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b'With Guy Spier, Value Investor with Aquamarine Capital, Author of The Education of a Value Investor
With so many investors all trying to beat the market, what separates a truly Great Investor from the pack? One major factor is that Great Investors know the territory that lies underneath the map.
Guy Spier is a Zurich-based investor and author of a book on investing entitled The Education of a Value Investor and is well known for bidding $650,100 with Mohnish Pabrai for a charity lunch with Warren Buffett in June 2007.
Guy says his investment theory comes down to zigging when all the others are zagging\\u2014and the ability to know the difference between the \\u201cmap\\u201d and the \\u201cterritory\\u201d.
Between the map and the territory
The \\u201cmap\\u201d, he goes on to explain, shows data and other salient information about a company that on the surface appears to reveal what\\u2019s going on inside but, in reality, is covering up the true value and obscuring future prospects.
A firm\\u2019s quarterly report, for example, is a \\u201cmap\\u201d created by the accountants who estimate sales and future earnings based on a number of assumptions, when, in fact, those assumptions often don\\u2019t pan out. To assess the actual value, Guy stresses the importance of looking more deeply into the \\u201cterritory\\u201d for the degree of divergence between the two. For example, is a company posting revenue figures at the point when clients have actually bought or are they throwing out higher numbers that reflect only the intention of clients to buy? A great investor looks for that divergence and moves when the divergence swings in his favor.
Warren Buffett defines the moat.
Just as in days of old when plundering knights were thwarted by an open drawbridge over the moat surrounding the castle, attractive investments are those that have defensible characteristics.
Warren Buffett has been quoted many times about the moat which he explains somewhat as a tall bridge across a sea mass, where the only way you can drive a car from point A to point B in that area is over that bridge. A company that is protected in such a way that renders it not vulnerable to competition is becoming even more rare in the digital age. Buffett\\u2019s partner, Charlie Munger, has stated, "Moats are getting attacked in many, many different areas and whole corporations that were set up for a certain kind of information and economic infrastructure are having to adjust. Some will adjust and some won\'t."
With moats breaking down, the challenge to the investor is even greater, says Guy, and \\u201cthe problems we face as investors is that those moats have become even more highly valued because people realize they\'re even rarer than they were before.\\u201d\\xa0 Those fewer companies that are protected by a moat become even more valuable, leading in some cases to extreme over-evaluation.
What\\u2019s in Guy Spier\\u2019s wallet?
The question we always ask of our Great Investors is \\u201cwhat\\u2019s in your wallet?\\u201d
Guy answered that even though investing in smaller cap companies is a better place to be, it\\u2019s also more likely to be more vulnerable to changes in the competitive dynamics in a way that larger companies aren\'t. \\xa0\\u201cThis has created a bias in me to want to be and feel safer in larger companies. One of the best places to protect yourself from inflation,'