Sunday, October 26, 2014

Review of Guy Spier's "The Education of a Value Investor"

A quick review of Guy Spier's excellent book, The Education of a Value Investor, which I just submitted on Amazon as well.
This book is about Guy's personal journey -- the good and the bad. As others have written about the book, he's extremely honest about the path he took to get to where he is today. And while his complete story is still one that is being written, his openness describing his path is what makes this book one that can make just about anyone a better investor. Even if the things that personally work for him don't fit your personality in the same way, he'll make make you think enough about certain things -- especially your environment and the people you surround yourself with -- that I imagine would cause almost anyone, and not just investors, to seriously consider making at least a couple of changes in their lives. 

And while far from strictly being an "investment book" (which makes it more interesting to readers of all types) there is still plenty of investment wisdom, and several things that I'll be adding to my own investing checklist. For example, one of the investing mistakes he discusses was his investment in Tupperware. The "Checklist Item" that may have prevented this investment mistake was "Is this company providing a win-win for its entire ecosystem?" While I already have this on my list as far as being careful of investing in tobacco companies, casinos, or public lottery companies (which he also discusses), I hadn't thought of it as much in regards to a company like Tupperware. It was selling a product that its customers wanted, that they couldn't really get elsewhere, and Tupperware was the market leader. Sounds good, right? But the problem was that they weren't giving their customers a good deal. They were overpricing their merchandise. So while there may be money to be made for a while, especially if you get in early and buy a company like this cheap enough, there is a big competitive risk in the future that isn't easy to see just by looking at the past. How loyal do you think customers are likely to be when someone comes along with essentially the same product at a much better price (especially when it then becomes clear how much customers were being overcharged in the past)? 

I also liked the CarMax example Guy wrote about. It stressed to me the importance of looking at how customers pay for their purchases. There's a big difference between a business whose customers have the money to pay for their products at the time of the transaction and ones that rely on outside creditors to provide their customers access to credit. While CarMax has other advantages of scale that still make it a decent business and allowed it to recover after credit had dried up, there are many other businesses that make a living relying on the credit of others that don't have any competitive advantages and can quickly and unexpectedly have their business models become at risk in the wrong environment. While things may work well if the wrong environment doesn't occur in one's investment horizon, I think the big key from Guy's examples and checklist items is to stick to areas where your odds of success of winning are higher, and areas where you are less likely to encounter unexpected and unfavorable surprises. As Charlie Munger likes to say, "All I want to know is where I'm going to die so that I'll never go there." 

So all in all, I think Guy has written a book very worthy of 5 stars, for investors of all levels of experience, and a book that I think would also be interesting to those outside of the investing world.