling of somehow-- and I'm not a religious guy, I feel like I'm a rational guy-- but somehow I was connecting up to something that was giving me wisdom and leading me in a better direction. And I've since learned more about that and it's been an incredible force for change in my life. And just going back to that first job that I had, I ask myself, if I had not started reading the Lowenstein biography of Warren Buffett and his force field was not influencing me and I was not thinking what would Warren Buffett do in my shoes, I don't know where my career would have gone. I don't know where my morality would have gone. I think it may have ended in a bad place. And the fascinating thing for me as well is that what Warren Buffett would have done in my shoes is he would have gotten up, walked out of the office, and never come back. Instead, it took me 18-- well, until I figured out was going on it was maybe six months-- it took me eight months to a year to actually do that. So I didn't even model Warren Buffett that well, and I still-- it still improved my life dramatically. And so I just find it fascinating that the minute we just start trying to think, well, what would somebody that I deeply admire do, somebody who's way better at this than I am? And even if we do a small fraction of that-- and I've done a very, very small fraction of, in terms of investing, of what Warren Buffett has done, he's got much better returns than I have, he's much smarter than I am-- but even just a fraction of that success is extraordinarily good. So part of my nervousness in speaking to you is that you guys are dealing with, at least my perception is, you're dealing with things that are closer to physical reality. The properties of what you're dealing with and what you're trying to manipulate is in-- somehow is based in things that are less changeable. And I think that when you-- somebody like me who ended up going, I was saying earlier that the two universities I attended are not the MIT's and the IIT's, they're quite politically oriented universities. A world in which things are much more fluid and things change a lot: I feel like those tools are incredibly helpful. They may be less helpful in an environment where actually just solid scientific knowledge is what you need, but if at some point you guys are going out of this environment into another environment I think those tools are very useful. Later-- so part of this book is this lunch with Warren Buffett. So I fell in love with Warren Buffett and then I kind of started disliking him, because I started realizing that I couldn't touch what he'd done. So it's like I was angry at him in a certain way. And I was nervous to meet him at the lunch and I had this friend, this Indian friend, Mohnish Pabrai, who I only would have met if I'd been-- started to write thank you notes. There's absolutely clear and there are many other things like that that have shown up in my life. But the benefit to me of meeting Warren Buffett is that it forced me to give up the idea that I could ever be like him and it freed me up to be myself. And I think that there-- in the value investing world there are a lot of people who really want to be the next Warren Buffett or can't give up on this idea. So there's this interesting thing that these models of behavior are absolutely wonderful until you take it to extreme and then you end up-- it's not productive. So you still have to be yourself while modeling other people. So how long have I been talking for, Sarab? MALE SPEAKER: You have five more minutes. GUY SPIER: So five more minutes. I got some-- I've got some questions, if one of you take me on a question on it. I have a worked investment example to show you how I take some of the insights that I've learned and use them in my investing life. I'm irrational, I'm not Warren Buffett, I'm not as smart as Warren Buffett, the world is path dependent, we can't optimize. What do we do about that? And I'll just give you-- so another thing that I've learned about trying to drive myself toward success is, rather than trying to fixate on some goal that may or may not be attainable, is an idea that, I don't know any other way to express it, of finding ways to consistently tilt the playing field just a little bit in my direction, because I think it's so hard to, at least in the world where I exist, to say, I'm going to go and buy an insurance company, or I'm going to go and build the next Berkshire Hathaway, or I'm going to go and have the best investment returns, I'm going to find the cheapest company. All of those things are really hard to do, but finding rules that tilt the playing field are a lot easier. And they truly-- I don't think I've tilted the playing field by very much, but tilting the playing field by a little bit got me in front of you, which is pretty-- I really do think it's pretty extraordinary and an amazing testament to the power of that. And so the thank you notes is one way of tilting the playing field. Sending out thank you notes, creating goodwill, leaving a little bit more on the table in every interaction that I have leaves people with a positive impression of me willing to help or willing to do something and that comes in in unexpected times. But now I'm going to go to some very specifics. And so this comes down to investing. Just straight-- some of the things that I write about, and I'll just talk to some of them. And these are directed-- investors would be looking at these and saying half of these are heresies. And I don't want to discuss all of them, but I want to pick one that I can't even see there, 'cause there are more rules than there are up there, but that second one is such a powerful thing, and so easy to implement, and it resulted in such an increase in my quality of life. So I'm in New York and I'm running about $50 million and I get into some databases and now all manner of brokers and other people are calling me up. And the phone's ringing off the hook. And for some time that feels really good, 'cause I have-- I need to feel significant and now these people are paying attention to me. And they all have an axe to grind. They all have a commission to make. They all have something that skews the environment, puts me into their sales force field. And I will tell you that you cannot believe how many people still operate by choosing whatever's most available, because a salesperson pulls them up. The minute I figured out this rule, and this is like if you think of ants solving complex problems about where to build their nests and where to find food sources and where to direct their energies by a very simple set of rules that Holldobler and Wilson have identified, I think that is one straight, simple rule. So I started doing it. People would call up. They'd say, oh, this is a sales call. I'm really sorry, but I will not be able to buy your product because you're selling it to me. How are you going to find out about new funds over or how are you going find out about great tech stocks? And I'd say, well-- I'd ask one of my peers on, and this is before the internet is really taking off, I'd ask one of my peers, I'm not going to ask you. So the phone stops ringing instantly and I just created a whole area of quiet calm where there used to be noise. And so just simply-- and it's interesting thing that that doesn't direct me to success, but it just creates one condition. I think that doing that consistently tilts the playing field a little bit. Just to go specific into the investment world, a friend of mine calls me. So, no, a deal guy is in Zurich and he wants to talk to me about a deal. So he calls me up he says, hey, we've got something, it's very interesting. Can I come by to the office and talk about it? And the answer is, no, thank you very much, send me a PDF. No, but I'm in Zurich today, and it's timely, and I really want to talk you about. So then the answer goes like this. It says, look, you can come to the office and talk to me about it, but then I won't be able to invest in it, because that's my rule. And so now he's stuck, because he really wants me to invest in it. But the simple rule of saying, I'm not going to take a sales call, send me the information in written form so I can evaluate in a non salesy-heightened environment where my mind is going to be messed with, is just a better way to do things. Warren Buffett says he doesn't participate in open outcry auctions. It's exactly the same idea. And people come to him and they say, but this is the most amazing deal, and yes it's an auction, and he's just saying that-- he's saying over a lifetime of making those kinds of decisions, if he doesn't show up at any open outcry auction or when anything is being auctioned he's going to do better. So it's a strange thing because it's not, it's not saying, well, I'm shooting at that target. I'm saying, well, if I just get enough things away from that target eventually something will hit it. It's a sort of a backward way of creating-- I guess it's just the creating of conditions for success. And if you ask me about it I'll come back to this. But TED Talks are 18 minutes, so I've already gone over my TED Talk time by, you know. And so I titled this chapter-- so those rules, those kind of heuristics, accepting that I'm-- my limitations, I think, are powerful for investing. I think that a lot of people who invest and who sell their investments, they want to try and convince you that they're doing it all in a certain way. And I think that most of them are using some kind of heuristics, but they just don't want to talk about it. And I think the industry that I'm in should be more honest with the people who are not in the industry about what they're actually doing. And many people want to hear, oh, well, we optimize, we review the portfolio once a month, and when a stock comes to 80% of its intrinsic value then we sell it. And I just think that is so out of sync. For everything we know about what humans are, why is the financial industry not talking more honestly about it? I decided that I would rather talk honestly about what I do, and that I'm trying to manage my irrationality, than kind of-- and when I started doing the book, I definitely had the agenda item. I'd like to drum up business. And I was lucky enough to have been around some great people. And I'd read the autobiography of Mahatma Gandhi, where he talks about, within the first third of the book, about going with prostitutes. So here's a guy writing his autobiography, he's a leading man of India, he's revered as a saint, and he wants to tell the world that he slept with prostitutes. And I thought, well, if he can be that honest maybe I should be honest, too. But I started off the project hoping to drum up business, or at least having that as somewhere as an agenda item. And I was lucky enough to realize that it was more valuable for me, and I would live a more meaningful life, if I was authentic and honest than if I tried to cover up some things that I didn't like. So I think there is a lot of stuff that gets told by the financial industries to the American public which is just sales talk, because that's what they expect to hear. And I think the financial industry, especially having failed the United States in the world in 2008, 2009, with a lot of rich people in it, has an obligation to be more honest about what's going on. I don't think it's not hard to do. We just got to get more people doing it. But what really blew me away about-- so the thank you notes led me to this guy, Mohnish Pabrai, and I started studying how he lived. And I just feel like this technology of success in life that I feel like I've uncovered is more valuable than anything I learned about investing. And I'll just run through a few of those really quickly. So some more kind of heuristic rules, like the ants. So I used to try and sell to people at cocktail parties and I figured out the various-- again, it's like the don't take sales calls. It's like, meet somebody, do something for them, see how they respond. And there's, there's basically-- I mean, I guess the "Give and Take" book does it very well, by Adam Grant, but there are the takers, the matchers, and the givers. And you do-- I do something for someone, you figure out very quickly whether there are takers or matchers. Takers or matchers we want to deemphasize in our lives. Givers-- we want to spend all the time we possibly can around givers. And as an example of-- at first, when you start giving like that, you get all the takers. They get drawn to-- they got drawn to me. And so there's a lot of sorting that goes on and a lot of ways in which you have to get them out of your life, but then over time, and I'm talking about 5 or 10 years, I suddenly find myself surrounded by people who give all around me and that sets the conditions for success. And so here's something else that I think is-- I get really excited about this. So all of the stuff that I did, have-- having uncovered these ideas, are ideas I could've never justified to any marketing department, because it looks like totally wasted money. And so we have this-- it's an incredible opportunity for any individual or anybody who controls their lives-- so we have this incredible bias in the world towards activity that you can show a return in a relatively short period of time, because no manager of any business or any marketing department is going to be able to stick around if he's investing in, unless It's a very unusual business, if he's doing investments, they're going to take-- He says, well, it may never pay off. But it might take 10 years. And I feel like many of the activities that I've done are things that I started with no payoff. And then we have this very, very-- a slope that is a little bit better than what it would have been, and is imperceptible. And we think in linear terms and most people just discard it. And if you're willing to just keep doing those things for like 10 years then suddenly that slope, because it's a growth, it's not linear, is pulling away from the slope that it would have been on. And when people start noticing it it's 10 years out and then they misattribute. So these-- that's one simple idea of getting a slightly better crowd of people around us. I mean, Brene Brown has talked about being vulnerable. I never understood that empathizing to people is a business tool. And time and again I've realized that just, rather than just-- I mean, it happened to me the other day. So I met a journalist who writes for "The Huffington Post" called Dorie Clark. I showed up and all I wanted to do was talk about my book. And instead I had, from some miraculous divine inspiration, I held back and I actually, even though it was set up in such a way that what I had to do was download to her, here's what you need to write about my book for "The Huffington Post" or "Forbes" or a couple of other publications, I held back and I just said, tell me who you are. I spent-- we spent half an hour talking about two books that she's written that I hadn't had the wherewithal to read up upon, which I should have done, and she realized she had somebody who's actually interested in her. And it wouldn't necessarily have happened in all cases, but she ended up inviting me to an author dinner and I found a friend. And that was a much better relationship, and there's something that can grow out of that. There's optionality that can come out of that. I never understood that that idea of empathy is actually a great business tool. And I think if you're wrong environment it definitely is not going to work. If you're around givers it definitely will work. And the same with being vulnerable. When I sat at my-- stood at my partnership meeting, they said, how do you sell? What is your sales-- what was it-- what is your process for selling stocks? And I say, I said in front of my partners, I said, I actually have a rare, very bad process. I don't know how to do it well. I don't believe anybody does it well. In this world, people are drawn to that, and over time that accumulates. So we can get back to it, if you like. They're up there. So I touched on this and I'm going to close on this. So-- and I'll just give, I'll give one example. So there are investors who are more successful than I am, and I've seen investors who-- so, the classic thing is there's a conference call the Value Investing Congress, and some very, very persuasive and unbelievably smart people present there. So there's a couple of people who are big stars there, a guy called Bill Ackman and a guy called David Einhorn. If any of us were to sit in a presentation with Bill Ackman and David Einhorn, we'd run out and buy whatever stock they're talking about and-- or sell short whatever stock they're talking about selling short. And sometimes they work out and sometimes they don't, but this idea that, this-- what we do in the world has got to resonate for us internally. And what I realized, and I'll just share this. So I have this relationship with Mohnish Pabrai and people think that I say intelligent things to him. I don't. I think that what's going on there is, or part of what's going on, is that he is naturally, because of the way his mind works, less averse to loss. And I have this family history where my family was, ancestors of mine were kicked out of Germany in the '30s, and I think that that ricochets down the generations and I have a mortal fear of loss. And so I think that it's beneficial for Mohnish Pabrai to talk to somebody about the investing world who has a mortal fear of loss, because it's a-- you can read something into the situation that he couldn't read himself. I think that I responded better to the financial crisis by not denying that history of mine, but just, again, being honest about it, knowing that was part of who I am, and then acting synchronous with that, or acting in concert with that idea. And I guess the simple idea is that whenever I've looked for answers outside of myself I haven't found very good answers. And the minute I looked for answers inside myself the world changed. And here's a better example. It was really hard for me to admit to myself that classmates of mine-- Bill Ackman's from the year above me and another guy who's famous for being a very successful hedge fund manager, this guy Chris Hohn-- it was very hard for me to admit to myself that I was envious of them. But for as long as I didn't admit I was envious of them, I kept trying to live this life in New York City of being a big successful hedge fund manager. The minute I took the pain and was willing to say, no, you're just envious of them and you should stop being envious of people. Envy-- all emotions-- report call to action. The emotion of envy is a sign that there isn't something right in your life. And the minute I redirected that energy-- and we're talking wasting large amounts of money renting big fancy offices with glass, with wall-to-ceiling glass, and trading Roman analysts and [INAUDIBLE], that cost a lot of money all because I was unable to admit to myself that I was, I had envy for something that I shouldn't have envy for. And the minute I redirected that and said, well, how would I reset up my life given that I, either I'm not able to or I'm not successfully getting to where these people are, I found answers and the answer's, well, stop living that kind of life and live a life that's more in sync. So the inner journey is a great business tool. And with that, I'm going to stop and take questions. If somebody asks me to go through investment idea, just to give a sense, I will, but only if you ask me. So the floor is yours. The question was, how do I decide how much cash to have in my portfolio or other kind of high level decisions like that. And so I think that that is a classic example of false optimization. It's a classic example of trying to find the answer to something that doesn't exist and it's a waste of brain cells in a certain way. So another idea that I didn't touch on is this guy Gerd Gigerenzer, so the wonderful experiment is you take children, you put them in a room, and then they have to take an exam. So in one control group you put them in a room, there's nothing on the table, you go wait for five minutes, they go take the exam. The other room, there's chocolates on the table, you say to the children, don't eat the chocolates. You can't eat the chocolates. Now go to take the exam. And the children comply. They don't eat the chocolates, but they perform much worse on the exam. And the idea is that there is-- the brain has a certain amount of willpower. There's a limited amount every day. And literally just preventing themselves from eating the chocolates is using up that willpower and it reduces their ability to concentrate on the exam. That's why anything important that we want to do in life, like I've figured out that the only time for me to workout is first thing in the morning. It's the only time I have the willpower to do it. Even if I wait an hour or two we're done. And so we really want to conserve our willpower for things that count, and I think that following the stock tickers, having a screen open, which is constantly-- So we know that reading is more stressful if you're on a web screen because your brain is constantly trying to decide whether to click on the link or not. And if you have a-- and that literally uses up, it uses our brain energy and if you have just a page, that, all of that question mark goes away so we can focus on the page. So it's all about conserving energy for the things that count. And so if you're coming from my perspective, and I really can't predict where the market will go in the short run. And I don't even know-- I can't even be certain that the companies that I'm investing in, I can't be 100% knowledgeable that I know enough about them to make the investment. What I'm trying to do, like an ant colony, is to create habits and behaviors that improve the probability that I will outperform the market. And that comes down to, in the case of cash for me, I'm not trying to manage the amount of cash. If I see something that makes a huge amount of sense, I'm doing it, and if I see, if I don't see something that makes a huge amount of sense, I let the cash build up. The same way I'm not trying to sell investments when they get to-- probably if they get ridiculously overvalued I would like to believe that I would sell them, but-- So one of my investors asks me, do you sell at, if the value is 100, do you sell at 50, 60, at 100, 120? And I kind of try to explain that it's not like I know the value is 100. I kind of know that it's probably undervalued at 50 and it's probably overvalued at 200. In the middle of that range, that's the kind of uncertainty that I'm dealing with. In the middle of that range, what I'm trying to do is minimize transaction costs, because we know that transaction costs are really important. I don't know if that's helpful. AUDIENCE: In your eight rules, I was curious, number six was, "Never trade when the market is open." I was just curious why that's one of the rules. GUY SPIER: Yeah, so one of the rules is, "Never trade when the market is open." If it said never then I should correct it, because what I should say is, try not to trade when the market is open, because I think there are, in the real world, they're always exceptions that you want it-- So I try to leave myself the freedom to break those rules. But, so, who-- trade station. You get your monitor. You get your access. You can trade at any time. You can react to prices. I mean, it gives this completely false impression, at least of what I'm trying to do. And I think that it's, it's selling people false hope. I think that the traders that make money-- somebody I know was a chief-- he recently left his job, but he was a chief currency trader for Goldman Sachs, for Citigroup. Citigroup gets huge flows and they work hard on getting those flows. They are not making money because they have any, any-- they're make money because they can charge a big ask spread, and because they have temporary knowledge of a huge order that's just come in that they can, that they can price away from the market a little bit, and then they can resell it to somebody else. So maybe if you're a chief currency trader at Citigroup that trading idea works, or that approach to the markets work, but I think in the vast majority of circumstances-- I mean, I'm trying to buy something today that will, that will go up ideally 3x over three years or 4x. Just very, very large movements in price. And I am blown away by the number of times that I, who at the time thought he was rational, I now know better, would be dissuaded by the price movement on the day. So the thing is priced at 10 and we know in retrospect that it was going to go to 50 and I didn't buy it because it was training up by two, by two basis points or something, and that really impacts you, and it's crazy. So there's a-- I found that it's just simpler. And it's actually, it's not I found, I learned it directly from Mohnish Pabrai. He showed me the rule and it was obvious to me the minute he said it. Just don't allow yourself to trade when the markets open. Decide the night before what you're going to do and then put the trade in. Decide-- I mean, the debt doesn't mean you shouldn't put limit orders in or find some way to make sure that-- but think about it in a quiet environment and then, and then allow it to happen. And-- AUDIENCE: Great, thanks. Hi. So, here at Google there is a strong community of people who believe in passive investing indexes. And so you said on several occasions, don't optimize, don't optimize, so I wonder, why not just do that, like, invest in the S&P index? GUY SPIER: I think it's a great idea, and John Vogel is-- oh. So the question is, why not just-- AUDIENCE: I actually have a follow-up to this as well. So yesterday-- so I believe you, actually your fund, Aquamarine Fund, is bidding the S&P index since the beginning [INAUDIBLE]. But yesterday somebody showed me some interesting data that was some funds that, they're supposed to be value-investing funds, such as, let's say, the Sequoia Fund, and [INAUDIBLE] and know that, but even like Warren Buffett and Berkshire, I think they're actually lagging behind the S&P index. And just out of probability there is always going to be someone who is going to beat the index, right? So I wonder, how do you know that you're not that random person and it's bound to happen? And how do you know you're-- [LAUGHTER] --how do you know you're going to keep actually-- It seems like an awful lot of effort to do what you're doing. I mean, in the end do you know that you're going to be above the index after 10 years from now? GUY SPIER: I could answer that very easily and just say, no. [LAUGHTER] Look. Indexing is a great idea. The index is a really hard opponent to beat because it doesn't pay transaction costs. I would say that if you do the index, and John Vogel is a really well-known guy. There's vanguarding indexes and they've, they've done a service to investors. And I was telling somebody over lunch today that to say, to look at the index is a baseline, is a great place to start. But what I would say is that if you're going to index, pick the right index. So if you take the S&P during the financial bubble of 2009, it was very skewed by some very overvalued companies and there's this market cap weighted index. So the more these companies became overvalued, the more they had to be in the index. And so you were investing in an index that was skewed towards the opposite of value investing, going into the biggest companies. So I would want to pick an index that doesn't have those skews in it, like the Dow Jones index doesn't have those skews. So I'd want to spend a little bit of time, and probably everybody in this room is capable, to understand how the index is constructed, to know that it's the right index to use. So there's absolutely no question that is a smart way to do things and it's a good baseline for even people who are doing other things. So to the second part of your question, how do I, we all know that Nassim, it's from Nassim Taleb's book, but you take, you take a bunch of individuals, 1,000 individuals, have them all flips coins, and probabilistically after a number of rounds of somebody who's just flipped heads all the way through and then you interview them, and they really did believe, that they really believe that, I knew it. I knew it. They feel like they have a lucky hand and it's really powerful stuff. And so I don't know. I have to say that. I don't know. So there's this amazing article written by Warren Buffett called "The Super Investors of Graham and Doddsville." I highly recommend it. I'm sure it's on the internet. I'm sure it's sitting in your server's multiple places, but, replicated across the world. But he tried to answer that question and he just said, look, what if the monkeys flipping coins all studied at Columbia Business School under this guy called Ben Graham and they all talk about buying things at a discount to intrinsic value? Then at some point you might have to ask whether this is not just flipping coins. And so I think that the probability right now that Berkshire Hathaway, fourth or fifth largest company by market cap in the United States, is a fluke is getting pretty low, so clearly there are some ways that some people can act in the world to beat those indices, which are incredibly hard to beat. I'd very much like to be one of those people and I have some huge handicaps, because I'm not as smart as Warren Buffett and I don't live in Omaha. I think that I'm much better off today because I figure out those weaknesses and I'm working, I'm working to compensate for them the way I think Warren Buffett naturally did. So I actually think that Warren Buffett, everything that I'm talking about, I'm excited because I feel like I've uncovered some really valuable things that the world isn't talking about. I think Warren Buffet understands them. He just has, he gets more fun out of investing than talking about these things. And if you go to the Berkshire meeting, and I invite you all to join me at the south door of the Omaha Convention Center at 5:30 AM on the Saturday morning of the Berkshire meeting, I'll be there, a guy called Alex [INAUDIBLE] will be there, Mohnish Pabrai will be there, a whole bunch of other people and it's a great example of just get around people who are better than you and you can only improve. But they say every year that if, for a long enough period of time, they don't outperform the indices than there's questions that have to be raised. And I think that they've hit a five year period where they did not perform but then they started out performing again. And I think that all of their shareholders would not have wanted to remove the management and have somebody else run it. And it's a question that is something that I tell my shareholders every time. So. AUDIENCE: Hi. Have you, you're in the value investing space, have you thought about how to apply your investing philosophy in a growth, venture capital, new emerging technologies kind of investment? GUY SPIER: People of my ilk, I think, often have tech envy and we would love to invest in businesses that are in growth mode. So if I think about-- so I'll give you an example of why it's so hard. I had an investment in a company called ITG. Investment Technology Group. So ITG, in an age where the internet was just getting going, had, had created a stock crossing network that enabled people to put their-- it was well before these, all this stuff that "Flash Boys" talked about-- but it enabled people to put their stock so they couldn't trade, very large institutions, like huge volumes that they wanted to put in the market, into a blind pool where, if two people matched opposite sides of the trade, it worked. And you've got to match and then they, and then ITG would take the commission. They had spent 15 years building it. It was called Posit. I think it still exists. They'd spent 15 years building it up and it looked beautiful and I felt like I'd discovered a kind of a Costco, the low cost operator, the thing that offers the clients the best value for money in the financial markets. And then at the time, I don't remember the name of the network, but something came up within three months and achieved the same volumes. And then within a year or two later there were dozens of competitors. And ITG is still around, but the beautiful growths prospects than existed just weren't there. So I think that what is so hard, and I've tripped up on this on a number of occasions, is that you're buying the future and the future's not certain and you'd like to believe that the company that you've invested in, and I'd like to believe that the company that I've invested in, is going to be the winner. But it's just so hard to do. That said, a very famous value investor, Bill Miller, at the time that AOL was the dominant internet company, made a huge amount of money. This was a time when AOL was marketing their service, their internet service, by sending direct mail out with these CDs. Can you even remember? Yeah. We don't even have CD drives anymore in our computers. But he'd figured something out, but then he lost a huge amount of money in the tech crisis. And there are some value investors today, there's a guy that I respect an awful lot who has, who had a very large position in Amazon, and so I get envious because I look at it and he made four times his money so far and I-- believe me, there are plenty of my investments that have not made four times my money. And I understood, after talking to him for a couple of days, I understood a lot more about Amazon than I did. But I just found, I've discovered that in my case by, in doing that, I get it wrong more often than I get it right. So I think it's really hard. And there's an idea written up where buying the future is not a great thing to do because it often doesn't turn out that way. So I don't think it actually works very well and I have a certain amount of angst, because I think that what everybody in this room is doing is creating a better world for us. And what actually am I doing? I'm helping, I'm helping some rich people get richer and maybe I'm allocating some capital, but I think that what's going on here is actually a lot more meaningful. And I think that, especially visiting the Google campus, I think in a different version of my life I would've stayed studying mathematics and physics and maybe gone to an MIT and ended up-- And so I'll leave you with this idea. So all of you know the grass on the other side of the road is always greener. So I was, I was a classmate of Mark Pincus, so I got to know him. He's in the section, my section at Harvard Business School. He taught me a lot about playing chess. He was a game player then. He just loved games. That's what he loved to do. I think actually Mark Pincus is a great example, with a zinger, of how, when you're inner world, your love of games, is aligned with the outer world, extraordinary things can happen. And then, when you realize that your outer world is all about management and that's not what your inner world is about, you need to leave and you need to do something else. But he-- so I visit him in San Francisco a few years after business school and I've, I've fallen in love with Warren Buffett and I'm doing value investing and he just looks at me, he says, look, Guy, you could make large amounts of money, but at the end of the world who cares? I'm here changing the world. And I think he's got a really good point, and, and-- So I have a certain amount of angst about it, but I'm not going to change what I do now 'cause I'm enjoying my life. AUDIENCE: The talk you gave today reminds me, Warren Buffet talk about in the school system. I think that was all you talk about today, right? Yeah. Can you tell me a little bit more about, how do I, [INAUDIBLE] you mentioned about envy, right? Warren Buffet also say that it's not greedy, but it's envy that will destroy the world, right? Yeah. Could you tell me how can you not envy people, be humble? I have, some of my friend, was working in, was, she was working at company which was bought by Facebook, so he [INAUDIBLE], so obviously people got envy, so could you please-- GUY SPIER: So I asked Warren Buffett that question and I-- so I said it to him like this, and I wasn't, I wasn't ready to admit to the extent of my envy for certain people. So I put it in like this, and the answer will scare you. I said, OK-- so, by this time, he's convinced me to call him Warren. Earlier on I'm saying Mr. Buffet and he's stopping. So I say, so Warren, I want to put you in these shoes. I'm a manager of yours and I come to you. And I'm a manager of a substantial business of yours and you rely on my performance for the success of Berkshire Hathaway and I come to you with a confession. And I say, I'm deeply envious of a peer in my industry and it's just eating me up. And I know that it's going to force me, get me to make decisions that are not good for the business, but what do I do with this envy? And I'm hoping for pearls of wisdom to fall from heaven and I said, so what would you say to him? And he's like, I don't know. [LAUGHTER] And I don't know where I, I, I got this from. He did talk to us about this inner scorecard idea at the lunch extensively. And just so that you know it, for those of you who don't want to buy the book, which I totally understand, he says-- there are many books out there-- he says, would you rather be considered by the world to be the best lover in the world, but between you and your wife to know that you really suck, or would you rather for the world to think that you're pretty bad at being a lover, but for you and your wife to know that you're the very best? And obviously that was a distinction that I had not really fully understood and made. And it was really hard for me, because I realized how much of my life I'd lived by an external scorecard and I realized in writing the book how much of the environment that we all operate in is so-- exam results, all sorts of evaluations. Those are all in a certain way, in many cases, external scorecard. And I was telling Sarab that my children are in a Montessori, Montessori school right now. I think maybe one of the big things that the Montessori school system does is it teaches you, and in a scorecard, it teaches you to focus on the things that give you true joy. But I'll tell you what really does deal with envy, and this works, is that, a really powerful idea, emotions are a call to action. So anger is an, is an indication that your boundaries have been violated, so you need to protect your boundaries. For example, being sad and being in pain means that you need to seek nurture and security. Envy is a signal-- so the misdirection of envy is, I hate that guy I want his life, and I don't have it. And so that's envy. And I don't know why it's associated with the color green. The call to action is there's something wrong in my life that I need to change. And I promise you, example, the morning I woke up next to my wife, totally in love with her, having had an extraordinary night. I was not envious of anyone. My life was really good. The days that I've spent on a windsurfer, yeah, just surfing those waves, with a blue sky and strong wind, I was not envious of anyone. You could give me Bill Gates, Warren Buffett, Steven Spielberg, you name it. When you're in those moments you're not envious. So I think that, what I came away from that lunch was, increased recognition of my own envy, and increased recognition of how much my life was on an external scorecard, and the absolute desire to change it. And for me that meant leaving New York. I realized that New York wasn't a healthy place to me. So I think there is a way to deal with envy. It's fixing what-- fixing-- ensuring that we go to bed every night happy with what we did during the day. And if we're not doing that, then we need to try really hard to get to a place where we're doing that. And once we're doing that we won't have any envy. So thank you all for coming. I hope I, I hope I [INAUDIBLE].