The education of a Value Investor: Guy Spier

There are some ideas that, while relating to investing and belong to 'Penny Wise' blog, are so full of Life Lessons, and hence by default belong to this blog on personal growth. This post is one such.

I had heard about Guy Spier while reviewing the book 'Dhandho Investor' (Buy the book at Amazon) written by him and Mohnish Pabrai. You can read my review of the book here

This is a part of the 'Author Talks' series of Google Talks. Guy Spier is a Value Investor and has written the book 'The education of a value investor'. (Buy the book at Amazon)

This is a unique talk. If I expected full on maths, analytics, number crunching and investing strategies and PE Ratios, I was in for a surprise.

Life Lessons from X....

I am going to talk about a person I know. Let us call him X.

This story is not about X. X is just a referral in this story.

He was in a senior role in his company that he joined early in his career. Having graduated from a prestigious institute and done the post graduation in Management from one of the top 5 management institutes in the country, as far as his career was concerned, let us say that he was born with a silver spoon in his mouth.

He was definitely looking at occupying a very senior role in the company, probably even the CEO in the next 10 years.

Then something happened. He left the company. I don't know why. Then I lost touch.

The other day I was talking to a friend of mine about this gentleman. I asked him what happened to X.

"After he left the company", my friend said, "X co-founded a company. Soon he left that also. For a few years after that he took the role of 'Corporate Trainer'. Recently I heard that he has left that and taken up some other work"

This news got me thinking.

How is it possible that a highly qualified person, one of the elites in the country, lose his way like this? How does this happen? What are the lessons that we can learn from this?

First lesson is that it is very easy to lose control on your life. All it takes is one or two bad decisions, decisions taken mostly in isolation and probably in an emotionally charged state to derail the direction of our life. I remember taking multiple decisions in emotional state, decisions that I regretted in retrospect. It is very important that our decisions are taken in the right context of our overall life objective.

Second lesson is that in our life, it is important that we have a guiding beacon, a sort of light house as it were. It helps us stay rooted and helps us take correct decisions in case of any course corrections that will invariably happen, mostly around the middle age.

The beacon can be our goals or our values. For my dad, the life beacon was his strong set of values which guided every decision that he took. For many of us, the beacon could be our goals.

Goals can be of three types. If you are very fortunate, you could identify a single long-term goal at a relatively young age that can guides and shapes your entire life. It is like a fully constructed house and all the aspects of your life are well integrated throughout your life time.

Some of us do not have long-term goals. We have a set of medium term goals and we move from one medium term goal to another. In this case it is important that the medium term goals are consistent and move you forward and helps you tell a neat story.

In this case you are building your house of life as you go along.

Medium term goals are like Prefab structures that you assemble together to build a house. An inconsistent set of medium term goals will lead you to building a disjointed house with rooms here and there without them being inter-connected.

Mind you, each room may be beautiful and complete by themselves, but are not integrated to become a beautiful house. The life will be like a set of discrete events rather than a beautiful story.

Most of us have only short term goals. We move from one short term goal to another without them being consistent with each other and with the overall perspective to life. Inconsistent short-term goals are like bricks haphazardly lying all over the place. We invest a lot of our life effort in meeting these goals, but they were not guided by an overarching set of goals or values or objectives.

There is no house, there is only an ‘intent’ to build one.

But spare a thought for those who do not have any goals at all. They are potential beggars in the journey of life.

Nine rules for becoming a success

In his book, 'The 12 Universal Laws of Success', Herbert Harris talks about the nine rules for becoming a success. These rules are:

1. Do not procrastinate: Do not wait for conditions to become right to become a success. Realize that procrastination is a state of mind and the same can be replaced with an action oriented state of mind

2. Do it now: Take the first step. There is always something that you can do now.to move you closer to success

3. Stand up on your own two feet: Do not depend on anyone or anything for your success. They may be depending on you. Believe that you already have everything you need to get everything you want.

4. Do not fear failure: Failure proves that you are trying. Every opportunity for success also contains the possibility for failure.

5. Do not sell yourself cheaply: You are worth exactly what you say you are worth. Know your full potential and true value of your talents. Recognize that you have boundless capacity for health, wealth, happiness, love, success, prosperity and money

6. Develop the success habit of being goal oriented: Set realistic goals for yourself. Determine what must be done to achieve the goal. Persevere till you achieve your goals

7. Visualize your goals and believe you can attain them: See each goal clearly and in great detail in your mind's eye. Develop a sensory relation with your goal. Know how your goal looks, feels, smells, tastes and sounds. See yourself as though you have already attained your goal. Know that you will achieve your goals in a timely manner

8. Plan your work and work your plan: Analyze your goal. Write down all the action that must be performed to accomplish your goal. Make a schedule to achieve the plan. Execute the plan. When you execute the plan, universe will give you all the help required.

9. Do not quit: Winners never quit Be prepared to do whatever it takes for as long as it takes.

My Table Tennis Heroes...

I would like to say I had a difficult early teens, but raking my memory, except for the fact that I was aimless and clueless as I entered my teens, I can't say anything else about my teens.

Yes, I matured a bit early. I developed hair on my face much earlier than my friends did, my voice started changing earlier than my classmates. Just like all teens who go thru such episode, I was a child inside, but everyone considered me a grownup and set their expectations likewise.

And I was aimless, I did not have any goals and did not have any mentors who could guide me. 

But in my mind I knew that I was intelligent, I used to read a lot and write a lot, I had a good grip on the English Language and in a curious sort of way, I also realized that I was perfectionist.

When I did anything, I was not content with doing it piecemeal. I went the whole hog.

But without an aim or a goal in life, there was nothing worthwhile to go the whole hog about, if you see what I mean.

During those days I used to play a lot of table tennis. I used go for tournaments across Kerala. There were a few good players whom I got used to appreciating. There was Bona Thomas John a young boy of my age who went on to dominate Table Tennis scene in Kerala for a long time since, there was P Sudhir, who joined Medical College and went on to become a doctor....

And then there were V Kumar and Srinivasan...

Both of them were from Trivandrum and were leading players during my time. V Kumar flirted between State No. 3 and State No. 5 for a long time and Srinivasan, while he was ranked in the 20s was the captain of Kerala University TT team, a formidable team that won many tournaments those days. 

What fascinated me about these two guys was their intellect. While playing a lot of Table Tennis, Kumar found time to study and do exceedingly well in his academics and did Electronics graduation from Kerala. During those days getting admission into Electronics was the ultimate achievement for a teenager in Kerala. 

Kumar was a soft spoken guy. He was always courteous and respectful to everyone. While he did not go out of the way to talk to people, he would engage with them pleasantly.

Srinivasan was another brilliant guy. He scored 10th rank in Class 12 exams in Kerala and went against the public perception and social pressures to join graduation in Mathematics and Physics from Kerala University. 

During those days I was doing my Class 12 and was not unduly worried about my performance since I did not have any aim in life.

But I was fascinated to see that Kumar, despite his hectic Table Tennis schedule, managed to score high score in the exams. He was my hero. I used to watch all his matches, hang around him to listen to his words. 

I was like a lap dog, hanging my tongue out, wagging my tail and always around Kumar.

If he had noticed my presence, he did not show it. 

Srinivasan, on the other hand was a Tamil Brahmin, of my cast. He was the exact opposite of Kumar (possibly due to this, they were very good friends). He was flamboyant, extroverted and loved telling risque jokes and laughing at them..

But he was brilliant.

While I did not hang around him like I did with Kumar, but his brilliance and that he was a Tam Bram had an implicit effect on me.

I he can do it, why can't I do better?, I used to ask myself.

During one of the tournaments, I think it was in Trichur Engineering College, I asked Kumar how he managed to score very high despite his hectic schedule.

"The trick is focus and hard work", he made a motherhood statement

"But there is also some smartness involved", he told me

"Like?"

"The responsibility of preparing the questions for class 12 exams is assigned to one or two professors every year. Since it is a very tedious job, what they do is to scan the question papers of the last 5 to 6 years and copy the questions and then change the numbers and prepare the paper for the current year. So if you rigorously answer the question papers of the last 10 years, with a reasonable certainty you will score about 90%. Only 10% is for new questions", he told me.

I wanted to become like V Kumar. I wanted to become like Srinivasan. I wanted to do exceedingly well in my exams. I wanted to prove to them that I was good. I wanted to impress V Kumar, my hero.

I had a goal, to impress Kumar by doing better than him. I was no longer the aimless teenager.

I was like a target seeking missile. I came home, and started studying. I got the question papers of the previous 10 years and methodically completed each of them.

By the time of my exams, I was well prepared. Of course, not prepared enough for 100%, but I scored about 95% which was sufficient for me to get into engineering in a good college in Kerala...

Both Kumar and Srinivasan did exceedingly well. Kumar became an electronics engineer and Srinivasan topped Kerala University in his graduation, topped Kerala University in his Post Graduation and did his MBA from IIM Kolkata..

I have lost touch with them since, but I believe that I was a spark waiting to be lit and Kumar came and lit that spark. I needed a guide and mentor at a difficult time in my life and Kumar, unknown to himself, became my mentor...

They were my heroes and I am proud that I was able to live up to them...

My story of 'Alternate Goal Setting'

As I looked out of the window on that lazy Sunday afternoon, I kept thinking about the problem at hand.

How do I achieve my goal?

You see, as a part of New Year resolution, I had set a goal for reducing my weight. And that morning, I checked my weight and found that.... forget it.

Of course, it stood to reason. I had not completed any of the tasks that I had planned to achieve my goals. I hadn’t got up at 6.00 AM and did 30 minutes of treadmill. Evening after evening I had come home and had decided to ‘Relax’, thereby avoiding my objective of doing a round of cycling in the evening.

And to top it all, I had not controlled quantity or quality of my intake.

Something had gone wrong somewhere. Was my goal very ambitious? Reducing 5 Kg of weight by 30 April (4 months) was definitely not ambitious. Some will say it was not even ambitious enough.  It was definitely not tough getting up at 6.00 AM in the morning. I regularly get up at that time. Once a while I also do (and like doing) 30 minutes on the treadmill. And I enjoy cycling.

So I had chosen an achievable goal and a practical set of steps to meet that goal. Conventional wisdom would have told me that achieving my goal was a cakewalk.

Still here I was, 5 months down the line, not having achieved my goal (and nowhere near to achieving it) and feeling frustrated.

What should I do?

An article that I read that morning had caught my attention. The article talked about ‘Alternate Goal’ approach to goal achievement. The gist of the article was that to achieve your primary goal, identify and focus on an alternate goal and strive to achieve that alternate goal. The article also mentioned that you should word your goal in positive terms.

I thought of creating an alternate goal with a positive message. After spending some time I came out with this alternate goal.

“Burn 10000 measurable calories on treadmill in 30 days”. It sounded positive (?). I was no longer focusing on my weight. The focus had shifted to Measurable Calories as seen on the treadmill.

I did a quick calculation. 10000 calories in 30 days means burning about 335 Calories per day. Of course I will do other activities to burn calories. But for the purpose of achieving this goal, I will consider only the calories that I burned on the treadmill.

I started off on 12^th June with this new goal.  I got up at about 6 and went to the gym. I was all excited. No pressure to reduce food intake, to lift weight, to cut down on fatty food… I just have to burn about 335 Calories per day for 30 days.

I felt like a free man.

I found that if I set the elevation on the treadmill to 7 and the speed to about 6.2 KMPH, I can burn about 350 Calories in 35 minutes.

For the first few days I managed to clock about 350 calories per day. This is when I committed my first mistake of ‘Goal Shifting’. I moved my daily goal target to 350 Calories (anyway, I was achieving it, wasn’t I?) from 335 that was originally planned.

Now started the second mistake. I started changing goals. From my original plan of focusing on Calories, I started focusing on other parameters like the distance I walked per day, the time that I spent on the treadmill per day etc.

This did not help matters. For example, after setting my target to 4 KM / day, I found that I was waking up in the morning with trepidation.  Every morning was like “god, I have to walk 4 KM today on that stupid treadmill…”.  I started losing focus on my alternate goal of 350 Calories / Day.

I quickly reverted to focusing on my Calorie goal.

Then one day, I did 400 Calories. Now my goal shifted from 350 Calories per day to 400 Calories per day.

Mind you, it is not easy to burn 400 calories per day by walking for about 40 minutes. After about 25 minutes, your body starts complaining like crazy.

First 100 Calories is easy. In your initial enthusiasm, you will cover it. But at 100 Calories, you are getting tired (well not tired, but slightly breathless), and you realize that you have covered only 1/4^th of your target. Believe me, the next 200 Calories is the most difficult part of the process. Once you reach 300, it becomes easy since you are counting down. It is all in your mind.

Then came my ultimate challenge.

On the 27^th of June, I found that I had to travel to Mexico on the 6th of July. Now I had two options. One, was to continue doing 350 calories per day as originally planned. Or, two, I could have achieved my original target of 10000 Calories by the next 7 days.

I did my math. I found that, I had already clocked 6100 Calories. That left me with having to burn 3900 Calories in about 7 days. This meant burning about 570 Calories per day for the next 7 days.

It was impossible to do 500 Calories in one shot. So I took the approach of ‘Leading Indicators’ and decided to stretch myself for about 2 days, after which I will come back to my original schedule.

For the next two days (29^th and 30^th) I did 800 Calories per day.

Today is the 1^st of July. Starting from today, if I do 400 Calories per day, I will achieve my target of burning 10000 Calories.

That is not difficult.

The one thing that I did well was to have a clear focus on Calories as my target. I never wavered from that (except for a few days when I shifted the goal. But I soon returned to my original goal).

In addition, I have also walked about 86 KM in the last 20 days; I have walked about 1000 minutes. By 5^th I would have walked 100 KM and 1200 minutes.

That is like walking to Mysore at 6.2 KMPH with an incline of about 30 degrees.

Wow!!!

Wow!!! Again….

Putting it like that, it sounds incredible….

And for tracking my daily progress, I had learned MS access.

A reasonable return on investment, I would say.

What went right for me? Let us analyze.

One, I had a clear goal expressed in specific target numbers and with a clear end date: My goal was to burn 10000 Calories in 30 days.

Two, my goal was easily measurable. There is nothing more clearly measurable than calorie numbers displayed on the treadmill.

Three, perseverance or ‘Stick-to-itiveness’. There were mornings in which I did not feel like getting up from the bed. Even god takes rest on the 7^th day, I told myself as a justification. But I forced myself to get up and go to the gym. I am not sure if I would have done this on a daily basis. As a 30 day project, it was ok.

Four, I was focused on Calories as a goal and stopped as soon as I reached my daily target. Initially, I would do more than target since I had the energy. This was like deciding to extend the football match after the 90 minutes because the players still had energy. Extending the goal can work negatively also. For example, what if you feel tired after doing 200 Calories (believe me, you will). Will you stop before you achieve the daily target?

However, in real life it is not easy to have such clear cut targets. For example, what will be the target in a project management? Is it time? Scope ? Customer Satisfaction?

Even with my single target, I saw my goals change from Calories to distance to time. So when you have more goals to focus, the confusion can be more intense.

The way out? First identify your goals, and then focus on it like a laser beam. Take corrective steps much in advance. Be prepared for some stretch targets on the way.

What was my weight before I started and what is it now? Any benefits?

Well, that is a little secret that I will keep with myself. OK?