Outperforming The S&P 500 Index & The Dangers Of Long-Term Compounding | Guy Spier
Summary
TLDRThe speaker reflects on the importance of record-keeping in investment decisions, likening it to maintaining a personal diary for accountability. He discusses the benefits of having a structured pre-trade check and the impact of regulatory constraints on decision-making. The conversation delves into the power of long-term compounding, using the Aquamarine Fund as an example, which has significantly outperformed market indices over 26 years. Despite the impressive returns, the speaker expresses a sense of disappointment for not achieving his initial high-return goals, highlighting the bittersweet nature of compounding and the need for a balanced approach to investing that prioritizes survival and resilience over extreme risk-taking.
Takeaways
- 📋 The importance of maintaining a record of investment decisions is emphasized, akin to keeping a personal diary for accountability and reflection.
- 🔍 Pre-trade checks are crucial for ensuring mindful decision-making and can be documented using modern tools like transcription software to create an official journal.
- 🤔 The speaker recounts a specific instance where a CFO's request for more information led to a change in investment strategy, highlighting the value of second opinions and deeper analysis.
- 💡 The concept of constraints is discussed as a positive force, where regulatory and other limitations can lead to better decision-making and creativity, much like an artist working within a set form.
- 🏢 The speaker discusses the shift from a distributed office to a centralized one due to regulatory constraints, noting the benefits of in-person, regular communication for evolving systems and strategies.
- 🌐 The skepticism towards distributed teams is expressed, suggesting that being in one place allows for better adaptation to changing circumstances and a more cohesive team dynamic.
- 📉 The Aquamarine Fund's long-term performance is highlighted, showing the power of compounding returns over 26 years, but also the bittersweet reality of not achieving the initially expected higher returns.
- 🎯 The focus on avoiding catastrophe and ensuring long-term financial security is underscored as more important than achieving the highest possible returns.
- 🛑 The value of a cautious approach to investing is illustrated with the story of a ski racer who prioritizes not getting injured over winning individual races, aligning with the long-term compounding strategy.
- 🚫 The dangers of high-risk, high-reward strategies are discussed, with the speaker sharing personal experiences and the importance of ensuring the portfolio can withstand various market conditions.
- 🤝 The influence of mentors and successful investors like Warren Buffett is noted, particularly their focus on downside risk and the resilience of their investment strategies.
Q & A
What is the basic principle of regulatory compliance in decision-making?
-The basic principle of regulatory compliance is to maintain a record of the reasons behind decisions made, which serves as an official journal of actions taken and the rationale behind them.
How does keeping a record of investment decisions benefit investors?
-Keeping a record acts as a check for mindless decisions, provides transparency, allows for accountability, and enables other staff to monitor the investment strategy for any unusual activities.
What is the significance of having a pre-trade check before making an investment?
-A pre-trade check ensures that the investor has a documented reason for the trade, which can be reviewed and edited if necessary, creating a written record that justifies the decision.
How does the speaker's experience with regulatory constraints affect their perspective on distributed teams?
-The speaker has become skeptical of distributed teams due to the challenges in developing coherent responses to regulatory constraints across different time zones and geographies, believing that being in one office facilitates better communication and adaptation.
What is the speaker's view on the importance of long-term compounding in investment?
-The speaker views long-term compounding as crucial, emphasizing that the goal is financial security and independence rather than beating the market. They highlight the importance of avoiding catastrophe and staying in the game.
How does the speaker describe the experience of managing the Aquamarine Fund over 26 years?
-The experience is described as bittersweet, with the fund outperforming the market but not achieving the high returns initially expected. The speaker reflects on the power of compounding and the importance of a稳健 (steady/cautious) approach to investment.
What is the analogy used to explain the importance of not focusing solely on winning individual investment 'races'?
-The analogy of skiing is used, where the goal is to finish the season without injury, not to win each individual race. This emphasizes the importance of long-term success over short-term gains.
How does the speaker relate the concept of constraints to creativity and decision-making?
-The speaker relates constraints to creativity by suggesting that having certain rules and limitations can force one to become the best version of themselves, similar to how artists work within the constraints of a particular form to create something beautiful.
What role does the speaker's father play in the establishment of the Aquamarine Fund?
-The speaker's father was one of the initial investors in the Aquamarine Fund, contributing a significant portion of his liquid net worth, which provided the foundation for the fund's growth.
How does the speaker reflect on the impact of regulatory constraints on their investment strategy?
-The speaker initially found regulatory constraints challenging but later realized that they provide opportunities for outperformance by forcing a rational and structured response to uncertainty.
What lesson does the speaker learn from their experience with a bankruptcy in their portfolio?
-The speaker learns the importance of not taking excessive risks, even with a small part of the portfolio, and the value of making decisions that ensure survival and stability across all possible outcomes.
Outlines
📋 The Importance of Documentation in Investment Decisions
The speaker emphasizes the necessity of maintaining a record for every investment decision made, likening it to keeping a personal diary. This practice not only provides a rationale for actions taken but also serves as a check against impulsive decisions. The speaker shares a personal anecdote about altering a trade due to a CFO's request, highlighting the value of second opinions and the mental and governance benefits of having a documented investment process. The discussion also touches on the psychological aspects of decision-making and the importance of not becoming agitated when challenged, but rather viewing it as an opportunity for reflection and improvement.
🏗️ Adapting to Regulatory Changes and the Value of Centralization
The speaker discusses the impact of regulatory constraints on their investment strategies, suggesting that these constraints can paradoxically lead to opportunities for outperformance. They argue that being in one office facilitates better communication and adaptation to new systems compared to a distributed team. The speaker also shares their skepticism towards the effectiveness of distributed teams, especially across different time zones and geographies, and the importance of being in one place to allow for structural evolution in response to changing circumstances.
🎢 The Bittersweet Reality of Long-Term Compounding
The speaker reflects on the long-term performance of their Aquamarine Fund, which has averaged nearly 9% annual returns over 26 years, significantly outperforming the S&P and MSCI. Despite this success, there is a sense of disappointment as the speaker initially aimed for higher returns. They discuss the concept of compounding and the realization that consistency and avoiding catastrophe are more important than high annualized returns. The speaker also touches on the unpredictability of success and the importance of making decisions that ensure a good outcome regardless of market conditions.
🛡️ Prioritizing Survival and Financial Security in Investing
The speaker delves deeper into the philosophy of investing for survival and financial security rather than chasing high returns. They discuss the importance of ensuring that investment strategies work out 'at least okay' in all possible scenarios, rather than aiming for spectacular results that could lead to ruin in certain circumstances. The speaker also shares a personal experience of bankruptcy due to a risky investment, underscoring the need for caution and the value of learning from mistakes.
🏂 The Skiing Analogy: Balancing Risk and Reward in Investing
Using a skiing analogy from Luca Delana's book, the speaker illustrates the concept of balancing risk and reward in investing. They compare the strategy of skiing as fast as possible to win individual races (akin to chasing high investment returns) with the strategy of skiing at a speed that minimizes the risk of injury to ensure completion of the season (akin to ensuring long-term financial security). The speaker emphasizes the importance of long-term compounding without catastrophe and the wisdom of prioritizing survival and resilience in investment strategies.
🗝️ Lessons from Warren Buffett: Resilience and Bold Bets
The speaker recounts insights from Warren Buffett's investment strategies, highlighting his focus on resilience and the ability to make bold, well-informed bets. They discuss Buffett's decision to issue equity in White Mountains Insurance to ensure the company's survival, reflecting a cautious approach to risk. The speaker contrasts this with their own past decision-making and expresses a desire to have taken smaller, more frequent bets in the early stages of their career, suggesting a balance between caution and boldness in investment strategy.
Mindmap
Keywords
💡Regulatory Principle
💡Long-term Compounding
💡Portfolio Management
💡Risk Management
💡Survival Bias
💡Diversification
💡Mental Energy
💡
💡Governance
💡Constraints
💡Ego and Investing
💡Resilience
💡Downside Protection
Highlights
The importance of keeping a record for regulatory and personal accountability in investment decisions.
Use of technology like 'utter' for transcribing pre-trade checks to create an official journal of investment decisions.
The concept of a 'pre-trade check' as a method to prevent mindless decisions in portfolio management.
The CFO's role in requesting more information to justify investment decisions, promoting a culture of accountability.
The mental and monitoring costs associated with maintaining smaller investment positions.
The value of self-reflection and recognizing one's emotional responses to decision-making.
The benefits of constraints in fostering creativity and excellence, drawing parallels to literature and poetry.
The impact of regulatory constraints on the necessity for a centralized office environment for effective communication.
The preference for a centralized team over a distributed team for evolving structures and adapting to changing circumstances.
The power of long-term compounding illustrated by the Aquamarine Fund's 26-year performance.
The bittersweet nature of achieving a lower-than-expected average annual return and its impact on the investor's ego.
The philosophy of investing for survival and stability over chasing high returns and potential catastrophe.
The analogy of skiing to illustrate the balance between risk-taking and longevity in investing.
The importance of compounding without catastrophe as a long-term investment strategy.
The challenge of distinguishing between skill and luck in investment performance over time.
The decision-making process and its impact on investment outcomes, regardless of the actual results.
The story of a fund manager who lost everything by investing in a single stock, emphasizing the perils of concentrated bets.
The influence of Warren Buffett's cautious approach to downside risk and its application in investment strategy.
Transcripts
the the basic principle regulatory
principle is we want a record of why you
made these decisions and it's a very
it's almost like I think that the
benefit of doing that is that it's like
you know many investors talk about
keeping a diary a personal diary or a
personal journal and this is kind of
like an official Journal if you like of
what happened and why did you do it and
we see that this move was made in the
portfolio made this decision is there
any kind of like backup for this so in
my case I I wrote my pre-trade check for
actually we we've modified it I don't
have to write it I just have to record
it and then and then we can use uh you
know um utter or similar to transcribe
it gets edited lightly and we have a
written record and there's a mark on a
piece of paper that shows that so i'
done the pre-trade check for the thing
that I wanted to buy and uh I kind of
said look we we're going to make this
like 3 or 4% position and we're going to
sell these things to do it these smaller
positions and uh the CFO came back to me
and he said look the buy side is fine
but we need a little bit more so then I
said okay fine I'll write it up and I I
looked more closely at these smaller
positions and I said wait a second I
don't I don't want to sell this this
cheap it's like there's no I'm so we
went back and instead of buying a 4%
position we bought I believe a 2%
position and and the balance is still to
be bought so yes it acts as a kind of a
check for Mindless decisions if you like
now there is an argument for saying that
if it's such a small proportion of the
portfolio just clear it out but at least
then I would have to make that case yes
they're cheap but there is a there is a
cost to us to monitoring these positions
and there's a mental energy that we're
in we're investing that we no longer
want to invest in them uh but he stopped
me and I believe that that was the right
thing to do at that or in a sense he
wasn't stopping me he was saying that's
fine but I need to know why you so uh
and of course
uh it's it's delicate because because
somebody could say damn it I just want
to do it or isn't it obvious why and on
the other side um you know if somebody I
mean William and I I think I've figured
out mainly through therapy sessions with
lri my wife that if you're getting
agitated then the first thing we do and
we get agitated is we want to think it's
somebody else doing something to us and
they probably are doing something to us
but that's not the point the point is
what we're doing to ourselves and so if
I would have gotten agitated that
response that in itself would have been
something to pay attention to I didn't
get agitate I was like yeah he's got a
good point and oh my God check that out
no I don't want to do that right now so
he's just saying give me your reasons
and make sure the reasons are on paper
it also for what it's worth from a
governance standpoint means that there
are there are multiple eyes on these
pre-trade checks or this investment
official investment Journal that also
allows for example other staff in the
office to say yeah this is going the way
it to be going or my gosh there's
something really weird going on here I
need to put some phone calls into our
directors to say this you know he's he's
lost his marble so to speak so um it's
it's a new world for me I've been
learning to live in that world and it's
been interesting for me to to learn what
I needed to become uh but also the
people around me have come to trust me
it took about it's it's it's a slow
process and there's a beautiful line
that I often quote it sounds really
pretentious I often quoted it to my kids
Henry and mine from um n where he talked
about how the the genius dances within
chains and
it's I always talked about it in in
terms of of literature that it's kind of
helpful to have certain rules and
constraints whether it's a a poet with
certain types of of meter or whatever
you think of Shakespeare having to write
with I Amic pentus where it's like d dum
dum dum dum dum and yet somehow you can
write amazing things within that rhyme
scheme and there's something about being
regulated by the Swiss that it it's
chains right I mean and yet somehow you
can make it work for you by saying well
actually it's kind of helpful to have a
circuit breaker that forces me in
writing or in a dictation to explain why
I would sell this position yeah I mean
there's there's so I I'm not I don't
consider myself a creative guy but it's
it seems to me the case that uh actually
finally enough William with CCE that you
introduced me to every time I have so
much fun doing these holiday cards CCE
is a wonderful art director who who was
a great art director at the time who I
worked with for years and has been doing
lots of design stuff for guy including
the cover of the educational value
invest yeah exactly and sorry for for
not explaining and uh with the holiday
cards every time what makes the holiday
card and I have so much fun with her is
that we have some power ful constraint
so uh that that prevents us from doing
what we'd originally thought and then
it's in the work of going around that
constraint that uh a really really fun
card comes out so this idea of and I am
big pentameter how strange that actually
having those constraints forces you to
become um the best version of yourself
perhaps and yeah so that I guess that's
true uh of the regulatory work what I
wanted to say is that you know there
look what is it it's one a few times
many times this last few days William
You' used the the phrase It's one damned
relatedness after another and the world
is complicated so uh I used to love sort
of like the distributed office so you
know uh we uh we we had a member of our
staff in New York we had a member of our
staff in the BVI but but in responding
to the new constraints for example from
uh regulatory constraints working out
new systems uh far better to be in one
office because you want to have intense
and regular conversations about how to
make it work and if you're in a
different time zone and you're doing it
over the phone you kind of don't have
enough opportunity to figure out that
system and so um uh I think that um the
the regulatory constraints those
constraints provide the opportunity for
outperformance or excelling in a certain
way once You' kind of grasped them
you've engaged with them and you're
developing a rational response to them
at the same time I feel like in the past
developing that response was made more
difficult by the fact that we didn't
have a full office day with all of the
staff who were and what I came to it's
just coming to something very practical
which was that that needs to be worked
out in one office not not in a
distributed team and I've become very
leery eyed of people who say that they
can work effec ly in a distributed team
across uh sort of multiple time zones
and and large geographies I think
there's an enormous benefit to being in
one place and when you're all in one
place your structures can evolve to
changing circumstances and when you're
all distributed they be kind of become
aifi especially people not at the center
don't realize that the environment is
changing and the way the team Works
needs to adapt so uh I I know that's not
a question that you posed to me but uh I
came up for me and it was important for
me to say it and now you get to Williams
looking at me in such a way you're
looking at me in such a way that goes
okay now can we bring it you've traveled
off the reservation what's funny is guy
guy and I are both so unline that I I
you know I sawed this interview with
about six or seven pages of questions
and and I immediately veered entirely
into a totally different direction oh so
you did it that's yeah no so there
there's something wonderfully uh
characteristic of guy and my
conversations where we'll literally talk
for two days days without having covered
the thing that we meant to cover and
then we'll get guilty and we uh feel
guilty and we'll come back to the main
theme so I did want to ask you about a a
very important topic that has been a
really central part of our conversations
over the last week which is this by the
way is William being bring us back on
track and I just want you to know that I
had various ways in which I could have
taken it off track I'm resisting
mightily because they're so interesting
so far you're resisting so a topic
that's that's very Central and important
I think to a lot of our our listeners
and viewers is this whole game of
long-term compounding and aquamarine
your fund is a really
interesting embodiment and illustration
of of this issue so you set it up in
September
1997 um so this is a little over 26
years ago over that period you've
averaged almost exactly 9% a year this
is through the end of of um 2023 exactly
9% a year
the the S&P I think was let me check it
was 88.3% annualized the msci was
7.1% so cumulatively the fund has
returned
874 so it's about 157 percentage points
ahead of the S&P 371 percentage points
ahead of the msci so in some ways it's a
beautiful illustration of the power of
long-term compounding like we we were
calculating this the other day and we
figured out that a million dollars in
invested at the start of that Journey 26
years ago is now 9.4 million right so in
some ways it's an incredible example of
the power of long-term compounding and
yet there's also something deeply
disappointing to you about it because
you look back and you think you know
when I started my career 26 years ago
and was influenced by Buffett I thought
I was going to make 15% a year 20% a
year and here you are at 9% a
year and in some
ways it's a it's a morality tale about
disappointment and in some ways it's a
morality tale about the incredible power
of long-term compounding can you talk
about how you've been thinking about
this whole issue of the power of
compounding the power of good enough
returns
um there's so much to discuss here what
what does this bring up for you so um
the first thing that I can say is that
um so it's I think that the word that I
used as I was making notes for before
you came William is
Bittersweet so it's sweet because it's
compounding and it's bitter because it's
not the number that I set out to achieve
and it doesn't feed my ego in a great
way and I I would say that the same way
that we were talking about the financial
crisis
chapter um I I knew I'm I probably
approached it in a defensive way anyway
because that's the nature of the human
ego but uh I I
trusted trust William enough to kind of
bring that to you and a certain way I'd
say that this conversation being willing
to share it is is an act of sort of like
tell the truth because you'll have a
great adventure in life something like
that if you want to live a meaningful
life certainly tell the truth um and I'm
I'm brought back to a question that was
asked to me by a very smart Google
engineer at the talk that I gave at the
invitation of Sarah Madan where he said
um something along the lines of and he
he probably kind of interrupted he put
his hand up in the first five minutes
and he kind of said something like how
do you know so you're so good uh you
seem to have beaten the market up to now
but maybe that's just luck no and and
again I had to be honest and say well we
we don't know and I don't know and um so
there's there's all sorts of uh uh uh
questions that I have about that so one
possibility is that uh I'm an average
investor who was lucky enough in the
first few years to outperform the market
or I may be below average investor who
was lucky enough to outperform the
market for a while has underperformed
the market for a while and actually if
we could look into the eyes of the
almighty he will reveal that over the
course of the fullness of time I wasn't
a great investor or was a great investor
I don't know what the reality is I wish
I did uh and so I have to operate within
that
uncertainty and over above that uh
within that uncertainty I have to
structure my own decisions and the
decisions of the fund in such a way that
given that I don't know what I really am
like as an investor and over above that
I don't know how reality will unfold I
want to position myself and this is kind
of a personal decision such that no
matter which one of those things is true
uh I will come out in a good way on the
other side
and so um you know we could do a sort of
Matrix of many different
possibilities in one I'm actually so
there's also referring back to a book of
our friend Ken schoenstein that I
believe you
edited you can have a good
decision-making process and a specific
say investment idea and get a bad result
because the world unfolded in a
different way and that doesn't mean that
your process was wrong that just means
that you got a bad result by contrast
you can have a terrible decision-making
process in a particular investment make
the decisions for all the wrong reasons
and end up with a spectacular result and
the idea that we have is somebody
running with a match through a bomb
Factory you might get through on the
other side but it might have all
exploded so um uh I I need to structure
my decision- making in such a way that
given that H so so I could be a good
investor and the environment was not
good for me I could be a bad investor
and the environment was not good for me
multiple different options I need to
take all of those into account uh and
all of the uncertainty about how the
world unfolds and make decisions such
that on the other side there's a there's
a good life and a happy life and you
know we were I was talking yesterday to
this um uh this this guy who's here at
valy weex who I think has got a
wonderful book Luca Deana on erist and
we can ask the question
um if you have the Ambitions as a young
person to be a movie star you know so
you're focused on I don't know Natalie
Portman or some other WTH Palos had this
super successful career but you don't
see all the people who started off who
didn't have that super successful career
who are equally good actors and
actresses who were um equally
hardworking equally talented equally
uh face for Cinema and um because the
world is an extraordinarily random place
so the question becomes if you're a
person starting off in life do do you
want to take the lottery ticket the one
in 10,000 or one in a million that you
become gwenth paltro whoever else it is
are you also willing to live with all of
the other outcomes that you might have
and and I think that you know as long as
you're happy if you don't get that start
in role and have that lucky thing that
you get that career that you're dreaming
of you're also okay if it works out in a
pretty boring way you end up being a
waitress your whole life or whatever
else it is then that's fine but when I
look at running aquamarine fund and
looking at the financial affairs of
myself my family our
investors an outcome where in some cases
of the world it's
spectacular but in other cases of the
world I blow up meaning you know and the
kind of person and there are stories
like this of somebody that I know from
the beginning of my career who put all
of all of his investors assets into one
stock the stock was called mcf and
levered with the expectation that the
price of gas would go from $2 from $4 to
$8 to $12 except it went from $4 to $2
and he's no longer running a fund that's
not an acceptable outcome for me all of
that because you feel like and I'm going
to bring this back to your original
question I believe is to say that I
don't you know so so you don't want in
the investing world I believe to say I'm
going to act in my portfolio in such a
way that I can get my 18% annualized
over the next 20 years and be super
successful when in some proportion of
the realities that may unfold that turns
into a great big zero all putting all of
your investments in one stock and
leveraging it and so the strategies that
get all of the potential outcomes to a
decent result mean that you're far more
likely say to get 9% rather than 12 15
20% and so the sweet part of the
bitterness is that survival is
everything survival of the principle of
compounding is everything that is the
most important thing not the actual
annualized rate of return and yeah if
all other things being equal I can
double the rate of return or increase it
by 2 or 3% then that's fine but they're
not equal and so I'm constantly saying
to myself and and sometimes I look at it
and and it's not a clear picture so I
can go back and and I'll hand the mic
back to you in a second I can go back
into so I had a bankruptcy
embarrassingly enough in my portfolio in
2015 that was me acting with a certain
proportion of the portfolio about 10% of
it in a way that was not very smart it
was a bit like running with the lighted
match through a bomb Factory and it did
didn't work out for me and that's not
the vast majority of the portfolio in my
case but every now and then I look at
some
positions uh that maybe that they're
great businesses but they're very very
highly valued and I ask myself am I am I
actually doing a little bit of um uh you
know constructing the portfolio in such
a way that it only works out great in
certain versions of the world and we
want it to work out at least okay in all
versions of the world I think I'm kind
of mincing my words a little bit but I
think I think I've made the point
probably too much no we're getting at
something that's really profoundly
important and I've been I've been
struggling to struggling to digest and
synthesize this myself over the last few
days because I think it I think it's
vastly important this idea you know so
many people set up the horse race of
investing where it's about okay I'm
going to get these great returns and I'm
going to beat the market and and for
most of
us that's not really that important
really what we want is to get to a
position where we're financially secure
financially independent it doesn't truly
matter whether you beat the market by
150 points over the last 26 years or 300
percentage points or or 20 percentage
points or if you if you trailed so long
as it's like a really positive result
that's getting us toward the finish line
and so I I feel like what you've been
working
towards is this much cre a clarity about
the
importance of compounding without
catastrophe long-term compounding
without catastrophe and I think one of
the reasons you're so clear about this
as a goal is that from the very start um
a huge portion of the money in the fund
and it was a tiny fund at the beginning
it was like a $20 million fund right
with million from your dad and so it was
like your dad's all of the money that
your dad had made in his entire career
as an entrepreneur
basically plus a few friends who of his
who were lawyers and stuff in
Switzerland who might not have been
invested in the Market at all and I was
one of the First Investors like a little
bit after that probably a couple years
after that in around
1999 and so having done no due diligence
except had a few meals with you over the
years and um so this priority of Simply
surviving of getting to a good end point
and
compounding and staying in the market
was hugely important to and I I don't
think this is something that most people
think about and I it strikes me that
just avoiding catastrophe and staying in
the market staying in the game
continuing to compound at a at a decent
rate a good enough rate it's
underestimated but then at the same time
there's a danger that money managers end
up changing the game that they're
playing saying that that's the game they
were playing just cuz they failed at the
game of our performing they wanted to
play I mean what comes up for me and um
is an analogy that was so helpful for me
and it's funny because we happen to be
at a ski resort and this is straight
from Luca delana's book uh so he asked
so you know the name of the game we're
in in the business of uh skiing and
being the most successful skier for the
season and obviously they're good skiers
and we're now going to take the
perspective of an individual skier who
wants to win the season and there are 10
races and uh you know as the skier he
can he can ski this is a downhill race
he can he can ski as fast as he possibly
can and there's a higher risk of uh
crashing and injuring himself and uh he
can ski slower than his top speed and he
takes a higher risk of not winning that
individual race but he um reduces the
risk that he gets injured and get taken
out of the race and I'm not going to go
through the probabilities but I think
that we can all see and in in the rush
and the excitement of the day and the
pressures that the skier feels uh
there's there's a tendency to want to
push the uh speed so that you can win
the race and the skier May doing that
win races 1 2 3 4 and five but he's
taking a cumulative risk there of injury
and as Luca puts it in the book The
skier that wins the race is not the
fastest skier it's the fastest skier
that doesn't get injured but the
individual and you've got an audience
and there it's super exciting to see the
guy skiing super fast and it's even more
exciting in a way if you get a massive
accident but from the perspective of the
skier if you can just step back and say
my goal is to survive 10 races uh then
he may ski differently and so I think
this beautifully illustrates what we're
trying to do as investors and the
pressure to try and win the individual
race is just enormous and this by the
way is is kind of like a a rule for life
in all sorts of things where what is
short-term expedient what feels like
Optimal in the day is not optimal for
the week the year and and many years so
uh and just to take it to an investing
uh um
example uh there I am at the um oh man
it's a famous hotel in uh Manhattan I
don't know why I always want to remember
these things with the specific place
it's the world of
Historia and White Mountains insurance
is giving a presentation and Jack burn
is the CEO and uh uh Berkshire Hathaway
has funded White Mountains Insurance to
BU a uh distressed insurance company
which is probably at half or less of
Book value and now while the whole thing
is still trading at less than half of
Book value white Mountain's insurance is
doing an equity issurance and Jack burn
who's redomicile this company to Bermuda
is standing there in Bermuda shorts and
I'm there as a young whipper snapper
after the presentation for the issuance
and once to ask him a question I say but
Jack it's trading at such a discount
these this share issurance is
dilutive uh we will make so much more
money if you don't do this share
Insurance why are you doing it and and
and he he basically he looked at me with
his kind eyes and and you know we've
talked about uh um his name is escapes
me this kind of like you know I mean I'm
just a nothing to him and just like
total focus on me and he says um this uh
yes if the world works out perfectly we
would have left money on the table but
if the Work World works out really badly
doing this Equity issurance ensures that
the company will survive and do just
fine and I want you to know guy that
this issurance has the blessing of our
friend in Omaha Warren Buffett and it's
just an example of of you know Warren
saying don't race as fast as you can the
name of the game is to finish the season
don't take the risk by not issuing
Equity that you might not finish the
season let's issue the equity yes we're
going to be going a bit slower but we
will definitely finish the season no
matter how the world unfolds so that's
an example of that and I would just tell
you that as I say it I think of the
decision that I made uh to stick around
in um uh in hhe head which ended up as a
bankruptcy and in that case the
equivalent analogy in White Mountains is
that I didn't do the equity issuance
because I I wanted to make as much money
as I possibly can and so that the desire
to do that even with a part of the
portfolio is very very high and what I
learned from that moment and from
Reading Luca Delana and you know
understanding his skiing analogy and
seeing the decision that Warren Buffett
made is that almost in all circumstances
don't do that
you know and and it came up at the most
recent bu hathway meeting I don't know
who I was talking to but somebody was
pretty close to the decision making in
KT Plaza and they said uh you cannot
imagine how much of Warren how much time
Warren spends just thinking about the
downside this came up in my conversation
with Chris Davis who who had um who's
now on the board of Berkshire and if
people want to check this is a
fascinating part of the the recent
podcast that I did with
where I asked him what it was like to be
in a board meeting with Buffett among
and he was saying you wouldn't believe
how much time Buffett spends talking
about the most extreme circumstances
that he's guarding the portfolio against
making sure that the company would be
okay in the event of uh you know nuclear
attacks financial crisis um you know
dirty bombs whatever whatever it might
be I thought that was a really
interesting Insight that that that focus
on resilience but what's interesting is
Buffett has this ability both to set
things up to be incredibly resilient and
then to make these incredibly bold racy
bets on things like American Express
where he put a huge so he's one of those
rare creatures who can kind of do both
but I don't think I don't think I don't
think almost anyone else can right take
that sort of intense Joe greenblack did
the same thing it's it's true I think
also did it at a different point in his
life I don't think he'd do that now if
even if he could he probably can't now
anyway
because it's it's just fascinating
because in in Warren's case 40% of his
portfolio in American Express and um you
know salad oil Scandal and uh uh in in a
way controversial situation I talked
about that sort of contro I don't like
there was controversy around it I mean
uh in a way American Express's name was
D and the ability to say actually yeah
in financial circuit circles perhaps but
as a consumer brand it's absolutely fine
and will succeed and survive and he
actually what he told I'm going to get
the details wrong but he kind of said to
American Express look it doesn't really
matter who's at fault here just pay them
out get this behind you and you'll do
fine even if you weren't at fault at all
here you just want to get this behind
you because your business will be great
and you can afford to do the payout
um yeah I mean I'm not that smart I'm
not that able to to to do that kind of
thing it seems to me I also don't know
to what extent I mean just rewinding
slightly um the the the the and the way
in which one gets started so in my case
if I could have I I'm very grateful to
be doing what I'm doing I'm
extraordinarily grateful to my father
I'm grateful that he made the decisions
that he did if I wanted to be
um if I if I could like have my past
again I think that I would have liked to
have seen how things would have unfolded
if my father had instead of dumping the
whole of his liquid net worth into me
had said look I'm going to dribble it
out x amount at a time you know you know
the my liquid net wealth the vast
majority of it is extremely safe and you
can have oversight over that and you're
going to work on growing a small chunk
of it at a high rate and I will add over
time as we get more confident in it so I
would have I think I would have been
more willing to take bigger bets at the
time and what happened with me is I mean
I was given it was it was 14 million
from these three different investor
accounts that came in and like like 50%
of it was in bonds for like five years
cuz I was so super scared and when I
went and bought my first stock for the
portfolio Duff and Fels even my father
was disappointed by how little I put
into it but out of 14 million actually I
put about two quarter of a million into
Duff and Phelps and made seven times my
money you know instead of putting say a
million in and making seven times my
money which is by the way all in the
track record it's like I've not
varnished that in any way shape or form
there's nothing that's been taken out
some people might have said oh but let's
remove the cash and just see the
performance of the equities I didn't do
any of that
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