In one sentence: Phil walks through the top five holdings of Guy Spier and Prem Watsa to show that real Rule #1 investors hold two-thirds or more of their money in five names, that gurus rarely overlap, and that you can start learning before you have any money.
Key ideas
- Investing is a language. The jargon (P/E, CAGR and similar) is shorthand, and Phil and Danielle say you can learn it with practice. Simple is not easy. [00:30–04:00]
- Phil's test again: "five and five". The top five holdings should be 50%+ of the portfolio. Pabrai was 100% (four stocks and cash). Spier has about 30–40 positions, which is still concentrated by fund standards (the S&P 500 index has 500, a typical mutual fund 100 or more). [11:30–14:00]
- Spier's top five (about 67%). American Express (about 21%), Berkshire B (about 17%), Bank of America (about 13%), GM warrants (about 8.6%) and Mastercard (about 8%). Four are financials, plus a car company. [13:00–17:30]
- Warrants. A right to buy stock at a set price until an expiry date (these run to 2019), issued out of GM's bankruptcy. Phil says Spier saw a gap between price and likely value. Warrants are not stock, so they carry a clock. [14:30–16:30]
- The pattern. Great investors concentrate in industries they're comfortable with. Smaller holdings (Citigroup, Brookfield, more Berkshire) are practice shares. Spier holds Berkshire A shares he says he will never sell. [16:00–18:30]
- Berkshire as compounding. Phil's numbers: bought near $14 in the mid-1960s, about $220,000 a share now, so $14,000 would be about $2 billion. Phil is rounding from memory, and the idea, not the figures, matters. Some Omaha families simply held. [18:00–19:00]
- You don't need money to start learning. Phil's point to Danielle: knowledge comes first. Practice with a spreadsheet or paper trading, listen to podcasts, read. Waiting until you have money to learn is the mistake. Danielle says her interest began when she sold her condo and had cash. [19:00–21:30]
- Watsa's top five (about 86% of about $1.3 billion). BlackBerry (about 38%), Resolute Forest Products (about 21%), Kennedy Wilson (about 18%), Intrepid Potash (about 5%) and USG (about 4%). [28:00–34:30]
- The BlackBerry bet. Phil frames it as a Graham-style one: the assets (patents, a database) are worth more than the share price, so the downside is protected. He couldn't make sense of BlackBerry himself. [28:00–29:00]
- Phil's work on Kennedy Wilson. He says a first look suggests it sells at about a "20 cap" (a 20% owner-earnings yield, half the 10-cap price) and warns it is an early look and not advice. [30:00–31:30]
- Little overlap among the gurus. Besides Berkshire, the lists don't overlap. Phil links this to Buffett's "The Superinvestors of Graham-and-Doddsville", where about 20 followers of Graham had different portfolios. It's free online and he recommends it. [31:00–33:00]
- Watsa is probably closer to fully invested, because he's been buying many small positions (Arch Coal, Chicago Bridge & Iron, CARBO Ceramics, TSMC and others, many with high ROE). Phil only suspects this, since cash isn't in the filing. [34:30–37:30]
- Build a watch list ("wish list"). Companies you understand, with a price at which you'd buy. Many gurus hold cash so they can act. [37:00–38:00]
- "Washtub, not a thimble." Phil paraphrases Buffett: every ten years or so it rains gold, so have a washtub of cash and not a thimble. [38:00]
How it maps to RuleOne
- The screen is the watch list in practice: names you understand, each with a sticker and margin-of-safety price, and the screen tells you when price crosses it.
- Concentration has a counterpart in /holdings/: check your own top-five weight with the same test.
- Tranche buying (Rb) fits Watsa and Spier's practice shares: start small, add as understanding grows.
- The 10-cap and Kennedy Wilson example is a reminder of the owner-earnings yield, one of the stock page's checks.
Buffett, Munger and Graham links
- "The Superinvestors of Graham-and-Doddsville" (Buffett, Columbia, 1984; published in Hermes, the school's magazine, and reprinted in later editions of The Intelligent Investor). It makes the point that many different Graham followers earn high returns from different portfolios.
- The "rains gold… washtub" image is Buffett's, but check the wording in a source before quoting it.
- Graham's margin of safety on assets: The Intelligent Investor, chapter 20.
Words to know
- Warrant: a tradable right to buy shares at a fixed price before an expiry date.
- Practice shares: a tiny position used to force yourself to learn a company.
- Watch list: companies you understand and the price you'd pay.
- Cap rate: yield on price. A 10 cap is a 10% yield, so price is 10 times owner earnings.
Try this
Compute the top-five weight for Spier or Watsa on a guru site, then do it for your own list of holdings (or paper portfolio) at Holdings. Then add three companies you understand to your watch list on All stocks with a price you'd pay.
Check yourself
- Why does Phil say you don't need money to become an investor?
Answer
What you need is knowledge, which you can build by practising on paper or a spreadsheet, so you know what to do when you do have money. - What does a GM warrant give you?
Answer
The right (not the obligation) to buy GM shares at a set price until it expires, so it carries a time limit that stock doesn't. - Why is it striking that the gurus' portfolios barely overlap?
Answer
It shows the same value approach can yield different, concentrated portfolios, as in Buffett's Graham-and-Doddsville article.
Short quotes
"You don't need money to become an investor." (Phil, ~19:30, auto-transcribed, paraphrased from a longer passage)