Don't Be Your Own Worst Enemy

Jason Stipp: I'm Jason Stipp for Morningstar. We're here at the Value Investing Congress in Pasadena, and I'm talking to Guy Spier.

He's with the Aquamarine Fund, and he's talked a little bit today about how investors can be their own worst enemy. He's going to give us a little detail on that. Thanks for joining me, Guy.

Guy Spier: Great to be here.

Stipp: The first question for you: one of the things that you opened your presentation with is that certain very famous investors had certain experiences that caused them to, maybe, not be like the rest of us.

What is it about some of the great investors out there that have caused them to be able to be successful? What are some of the things in their past?

Spier: When I think that of the four investors that I put up there, and I put Mohnish Pabrai, Warren Buffett, I put George Soros up and Mike Burry, is that they experienced extreme events in their childhoods.

In the case of Mohnish Pabrai, I talked about how he had witnessed bankruptcy in his family numerous times, and in the case of George Soros, how he witnessed the extreme environment of living in Hungary during the Holocaust and surviving.

I am sure that there are all sorts of innate behaviors that play directly into the way they invest.

Stipp: Now, for most of us, we probably didn't have those experiences. We don't have the temperament. These are rare individuals who have had success.

You talked a little bit about what we can do, things that "mere mortals," as you called your presentation, can do to help set up an environment where you can be more successful at investing, but you almost have to have circuit breakers, as you said.

What are some of the steps that individual investors can take, where they can set themselves up for success?

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Spier: I think, that one of the most important ways is to actually, in a counterintuitive way, reduce our freedom of action. Some of the things I talked about is, set a time window when you're going to give market orders, and ideally have that time window be when the market is closed so the market is not influencing you.

Make that maybe an hour or two a day, and that's the time when you make investment decisions, and otherwise you leave it alone.

Stipp: As part of that, you also had mentioned getting away from the crowd. Now Buffett is in Omaha, not exactly the center of the financial universe. You yourself live in Switzerland, got away from some of the primary financial centers.

How important is it to set yourself apart from people who are in this business day to day to day?

Spier: I think that I suffered, my returns suffered, and my business suffered because I was spending every day in a building full of financial people. Not only is Warren Buffett in Omaha, the building out of which he works is a building which is dedicated to constructing things. So, I think, that it's key.

On the other side it's worth saying, Jason, that I have now created much more of an environment that should be conducive to good investing, so I have far fewer excuses.

[laughter]

It's worth saying that for Morningstar's customers, what your customers should take away from my talk is that they often feel like they are at a disadvantage to the professional investors. In fact, individual investors, provided they're not leveraged, provided they are investing with long-term money, have some profound advantages.

Stipp: Certainly something important for people to keep in mind: they can do some things that other investors can't do.

Spier: Absolutely. In fact, what I have done with my business is I've moved it away from an institutional business towards more of a business that looks more like somebody running their own portfolio because I realized I'd be able to make better investment decisions.

Stipp: Sure. Last question for you: we saw a lot of mistakes that investors were making throughout the downturn in the short-term thinking that they had. What would you say are the mistakes that investors are making today, in this market environment, after we've had a recovery?

Spier: What I worry for is that many people may be starting to pile in and reducing their cash balances because they've decided that things are safe. One of the lessons is that it's always good to have plenty of cash hanging around.

To the extent that investors are not doing that today, that may be an important mistake that one should not repeat. That would be the main one.

Stipp: Guy Spier, thanks so much for joining us today.

Spier: Thank you, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.