Guy Spier: You Want To Set Up Your Investing Strategy So That You Never Have To Be Smart

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Here’s a great interview with Guy Spier on Value TV where he discusses his idea generation process and investing strategy. Here’s an excerpt from the interview:

Host: Hello Guy. Welcome back to our interview. This time we want to talk about process. So let’s start with the beginning. Where do you get your ideas from?

Guy Spier: Where do I get my ideas from? I thought you might ask how do I get my ideas, and the answer is with great difficulty. I’ll give you an analogy that I actually used in my annual meeting. But I really think it’s true. I feel that the way people want to talk about their investing process is they want to put themselves into the shoes, or into the mindset, or describe themselves as being like a fighter pilot. Fighter pilot’s highly trained, has all the instruments right. This finely tuned machine. He selects the target. He flies towards it, and he drops a precision bomb on the target.

That is our idealized and subconscious idea of how an investor goes about selecting stocks and managing the portfolio. So I want to give you a different idea, and I hope this doesn’t reflect badly on me, but I think that a better model is of a drunk stumbling around in a bar trying to find the drink. He’s trying to grab a drink, not a handle, and he’s sort of stumbling around and his mind is all confused. Why do I say that? I say that because we have a very bad model of how our brains actually work. The reality is that our brains are, we are highly rational, and the worst is I think when you’re smart.

What do I mean by smart? I mean smart grades at things like mathematics and other subjects which require you to be highly focused. So that develops the subjective sense that you are like a fighter pilot and so you can start believing that through superior intelligence, analytical ability that you can sort of hit the target.

I think a better self-image is of being a drunk and if you perceive yourself as being a drunk in a bar you’re gonna set up different rules for yourself. I believe that the vast majority of what I think you would call process and what I’m doing is I’m trying to set up an environment in that bar such that when I finally lunge for the drink, or say call the drinks in this analogy the investment, I’ve lunged for a good one.

That process starts with just don’t do anything to the portfolio. Don’t engage in trading fees. Allow stocks to live in the portfolio for an extraordinarily long time. Select stocks that you can allow in the portfolio for an extraordinarily long time without looking at them too hard.

So the process is all assuming that at some point I will be irrational, or that I’m continuously irrational, and I’m trying to also set up my investing life and world in such a way that I don’t ever have to be smart. I would argue that the abilities that one needed to bring Berkshire Hathaway from where it was when it started to where it is today are far greater than the abilities that the current managers will need to bring Berkshire Hathaway from where it is today going forward.

You want to create an environment where you need less and less intelligence and ability over time. So that’s what I’m trying to build in multiple ways around me.

You can watch the entire interview here:

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