Justin Foeppel

How do we connect? What makes for strong connections? How can one foster connections that are mutually enriching? I have been part of a group that calls themselves the Bay Area Value Investment Club since December 2012. It has been a rewarding experience, one that I may not have had in a smaller community. There have also been challenges. I want to explore these challenges briefly and consider them as I continue my efforts in participating in the value investing community. I hope this will begin a dialogue about how to mindfully create communities that are enriching for everyone who wishes to participate.

“A tribe is a group of people connected to one another, connected to a leader, and connected to an idea. For millions of years, human beings have been part of one tribe or another. A group needs only two things to be a tribe: a shared interest and a way to communicate.”
― Seth Godin, Tribes: We Need You to Lead Us

I was introduced to value investing by Alice Schroeder in her book The Snowball: Warren Buffett and the Business of Life. I was interested in Buffett long before the biography came out: He’s rich, down to earth, a friendly, grandfatherly-seeming, fellow in the news media (and likely in private life as well). Frankly, I have been interested in Buffett and Bill Gates before I even knew who they were. Tickers BRK.A and BRK.B in 2000, when I participated in a 6^th grade stock picking exercise for math class, were trading at share prices that eclipsed every other stock in the newspaper. I wondered why. What was unique about this stock? As I grew older, I knew I wanted to be rich. Why? What kid doesn’t want to be able to buy whatever he wants on a whim? (At least, that was me.) As I entered college and continued to learn more about Buffett and Gates, I still wanted to become rich, but for a different reason. I find the Gates’s work at the Bill and Melinda Gates Foundation extremely interesting. I also find myself more and more attracted to Charlie Munger’s reasoning for wanting to get rich as stated in a Harvard University speech titled “The Psychology of Human Misjudgment”: “My personal behavior model is Lord Keynes: I wanted to get rich so I could be independent, and so I could do other things like give talks on the intersection of psychology and economics. I didn’t want to turn it into a total obsession.”

Naturally, I do not model the behavior of role models like Buffett and Guy Spier perfectly. I am often participating in communities looking for what I can receive, not what I can give. I have observed this sort of behavior fairly often in people attracted to value investing. Like me, when new to the discipline, they are attracted to the surface level benefits of the endeavor. This can be challenging when trying to collaborate to hone investing skills. I want the short cut, the easy way to riches. Don’t give me this lesson about enjoying the process, I want the results!

Another challenge is bringing together individuals across a wide spectrum of skill, experience, and professional status. I became an accountant with some hope that an accounting degree and career would help strengthen my skills as a value investor (and lead to a career in value investing). To some degree, they have, but I may lack a lot of skills a graduate of the value investing program at Columbia University has. Further, an equity analyst or fund manager with experience is likely to have insights exceeding the quantity and quality of either of us. So, the fundamental challenge in collaborating with other value investors in the community is that there isn’t a funneling system to organize community members based on where each of us is in our development. There are of course benefits to this heterogeneous mixture of value investors. However, the challenges often outweigh the benefits. When someone is delivering a presentation that is designed for an audience that understands accounting at a basic level and someone in the audience does not understand accounting, the entire group can be hindered in discussing issues that are challenging to the more experienced group members.

A final challenge I have seen is the diversity of interests in value investing. There are many ways to interpret and execute a value strategy. It can become confusing to understand what is and is not a value strategy. Risk arbitrage can be considered value by some, but not others. The whole point of developing communities is to strengthen each other’s skills around a common interest. When investing strategies outside the value model bleed into the group, we risk confusing principles, spreading the development of our competencies too thin, and having no standard whatever about value investing. Not to mention, it can be highly rewarding to converse on topics of mutual passion. How does an individual who has internalized the principles of value investing relate these to someone who is still interested in day trading, but says they are interested in value investing? To the contrary, how would a day trader benefit from collaborating with a value investor? It is probable there is benefit for people using these different approaches to interact, but it is extremely challenging because they each have their own language, values, and require different skill sets.

We all benefit when we collaborate with others who are more or less in the same phase of their development. I think we also benefit from diversity of skill, but there are diminishing returns as diversity increases beyond some threshold. This may be why kids are organized into grade levels in school. So, my question is, how can I contribute to the development of a value investing community that maximizes enrichment and minimizes distraction? A community that is just as valuable to the professional as it is to the beginning amateur?

“The only difference between man and man all the world over is one of degree, and not of kind, even as there is between trees of the same species. Where in is the cause for anger, envy or discrimination?”
― Mahatma Gandhi

One method may be for the community to encourage and facilitate self-imposed grouping. Gatherings of the entire group would focus on high-level values, principles, methodologies, etc. Group members would be encouraged to pair up in mentor-mentee relationships for one-on-one interaction that explores more detailed concepts. This way, each person has others to work with who are both more advanced in their progression as a value investor and less advanced. The veterans work with the intermediates, the intermediates work with the novices, etc. Of course a veteran and novice could agree to work with each other; pairing would not be imposed at a group level. What do you think? How can we facilitate highly valuable communities amongst each other? These are questions I ask myself as the global value investing community continues to grow and I feel driven to contribute. I would love to hear from you.

Best regards to all you #valueinvestors!

Justin Foeppel