Guy Spier: The Iceberg of Investment: Why Public Portfolios Don’t Tell the Whole Story

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During this interview with RWH, Guy Spier makes that point that an investor’s success is influenced by factors beyond their talent or knowledge. Specifically, he highlights the role of underlying factors like family background and financial security.

Here are the key points:

  • Investors’ background matters: Spier believes factors like family wealth and upbringing significantly impact investment decisions and risk tolerance. Bill Ackman’s background, for instance, provided a safety net that allowed him to take risks Bill Miller might not have been able to.
  • Public portfolios don’t reveal everything: Spier suggests that analyzing an investor’s public portfolio (like a 13F filing) only shows a limited picture. The true foundation of their success might lie in unseen factors like personal finances.
  • Focus on risk management: Spier emphasizes the importance of risk management for individual investors. Unlike hedge funds that concentrate on high-potential high-risk investments, individuals should consider a balanced portfolio with both secure and growth-oriented assets.

Here’s an excerpt from the interview:

Spier: I mean, I think that, and it’s something that’s come to my mind a lot recently, I don’t know why, that when we read about these investors, when we know an investor personally and we’re close to them, there is so much that we don’t know about their lives that determine whether or not they can take the decisions and the bets that they’re taking. So somebody who has an extraordinary amount of security, who’s lived several … I mean, if I think of Bill Ackman, who, I don’t know when his ancestors immigrated to the United States, but it’s at least two generations ago, the security of living in the United States, a father who was in the real estate business, probably a certain amount of family real estate sitting there providing an enormous amount of downside protection, creates a very different base from which to start investing in stocks and shares, for example, than somebody who’s a recent immigrant who doesn’t have that secure base.

And so often when we look at somebody’s portfolio, we are just seeing kind of the tip of the iceberg, and we don’t know what’s underneath. And every now and then we have people who are showing something that looks spectacular above the waterline, but actually there’s not much to back it up below the waterline. And some of those people actually succeed, and some people, the smallest thing happens, and actually, because there’s not enough ballast below the waterline, don’t do particularly well. So I think that what comes to my mind when we bring up people like Bill, and I obviously know Bill Ackman way better than I know Bill Miller, is we don’t know what’s underlying that.

And I think my point to you is if the same set of genetics, brain cells, academic training in me had grown up in the circumstances of Bill Miller, I might have been able to take the same mind and behave far closer to the way Bill Miller behaves, or if I’d had the same background as Bill Ackman. But there’s no way you can manufacture that. It has to come from within. It has to come from sort of … I’m mixing about eight metaphors at once here. It has to come from the part of the iceberg that doesn’t show, if you like.

And so I think the point is nobody should be envious of the way Bill Miller or the way Bill Ackman invest, because even if you have the same mind or a better mind, if you don’t have the same set of unique life experiences security assets, if you like, around, you would not be able to do that. And I just think that the analysis of realize that when people do this 13F analysis, I mean, my 13Fs don’t even cover my non-U.S. investments. And even if they covered all of the U.S. investments, do they take into account what is going on elsewhere.

And relevant to me, actually at one point, when I had an office in Carnegie Hall tower, I shared an investor with … so an investor in my fund was also an investor with Bill Ackman, a wonderful, wonderful guy whose name I won’t mention because maybe he doesn’t want to be mentioned, but really taught me a lot. And one of the things that he asked me to do is he said, you know, Guy, with Bill I have all these great ideas and I’m concentrated in Bill’s best ideas. And in your portfolio, I have some really great ideas that I love.

And at the time there were things like Duff & Phelps and Alaska Milk, and these kind of ideas that had the capacity to go up many times, but also had the capacity to be zeros. And he said, but I don’t want your Nestle and Berkshire Hathaway and all of those things. I don’t. And I thought long and hard about splitting the portfolio so that you had the kind of, quote, best and crazy ideas along with the safe and secure ideas. And I decided not to do that because I felt like I wanted it all to be in one bucket.

But often, if you think about how the people who want to develop a business of investing other people’s money, they can’t put the ideas that are going to make them the most secure into the portfolio. They need to put the ideas that have the highest probability of high performance, if you like. And that creates a very, very skewed portfolio, if you like. And I think that why does it come up for me? Because realize that those people are doing that, there’s absolutely nothing wrong with doing that, but you should not put your life savings into that. You should apply the appropriate risk and put X percent of your savings into it. Just maybe more risk money. I don’t know why I went there, William, but now I’m going to turn this over to you to get me back on track.

You can watch the entire interview here:

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Tobias Carlisle is the founder of The Acquirer’s Multiple®. He is also the founder of Acquirers Funds®. The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates.