I believe that the best strategy investors can use to build wealth for the long term is buying and holding securities and resisting the temptation to keep trading. While this strategy has proven its success time and time again for some of the most successful investors in the world, I also know how hard it is to follow.
Every day, investors are bombarded with reasons to sell their holdings and buy into something else. The whole of Wall Street is built around this principle. The Street thrives on commission revenue. The only way to generate this revenue is to encourage trading. Free trading apps have only added fuel to the fire, making it harder for investors to resist the pull.
This is why I am always looking for those investors who can resist trading. I am talking about the hedge fund managers and investors who buy and hold stocks and do not let themselves become distracted by market volatility. One of these investors is Guy Spier.
"The Education of a Value Investor"
Spier is the manager and founder of Aquamarine Capital. He also authored a famous value investing book, "The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment."
Spier's investment process has been shaped by the likes of Charlie Munger (Trades, Portfolio) and Warren Buffett (Trades, Portfolio), which is evident when looking at his portfolio and recent transactions (or lack thereof).
The largest holding in the Aquamarine portfolio at the end of 2021 was Berkshire Hathaway's Class B shares (BRK.B, Financial). This has been a holding for the fund since 2014, as far back as my records go. The fund manager has not bought or sold a single share during this timeframe, according to 13F data.
The second-largest holding is American Express (AXP, Financial). This is another lifetime investment for the fund. It has been a feature since the beginning, although Spier has reduced the holding from just over 270k shares in 2014 to around 210k shares.
The third and fourth largest holdings are also lifetime holdings: Bank of America Corp. (BAC, Financial) and Mastercard Inc. (MA, Financial). Like the Berkshire holding, Spier has not added to or reduced his Mastercard position since inception.
Just over seven years might not seem like a long time in the grand scheme of things, but it is in the world of hedge fund managers. The average fund turns over around 25% of its portfolio every year. In some cases, the ratio is far higher. Nearly a quarter of the largest managers have a turnover rate of more than 50%. These figures suggest that Spier sits in an elite club, although he is not the only investor who follows this strategy.
The tools to succeed
In his book, the value investor offers a selection of tools investors can use to try and improve their process. I encourage any investor to read the book if they want the full list, but two really stand out to me as being simple psychological hacks we can use to become better investors.
The first is that if a stock tumbles after one has bought it, do not try to sell for two years. An investor must know enough about a company when they come to buy it to be confident that they will hold on for two years if it falls. If you don't understand a company well enough to follow this approach, it might be best not to buy.
The other Spier tip I want to highlight is his guidance on trading:
"I don't trade stocks while the market is open. Instead, I prefer to wait until trading hours have ended. I then email one of my two brokers- preferring not to speak with them directly -and ask to trade the stock at the average price for the upcoming day. I'm not trying to get an edge on the market because I don't want to get swept up in its constant mood swings. As Ben Graham explained, we have to try to make the market our servant, not our master."
This approach can force us to think carefully about an idea and avoid making any knee-jerk reactions to price movements.
