013: Investor Letters

Investor Letters

Color Commentary

Table of Contents

1.Writing is a Cheap Education
2. Reading is a Cheap Education
3. Investor Letters are a Thing
4. Aquamarine Letter
5. Let’s Get Practical

1. Writing is a Cheap Education

How extraordinary it is that we get to read the thoughts of great investors?

They could keep their ideas completely secret, but most share their thoughts willingly. Maybe it’s just my impression, but long-term investors, as opposed to short-termers and traders, develop theories and investing ideas that have the luxury of being well-thought-out because they’re looking so far into the future and they aren’t forced to have to act quickly.

Not only do long-term investors have strongly thought-out opinions, theses, paradigms, themes, and predictions – they want to share them. It’s a bit amazing how many long-term investors have written about exactly how they invest. They’ve TOLD US how they do it. I think Warren Buffett set the example with his Berkshire Hathaway letters to shareholders, and the amount of attention and influence those pieces of writing brought him have shown other long-term investors that it’s ok to share their own thoughts with the world (and, of course, potential investors).

There are two sides to each piece of writing: the writing and the reading. As investors practicing to become continually better, more mindful, more aware of our processes and reactions – writing is an essential tool. I write The Invested Practice because I discovered I love writing about investing, and also because having the discipline of writing these issues forces me to develop my thoughts clearly. I think these well-known investors write to develop their own thoughts, and to communicate to investors what exactly they’re planning to do with their money.

The process of writing something out, rather than simply thinking something out, makes a difference. Inside my head, it’s rather lovely. I am always well-spoken and logical. I always know exactly what I mean and when there’s a logical leap or two to be taken, well, those are surely obvious leaps that anyone with half a brain would make. My conclusions always are supported.

When I have to put the words down on paper, though, somehow the oration in my head comes out as garble on the page, and all those hidden meanings and logical leaps glare out at me.

Those leaps in logic are vital for me to find before I spend any money. The longer I practice, the more I become aware that investors who cut corners in their process make mistakes.

Let’s not do that. Let’s make it so the members of The Invested Practice – we investing practitioners (we need a better name!) – are the most ethical, process-oriented, grounded investors in the world.

2. Reading is a Cheap Education

Part of what makes a great writer is being a great reader, and even for those of us who don’t like writing much, reading the words of investors will inspire at least leaning towards their example when writing down the reasons to choose or not choose a company.

It used to be that when I saw a book or article written by someone I had heard of, I used to think “Oh that’s nice, so-and-so wrote a book.”

NOW, I think “Lordy, so-and-so took a year out of his life to write a book? How on earth did he manage that?”

I’ve written a book, and I can tell you that it’s a massive undertaking to the exclusion of pretty much everything else. Guy Spier, when writing his beautiful book Education of a Value Investor, got up at 5am every day to write for a few hours before going to his actual job at Aquamarine Fund. My friend Kamala Nair did the same thing and wrote early in the morning before work while working on her debut novel, The Girl in the Garden. The effort of writers is extraordinary, and we readers get the benefit of it.

Reading is a cheap education. Jake Taylor, an investor, writer of the Rebel Allocator, and podcaster, said it best in a recent interview:

“Think about the return on investment a book offers. For generally $10 to $15, you get to have an in-depth (albeit one-way) conversation with a knowledgeable expert who likely dedicated at least a few years to refining and distilling an epic amount of information about a specific topic. For the cost of a mediocre dinner, you get in return what amounts to years of another human’s efforts. I did the math. If it took the author one year, you are paying about one-half of one penny per hour for that author’s effort. How much time does this half a penny per hour investment save you in culling through information? We are talking years!”

Ha! He did the math. I love him.

And Jake is SO RIGHT. In one book, or one article, or one letter, we get the benefit of hours, days, years of an expert’s efforts on a particular subject. Efforts which we absorb in in a tiny amount of time, by comparison. And then move right on to the next one.

3. Investor Letters are a Thing

My transition into Conscious Incompetence when it comes to investor letters arrived when, due to our pre-existing relationship (that’s some securities talk right there!), my friend Guy Spier, who runs Aquamarine Fund, shared with me his recent annual letter to his investors.

I’m so glad he did. I was inspired by reading his letter because of how baldly he discusses the ups and the downs, the good year and the bad year, the perspective he shows as a long-term investor, and how he thinks carefully about his investing and its place in the world.

Upon finishing reading, I asked to read last year’s letter. Upon finishing last year’s,it suddenly, geniusly, it occurred to me: other investors besides Mr. Warren Buffett write letters to their investors. OTHER INVESTORS write letters.

Like suddenly realizing that a sushi menu is actually more varied and yummy than the grocery store tuna maki, I had been thinking about investing letters for years without noticing there are a plethora of them to try. One of the first things my dad recommended to me when I started learning about investing was read Warren Buffett’s annual letters to his Berkshire Hathaway shareholders. The Berkshire letters read a little dense, I’m the first to say it, but when you’re comfortable with some investing vocabulary and feel ready to dive in, they’re extraordinary.

My dad also taught me to look for letters to shareholders from CEOs of publicly traded companies. Once I got into creating my own investing practice, I became obsessed with L.J. Rittenhouse’s work deciphering and quantifying shareholder letters in her book Investing Between the Lines. So reading letters from companies to their shareholders was part of my practice, but somehow, in all of that, I was seeing the trees but missing the forest. It didn’t even occur to me that investors also write letters to their fund investors. But THEY DO.

The reason I missed reading investor letters for so long is that I hadn’t developed enough perspective in my investing practice to notice them. Usually my first reaction to a leap forward like that is to wonder why I was so boneheaded to miss it for so long. I take a beat and think “how was I not aware of something so obvious, for years?” And then the other part of me, the part that loves learning, pops up, shrieks with joy, and feels amazing – because it’s a leap forward to a higher level. It means the parts of my practice that felt difficult have now become integrated to the point that they have become easy. My brain is freed up to add more layers.

If you look at it from the perspective of the way my dad describes the Four Levels of Mastery: 1. Unconscious Incompetence, 2. Conscious Incompetence, 3. Conscious Competence, and finally 4. Unconscious Competence. (More details about the Four Levels of Mastery in Chapter 2 of Invested.) I can I can palpably feel my perspective shift from Unconscious Incompetence to Conscious Incompetence. That’s the growth direction.

Discovering investor letters is the growth direction. I feel a bit like the world just became a little bigger. This is, like, a THING. Fund managers write annual, and sometimes quarterly, letters to their own investors. It’s not only CEOs who write letters to their shareholders. Everybody is updating the people who provide them with the funds to do what they do.

Links to letters are at the end of this issue in the Let’s Get Practice section. Let’s get into the letter that started this line of thought.

4. Aquamarine Letter

My foray into investor letters started with Guy Spier’s letters. Guy is the head of Aquamarine Fund and a dear friend, and someone who thinks very deeply and consciously about the ethics and integrity of his fund, about how to do well by doing good, and how to best represent the interests of his investors and maximize investment profits for them. His letters encapsulate those qualities.

The way he begins indicates his priorities: each year, his letter begins by directly stating the return of the fund. He emphasizes the long-term orientation of the fund by stating the compounded annual growth rate and the total return of the fund since inception. He notes that a banner year and a lousy year both require remembering that it goes either way.

The recent 2018 letter, follows suit. “Nonetheless, it’s fair to ask the uncomfortable question of why I haven’t outperformed by a higher margin — and, most important, what that might tell you about the nature of the fund in which you’re invested.”

Who amongst us in our Instagrammy take-credit-for-everything culture would be careful to note that, in a great year, it could have gone the other way? That sets the tone for his entire piece of writing, and in his 2017 letter, he explained the reasons the fund did so well by reminding investors that it was the result of decisions made years before, against the prevailing market wisdom, and then waiting. Most of all, he looks for context and perspective. In his 2018 letter, he writes about his investing process compared to his “built-in tendency to be fearful”. He has, he posits, a natural tendency to be cautious and conservative in his investing. “It’s humbling to see how many talented stockpickers have fallen by the wayside since I started and how few have built funds that have survived for two decades.” (Aquamarine is one of the few with longevity, having now been around for more than two decades.) To his investors: “It helps if I’m brutally honest, so I can work to counteract my flaws and so you can make a balanced assessment of whether or not they are outweighed by my strengths.”

Aaggghhhh I love that so much. Here, let me tell you all who I am, warts and all, so you can decide if I’m someone you want to steward your money. YES. That’s how this should be. There are no perfect people out there, and there are especially are none in the money management business, which doesn’t particularly have the greatest reputation for attracting lovely people. As much as anyone can be aware of their flaws – and that’s a big IF – it’s very hard to be aware of your own flaws. Remember the blinders exercise I went through in Issue #007? That was hard to see beyond my own perspective, and I’m not sure I did a very good job, so I’m impressed by anyone who makes the attempt.

Guy writes that he was swayed by the influence Warren Buffet, and his reverence for Buffett made him follow Buffett’s lead and avoid tech companies. My father told me the exact same thing when we started talking about investing – that if Buffett wasn’t interested, he wasn’t either. Buffett missed the shift from only certain companies being tech companies to ALL companies being tech companies, and now everyone is running around talking about how obvious a mistake it was when Buffett missed out on buying Google. Guy doesn’t make excuses. He says straight out he was swayed by the influence of an investor he admired, and it clouded his investing judgment. Ladies and gentlemen, that is candor. That is laudable.

I’m massively impressed by Guy’s candor in front of his investors. It’s painful for most of us to think about our flaws inside our own heads. Just as with evaluating a potential investment, writing it down reveals the hidden meanings and logical leaps, and usually more flaws. Sharing that process with investors shows the strong character of the writer.

I’ll close with what I think is one of the most well-put and concise Mission statements from any investor, from the 2018 Aquamarine letter:

“But our priority is to invest in durable businesses that deliver things that people will need even in a changing world. It’s revealing that Buffett has focused so heavily on companies that meet many basic human needs, such as building materials, carpets, paints, furniture, and energy.Meanwhile, I avoid companies that may be enormously profitable but cause social harm, such as tobacco companies and casinos. Sooner or later, as happened with the tobacco firms, society might make them and their shareholders pay for this harm. Owning businesses that are part of the solution, not part of the problem, has enormous benefits in terms of reducing risk and sailing our ship through whatever storms might arise over the next 21 years. But I don’t consider myself an “impact investor” or a “social investor.” They are often willing to overlook lower (or non-existent) returns while focusing on the social good that their investment is creating. Personally, I find that laudable. But it’s often the case that such investors are fabulously rich or are investing on behalf of someone who is fabulously rich. I believe that my role is to deliver the best long-term investment results I can achieve, instead of trying to achieve non-measurable “social returns.” If I do my job properly, then Aquamarine’s partners can have a tremendous social impact by sharing their wealth with others in all sorts of wonderful ways.”

Owning businesses that are part of the solution, not part of the problem, not only benefits the world, but also Aquamarine Fund. Aquamarine Fund then does well, and can invest more in owning businesses that are part of the solution, not part of the problem. And so the virtuous cycle goes on, with a rising tide lifting all boats. And, as Guy pointed out in his last line, Aquamarine’s investors will hopefully share their wealth in philanthropic ways as well. Win, win, and win.

To me, it doesn’t get any better than that. To someone else, this Mission statement wouldn’t be remotely enough of a social impact, or it would be far too much. The more I practice investing, the more I notice that my practice is so peculiar to me. Reading the thoughts of great investors, thinking critically about it, and then applying what works to my own personality is the only way to move forward usefully.

You can see why I was so inspired and educated by Guy’s letters that I started reading other investors letters. And we can look them up, in a few seconds, from the couch! What an incredible time this is.


  • If you’re not already on Guy Spier’s email list, I recommend you join. He sends out very rare emails that are highly worth a read with his latest writings, thoughts, and ideas.
  • I got REALLY stuck into Columbia Business School’s recent value investing newsletter. It’s excellent. Leon Cooperman sounds like a classic Graham-style value investor – focused on long-term, but buys lots of companies and holds different asset classes, and sounds like an absolutely lovely guy. (Munger/Buffett style, by contrast, is to buy a minimal number of wonderful companies and be absolutely lovely guys.) The interviews with the Ruane guys and C.T. Fitzpatrick are also fascinating and well worth your time.
  • Some funds keep their letter strictly to their investors and those with whom they have pre-existing relationships (e.g., Seth Klarman’s letters at Baupost) and some funds publish theirs online themselves (Howard Marks’s Oaktree letters – so worth reading, especially the current one, “Growing the Pie” which explains how NYC politicians mischaracterized the economics of Amazon’s HQ, either because they didn’t understand it or to stoke resentment).
  • There are quite a few sources which aggregate investor letters. I don’t particularly have much experience with any of these, nor do I know if they’re reliable, but with those caveats I will list some online aggregators:
  • Something called Milton Financial Market Research Institute has created a Dropbox folder with an extensive collection of investor letters. Extremely useful.
  • Reddit has lists with links
  • Seeking Alpha has an entire section of its website devoted to fund letters

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