The Long Game, Constellation Software, Debt Intolerance, Geoengineering, VALUEx
View this email in your browser
Dear Friend,
I hope that you are doing well.
Before we get started: You might be wondering:
What is Guy Spier's motivation? Why is he sending this? Why is this worth his, or my time? Why should I read on?
My answer to you is another question - which I posed some time ago:
What if I keep seeking out the very best people?
To learn from them:
To shine a light on what they are doing right.
If I make them a part of my ecosystem?
If I amplify their actions?
This email is an answer - and has done so much to change my life for the better.
I tell the first part of that story in my book, the Education of a Value Investor: I was a failed Gordon Gecko wannabe when I encountered Warren Buffett. That lead to a life-long friendship with Mohnish Pabrai and to a lunch meeting with Warren himself.
That journey has continued - ever richer and more joyful to this day. Mohnish became a life-long friend. He was befriended by the Munger clan and yet more Mungeresque personalities came into my life: Li Lu, William Green, Nick Sleep and others.
My goal with this newsletter is to highlight parts of that journey - to draw out some of the lessons, to grow the ecosystem and to celebrate.
The selection below is deliberately personal and eclectic. My insights and conclusions are never final. Like you, I’m learning every day. I’m a work in progress.
I hope you enjoy it.
Respectfully,
The ABC’s
A. Articles and White Papers
B. Books
C. Conversations.
A. Articles and White PapersRoi Lipovetsky who wrote to me with a new piece on Constellation Software's corporate culture. If William Thorndike were writing a new book on Outsiders today, he would have included Mark Leonard, the CEO for sure. Roi also updated me on his original Culture Scuttlebutt white paper. With more than 2,500 downloads to date, it’s been amongst the most popular that I have published.
Luke Massey is studying Economics and Management. He sent me the first draft of a white paper on Cloud CRM companies. It comes with the usual health warning: Luke is not (yet) an industry expert. But sometimes fresh eyes can lead to new insights. And it’s in this spirit that I urge you to read his paper, and to write to him with further insights. Amongst other companies, the paper covers Oracle, Salesforce, Docusign, Google and more.
Reinhard and Rogoff: Inflation, Financial Repression and Debt Intolerance
When it comes to economics research, Carmen Reinhard and Kenneth Rogoff’s concept of financial repression is key to understanding of the prospects for real and sustained inflation in the developed world. Bottom line: I think that people are worrying about it more than they need to.
When investing in the developing world, we are not just worried about inflation, but about the risk of default. There, it turns out that the key measure is not external debt (or national financial leverage), but debt intolerance.
Here is Reinhard and Rogoff’s summary of their excellent research:"The sad fact that our analysis reveals is that once a country slips into being a serial defaulter, it retains a high level of debt intolerance that is difficult to shed. Countries can and do graduate to greater creditworthiness, but the process is seldom fast or easy. Absent the pull of an outside political anchor, such as the European Union or, one hopes, the North American Free Trade Agreement for Mexico, recovery may take decades or even centuries.”This has implications for my investing. When it comes to emerging markets, I plan to give countries who are debt intolerant a wide berth.
See below for one of the summary tables from Reinhard and Rogoff's article.
My take is that equities follow the risk of the underlying sovereign bonds. So it may well make sense for investors to stay away from: Argentina, Brazil, Colombia, Egypt, Mexico, the Philippines, Turkey and Venezuela. My own record partially contradicts this - as I made a lot of money in the Philippines (on Alaska Milk) and only broke even in Brazil - in spite of investing in leading companies, and reasonable valuations in the burgeoning Brazilian education sector.
I am by no means an expert. If you have insights and feedback, feel free to write.
Annual Reports and Quarterly letters
I love receiving investment letters, reports and write-ups by other investors. Matthew Peterson of Peterson Capital Management and Joe Chapman of Chapman Property Group recently sent me their reports - which I loved. I am sharing them with their permission. Feel free to get in touch with them directly if you are interested in their vehicles. And if you manage your own vehicle and write an investment letter, please feel free to share or to add you to your distribution list: I like to read!
Carol Dweck on Beliefs that Make Smart People Dumb
One of my favourite places to get new ideas is JSTOR. I get access though two wonderful private libraries that I belong to - the London Library and the New York Society Library. It was through browsing on JSTOR that I found this article on Beliefs that make Smart people Dumb by Carol Dweck. In it, she restates the benefits of having a growth mindset. Print it out and give it to a friend, family member or co-worker. Both your lives will be better for it.B. BooksDavid Copperfield
I continue to read my way through the world’s classics. Right now it's David Copperfield by Charles Dickens. I have had difficulty adjusting to Dicken’s elaborate Victorian prose. And I miss the beneath-the-skin psychological insights from writers who came post Jung and Freud. There is a surface quality to Dicken's narrative. But having acclimatized, I’m enjoying getting to know the panoply of archetypal characters: Uriah Heep, Micawber, Twaddles, Dora, Betsey, the Peggotty's, and of course David Copperfield himself. As I read the book, I am also rediscovering how these characters who correspond so well to personalities in my own life. I am, without doubt, far wiser for having reading Dickens.
The Long Game - by Dorie Clark: Thinking Long Term
If I look at any successful endeavour in life, it’s the result of long term thinking. Dorie Clark has now written a book about the topic:
“The Long Game: How to be a long-term thinker in a short-term world ”
I’ve written a review - which you can read here
All value investors are long term thinkers who are looking to improve. Dorie's book should be part of your arsenal.
C: ConversationsThe unexamined life is not worth living. But what about all those conversations that we have. If you’re Bari Weiss, or Jordan Peterson, they will certainly get written up as articles. But what about the rest of us? Some of our conversations need to remain private. But would not many do better to see the light of day.
I wanted to highlight some of my recent conversations that would benefit from more exposure:
Stock Exchanges
I regularly participate in investment research projects and groups dedicated to investment research - from VALUEx to investment conferences to one-on-one conversations. In my Circle of Competence group for example, we’ve discussed Otis, Schindler and Kone under the rubric of “elevator businesses”. More recently, we discussed stock exchanges: Deutsche Borse, the New York Stock Exchange and India Energy Exchange amongst others. We made just a little headway. Now we’re looking for someone with real expertise in the area. If you happen to be that person, or know that person is, please get in touch - we would be interested to add you to the group.
Climate Change and Geoengineering. General Equilibrium. And Environmental Equilibrium.
I used to think that nuclear power and geoengineering were the answer to global warming. I’ve now done an about face on geoengineering. Because of a conversation with Cameron Hepburn - who heads the Smith School at Oxford.
We can start with the concept of general equilibrium from economics. It’s a beautiful and fundamental concept. In general equilibrium, everyone produces and consumes at the optimal level. Everyone is as happy as possible. Although we can only achieve this theory, it gives us something to aim for. A Platonic, ideal state - where everything is in balance.
Cameron Hepburn introduced me to a similar idea in the evolution of our planet. The surface of the earth has been evolving for the last five billion years. As a result, the composition of the atmosphere and the earth’s surface have also been changing. What is different about the anthropocene - the human era in earth’s evolution is this: Before the anthropocene, our species was one of many. Our impact on the planet was just one small part of an enormously complex system. But now, our species dominates. The system is far less complex. We are now quite probably the determining factor in the planet’s evolution. Our goal as responsible stewards of our planet is not to eliminate the human impact. Simply to aim for a planetary impact where we don’t dominate, where we are no longer the determining factor - the way it was before the anthropocene. This is an ideal to aim for - even if it’s an unachievable idea - as with general equilibrium. But it's an ideal that can guide us. Regarding any contemplated action, we can ask this question: is it going to magnify, or reduce our species role in the evolution of the planet?
Geoengineering takes us further away because it increases yet more the human impact. So it’s a solution only to be reached for when all others appear to be failing.
Here’s the TL:DR: Doing geoengineering on an overheated planet is like taking someone who is high on speed and giving them depressants in order to slow them down. We’re just pumping them full of yet more drugs. A better approach is to put them into rehab, and wean them off drugs completely.
I hope that these insights help you - and the discussion did not make you fall asleep. They were very helpful for me.
Here is a link to Cameron Hepburn’s very useful presentation.
Crypto Currencies. William Knottenbelt
At the same conference, William Knottenbelt presented on crypto currencies.
Imagine that the crypto revolution is like the industrial revolution. My view is that of the successful farmer looking on. Yes, people are streaming into cities. New-fangled machines like the steam engine and the power loom are being invented. Do I give up my farm and head into the maelstrom of the city? Not if I have a successful farm. Instead, I look on with great interest. Do I need to get upset that some people have left their agricultural holdings behind and have gone on to make a fortune? Of course not. Quite the contrary. I’m happy that all this activity is going to make people hungry - for my agricultural produce.
Nassim Taleb and Michael Burry have called Crypto the biggest bubble since tulip mania. Some other very smart friends whom I admire believe that Crypto will revolutionize finance.
I look on with mild bemusement and disinterest. For now, it’s too early to tell who is right. But time will tell. Perhaps reality lies in-between those two extremes: Part bubble and part financial revolution. Or perhaps it encompasses the two. It 's both a bubble of spectacular proportions and an equally profound and consequential revolution in finance.
But make no mistake: I’m truly happy on my farm. And I’m confident that no matter which of the new fintech technologies and cryptocurrencies succeeds, and no matter how society is transformed, my equivalent of agricultural produce will continue to be consumed with gusto by the hungry masses.
Here is a link to Knottenbelt’s presentation on crypto.
TEDx Talk by William Green: Richer, Wiser, Happier.
William's book, Richer, Wiser, Happier is a runaway success. He now has a TEDx talk on the topic which you can watch here.
Investors. VALUEx Middle East
I like to talk to all sorts of investors - value investors and more. Here are a few that I recently talked to
The Pintwala Family
The Pintwala's have their origins in the poultry business. They have now divested and diversified. Their interests include:•a minority interest Nutra Holdings - a sports nutrition company based in Newfoundland, Canada•an investment in coffee maker AeroPress - through their partnership with Andrew Wilkinson and Chris Sparling in Tiny Capital•an investment in Rocky Mountaineer Railways based in British Columbia - which has some similarity to Jungfraubahnen and Berner Oberland Bahnen.How a family evolves from a single business holding to multiple firms and investments is of particular interest to me, and I appreciate having a front-row seat. I am wishing Jon, Ed, Justin and Rob the very best until we next connect.
Jehangir Appoo was originally interviewed with Georgina Godwin on my podcast. His investment interest lies in the use of networked data to solve new medical problems. His VC fund, AIoT is in its early days. Here is a compilation of his recent reports. And here is a writeup of one of AIoT's investments.
Ricardo Fernandez is Brazilian - educated at IESE and Harvard Business School. He used to manage the Brazilian and Latin American private equity investments for Hamilton Lane, a US based institutional investment manager. But Hamilton Lane decided to divest from Brazil. Fernandez bought them out and created an independent firm - Signal Capital which has since received a strategic minority investment from Brazilian investment bank BTG Pactual.
Brazil might not be investment grade from Hamilton Lane’s perspective, but it’s a burgeoning country - full of opportunity and home to the Jorje Paolo Lemann, his children and a host of interesting businesses. I’m looking forward to following Ricardo’s progress.
Here is Signal Capital's most recent slide deck.
VALUEx Middle East in Dubai: November 3-5
Shortly, I’ll be attending the first VALUEx Middle East. Like VALUEx Vail - which was started by Vitaliy Katsenelson after he attended VALUEx Klosters, VALUEx Middle East, it was started by one of our original VALUEx Klosters participants - P.V Ramanathan (Ram).
I’m particularly motivated to attend because of the UAE’s participation in the Abraham Accords. If you are interested to attend, let me know and I'll do my best to connect you to Ram.
Growing the ecosystem.
We come back to why am I writing this email: Another way of putting the answer to is that, in the words of Warren Buffett, I am long-term greedy.
The best way to network is to deliver value. The best way to become successful is to deserve it.
When it comes to my investors, I am constantly looking for ways to deliver value - over and above our investment returns, zero management fees, and modest performance fees. Some of the programs we have developed include free participation in our corporate FT subscription and free stays in New York city via our corporate membership in the Phillips Club.
Other programs that I’m looking into include Founders Card, Priority Pass, and even a personal Bloomberg terminal login for our valued partners.
Often, such programs are too expensive to offer to the email subscribers to this list, but I have identified two that I’d like to share with you.
Margaret Van and Feedly
Margaret Van and mindfulness meditation was the subject of a recent podcast episode with Georgina Godwin. If you’d like to try a free mindfulness meditation exercise online with her, let us know and we can arrange.
The Feedly app is one way that I keep track of newsletters and blogs. If you think that you can contribute to our investment research as an unpaid friend. If you would like to join our corporate Feedly account, and participate in an experimental, crowd-sourced investment research effort, please let us know by email. When you send that email, you should provide us with background and insight on how you plan to add value. If we decide that you qualify, we'll add you on a trial basis to our Feedly team account.
December 31st 2021: Save the Date - Hike to Erika Hutte
During the winter season, I love to hike on skins up to Erika Hutte in Schlappin near Klosters. If you think you can join, please let us know and I’ll send you a proper invitation.
Just to be clear - I can’t offer accommodation, and you need to be fit to get to the hut (90 minutes hike in the Swiss mountains). But if you can make it, I’d love to see you.
And if you succeed in joining me at Erika Hutte, I will likely be able to invite you to a New Year’s celebration in Klosters - although that will depend on evolving covid rules.
Go here to see a hike from previous years (or see the photo below).
With that, wishing you the very best for the end of 2021.