[00:03:14] Intro: You are listening to The Richer, Wiser, Happier Podcast, where your host William Green, interviews the world’s greatest investors and explores how to win in markets and life.

[00:03:33] William Green: Hi folks. I’m really delighted to be here with today’s guest, John Spears, who spent almost half a century at the heart of one of the great investment firms, Tweedy, Browne. John, it’s lovely to see you again. Thank you so much for joining us.

[00:03:45] John Spears: Good to see you, William. It’s been too many years since we last met. [Crosstalk] [00:03:50] William Green: It has! I think it may be about seven years since I came to visit you in New Jersey and spent the day in your beautiful farmhouse there. I guess it was, it was a memorable experience. I’m happy to be with you again.

[00:03:59] John Spears: Right, right. We sat in the barn and had nice chat. Nice lunch.

[00:04:02] William Green: Exactly. It was a great day.

[00:04:04] William Green: So I wanted to start by asking you how you came to be so fascinated by the stock market at a very young age, and if I remember correctly, you ended up buying your first stock when you were about 12 years old.

[00:04:16] John Spears: That’s correct. It began with a tendency toward Lassitude. I had always been a worker. As a kid, I was just kind of a worker.

[00:04:26] John Spears: I had a lot of energy and one of my ways [00:04:30] of working was to pull working gardens, pulling weeds. And the pay at that time was 50 cents an hour, which might be $3 an hour, something like that in today’s dollars. And that was work done in the summer. It was hot work, sticky, get your hands dirty.

[00:04:48] John Spears: And I had the good fortune of having my grandfather within a bike ride away in the town that we lived in, Oak Lawn, Illinois. And my grandfather was an investor. He bought dividend-paying typically large sort of blue-chip type companies. And he looked at the financial pages every day and I was fascinated with all the numbers.

[00:05:11] John Spears: What’s an eighth mean? What’s a quarter mean? What’s the monetary equivalent of those figures? And it just struck me that it’s pretty amazing. You could make money with money without doing all this work outside, and you could do it in an air-conditioned office. So it was really a tendency toward that kind of laziness, or maybe just seeing a more efficient and more delightful way to spend one’s time.

[00:05:36] William Green: Yes, because you were very entrepreneurial, right? I mean, I remember you telling me that you delivered newspapers at 10. You, I think you built and rented out a hammock in your backyard.

[00:05:46] John Spears: That is correct. Yeah, it was. I sold it as a space ride in the hammock. I sold that as a nickel ride. There was a magazine, I don’t know whether it’s still around titled Boy’s Life might have been Associated with Boy Scouts or Cub [00:06:00] Scouts, something like that. And they had money making schemes including selling door to door engraved Christmas cards, custom engrave Christmas cards and I did that.

[00:06:11] John Spears: And it was fairly easy to do because the houses were close together and they were, it was not a wealthy area with large lots and that, that kind of thing. So yeah, I was just kind of doing these things to make money.

[00:06:25] William Green: You told me once that you sold Coca-Cola on construction sites that you would mark up.

[00:06:29] John Spears: That’s right. When we moved to Gladwin, Pennsylvania outside of Philadelphia, there was a fair amount of construction going on in the summer and I would keep track of it and bring cold Cokes and mark them up, double them upsell.

[00:06:42] John Spears: That was one of the schemes. Yeah. But also, I’m not sure whether this is a question you were going to ask, but I had kind of an entrepreneurial breakthrough in high school.

[00:06:53] John Spears: Continuing with this Christmas card business. I learned about fancy expensive Christmas cards that were sold in stationary departments of department stores such as John Wanamaker or Strawbridge & Clothier in the Philadelphia area. And they were heavy sampled. And I got in touch with these Christmas card companies and got the right to sell them, their product in the main line of Philadelphia.

[00:07:17] John Spears: And problem with it is that all the houses were on at least two acre lots. So you had to walk around carrying these heavy books door to try to make some sales. But I had this thought I had, I became [00:07:30] aware of something called a reverse telephone directory, which street by street door by door gives you the telephone number of each house, name, address, telephone number.

[00:07:40] John Spears: So I thought, well, maybe I could come up with a little advertisement, a flyer that I could send door to door by street, and then I could call in advance House to. And arranged for appointments to see these Christmas card sample books. And then the flyer that I created had a little picture of myself, so that would delay any fears of a robber. They could see this kid. And it was kind of cute. I had a, an old beat-up Volkswagen Bug and I little hippie sunflowers on it. And anyway, I found out that I could call door to door and at about a fifth of the telephone calls resulted in an appointment to drop off the sample books. And if they made a decision by the next day, they got what I called the quick deciders discount, they’d get 20% off.

[00:08:25] John Spears: And doing that was quite successful, I guess in today’s dollars, maybe making over $40,000 just part-time work doing this while still in high school. So I mean the head of the local branch, the bank branch of private and national bank who took an interest in all this cash and checks I was depositing and invited me out to lunch. It was a teenager, it was great. So that was an interesting entrepreneurial thing that was a little bit of a, doing some research to try to get around a hurdle, a twist.

[00:08:58] William Green: And you were always very frugal, [00:09:00] right? So you’d been saving money from all of these jobs and then you’d started to invest in the stock market at the age of about 12.

[00:09:08] William Green: And if I remember rightly your first two stocks were British Petroleum and All Side Corp. Which I think was made aluminum siding. Correct. Can you, that’s correct. Give us a sense of what you learned from those early adventures in the stock market.

[00:09:22] John Spears: Well, the first one was a Joy British Petroleum.

[00:09:26] John Spears: I think I invested 200 $5,300 in that stock and it went up about 50% in a short period of time. Look, this is great. Now, this was a stock that was just it was recommended to me by a broker. I said, okay, I’ll do this. Sounds okay. There was no independent research, but it was just buying a piece of paper. I didn’t know that much about Bridge Petrol. Anyway, it was Easy Money, so it’s great. But then he is recommended this all-sides company, which sounded so interesting. All side was aluminum siding. But they also were going into a new business of making prefab manufactured homes. And they were architecturally very contemporary.

[00:10:03] John Spears: I liked how they looked. And so I bought some of the al side and went down 50%, lost half my money in that stock. And it was an awakening that I really did not have a clue about what I was doing. And you can lose money in stocks too. So I started trying to repair my lack of knowledge by going to the library frequently and sort of one at a time taking out books on, on investing.

[00:10:29] William Green: Why do [00:10:30] you think it fascinated you so much? Was it really that you sort of were rapaciously capitalistic and wanted to get super rich? Or what was motivating you to do all of these ventures and to invest.

[00:10:42] John Spears: I think it was a money gene or a get rich gene. I just saw that was, I don’t know.

[00:10:49] John Spears: I was just interested in it from an early age. Yeah. And you didn’t, I mean, I ca I mean, I’ve read about Warren Buffett’s early age and he was that way with I think he’d go to barber shops and he’d install a gumball machine or something, which takes coins and you get a piece of candy, piece of gum and he’d go around and collect the coins.

[00:11:10] John Spears: And he did some of these things that struck me as interesting. He said that it often has been the case that people who’ve made money did things at an early age that were sort of independent entrepreneurial in a very small-scale way. But I mean, I remember reading about, oh, Joseph Kennedy, I think he as a teenager might have rented a bus and had a, like a little bus company.

[00:11:34] William Green: Yeah. And you were reading all about these people like John Paul Getty and Charles Allen was another character who now most people wouldn’t be able to identify. But he played a really important role in your life. Can you talk about how you went from reading about him at the age of 14 or 15 when there was an article about him in time that actually having him set you on a particular path that I think really quite profoundly affected the course of your life. [00:12:00] [00:12:00] John Spears: Indeed. And I read about Charles Allen in an issue of Time Magazine, a business section that he was kind of in the Forbes 400 type thing before there was a Forbes 400, but he was worth, this would’ve been in the sixties. He was worth about 500 million. He had started with nothing. He was a runner on Wall Street.

[00:12:21] John Spears: He started his own firm and by the time he is, he was 29, he was a millionaire. And then he lost, I guess he lost all of his money in the stock market crash around 29, 29 thirties. He made it back, but it was his story in Time Magazine described the diversity of businesses that he had invested in, the different kinds of stocks, including some venture capital type things.

[00:12:45] John Spears: And it just sounded very interesting to me. And the author of the article described Charlie Allen is having a feel for stocks. I think he used exactly those words. So I was just fascinated by this man, and I wanted to see if he’d be willing to meet with me and describe his feel for stocks and maybe give me some advice on how to be an investor man.

[00:13:09] John Spears: I wrote him a letter and maybe in a month later I received a reply, and he invited me to come to his office in New York City. And I took some time off from school and-

[00:13:20] William Green: Not with permission. It should be emphasized. You played hooky, right?

[00:13:25] John Spears: Yeah, I played hooky, yes. Without permission. So I wanted, I [00:13:30] had my priorities set. Yeah. So I went up to New York on the Amtrak train and spent about 45 minutes with Mr. Allen and asked him to describe his feel for stocks, his feel for investing that time Magazine had described as almost magical. Yes. How do you get that? And he said, it’s just a feeling when you know you’re right.

[00:13:51] John Spears: Well, you’ve got sort of conviction. You’re comfortable. You’re right. And then he gave me advice on educational path forward. He said that, you know, accounting, finance, accounting’s the language of business. You should know everyone who’s an investor should know accounting. And he recommended a course that was taught at the New York Institute of Finance.

[00:14:11] John Spears: On security analysis, and it was a correspondence course, so I immediately signed up for this, and it happened to be based on the book Security Analysis by Benjamin Graham Dodd and the coddle. And the book was originally as, you know, I think published in 1934 or so first edition. And anyway, I just started going chapter by chapter and there were accounting lessons as well with the book.

[00:14:39] John Spears: And I’d send in my answers to questions, assignments and get a grade back and then do it again. And it was very useful. I really started with what’s considered to be the hard book, the Bible of investing. And he has a section, he has a part of the book on balance sheet analysis. And I came to the conclusion that [00:15:00] you could buy bargains in the stock market.

[00:15:01] John Spears: You could buy a company, even a company that has more cash, net of debt per share than the stock. So I had also seen some research on stocks that had the biggest percentage moves, and they tended to be lower priced stocks. So I thought that I would try to find stocks at $5 a share or less, that we’re selling below their net cash.

[00:15:23] John Spears: So, in theory, if you and I could buy the whole company, we could we’d get our money back from the cash in the balance sheet in the till, and then we’d have the sales base, the earning space, the property plant equipment, goodwill for free. That seemed like a good deal. So, so I started doing that, and those initial investments with that basic framework in mind worked out extremely well.

[00:15:47] John Spears: And I was not a diversified investor at that time. I didn’t know much about that, but my first few bets were good and a thousand dollars and became worth about 10,000, or I don’t know what that is today. In today’s dollars-

[00:16:01] William Green: Probably would be 75 grand. A hundred? Yeah. Something like that. Real money for a high school kid. [Crosstalk] You got a lot of money.

[00:16:06] John Spears: I felt rich.

[00:16:07] William Green: Yeah. And then John, I remember you telling me when we met last time, that you then had a disastrous investment where you sort of strayed from this new framework. Could you talk about that, what happened, because it sounds like it had a huge impact on you.

[00:16:21] John Spears: It did. At that time, there were a number of companies, conglomerates, companies that would own different businesses and a number of them had been formed [00:16:30] using sort of a Shell corporation that had a tax loss carry forward benefit i.e. that the whole idea was if you bought a profitable tax paying business through this corporate entity that had a large tax loss carry forward, you could shelter.

[00:16:46] John Spears: The pre-tax income of the business that you acquired, you pay no, no tax income tax on it. And at that time, the corporate tax rate was around 50%.

[00:16:57] John Spears: So you sort of have, do, assuming it was a cash generative business where the cash flow was equal to the earnings, you’d have double the earnings that you could get your hands on in, in cash flow.

[00:17:06] John Spears: So there were a number of companies that built conglomerate businesses through acquisitions. And I happened to stumble across a company called Paul Hardeman Company, which had an enormous tax loss carry forward. And I forget what it was per share, but it was a big number in relationship to the stock price.

[00:17:24] John Spears: The stock price might have been three bucks or something like that. And I thought I was just going to get fabulously rich buying this thing at three. It would, you know, they’d build some empire buying companies. And I went and went up to New York and met with a lawyer who had bought control of this company with a large.

[00:17:41] John Spears: Tax laws carried forward. And anyway, I recommended that my father buy it, and I tried to borrow money from one of my father’s friends who always took an interest in me and was a frugal guy who invested in stocks and owned real estate also and a farm or two out in Ohio. Anyway, this [00:18:00] guy, thankfully, did not lend me any money, and he wrote me a very kind letter to talking about the, you know, the disadvantages of borrowing money to buy things and, you know, being better, to be prudent and careful.

[00:18:14] John Spears: And anyway, I didn’t follow. I mean, no one would lend me any money, which was a blessing. It’s so that stock crash, it just was terrible. It pretty much wiped out most of the $10,000 that my investing had built. And so I mean, it was a punch in the face at an early age better than at age 74. I don’t want to go there.

[00:18:37] William Green: But your dad lost three or 4,000 bucks as well. He did. Right. And so that, he did That must have been pretty excruciating, presumably.

[00:18:45] John Spears: It was excruciating. It was awful. It was humbling.

[00:18:49] William Green: And he was not a rich man. I mean, he’d been I mean, he became relatively successful, right?

[00:18:53] John Spears: He, it was affluent, but he was not a, he was not a rich man. And I was sort of surprised years later when he invested $50,000 of his pension profit, sharing his IRA with Tweedy, Browne. And fortunately it was a very successful investment he made. You know, they, it allowed my parents to retire very nicely.

[00:19:15] William Green: So, to go back to this company that turned to dust, what did it teach you in a sense about reaffirming your faith in the principles of Ben Graham and the margin of safety? How did it affect your rediscovery of your faith [00:19:30] in Ben Graham?

[00:19:30] John Spears: Sure. Well, look, obviously if you had looked at the balance sheet of Paul Hardiman Company, really, it didn’t have much.

[00:19:38] John Spears: I don’t know whether it had much debt, I don’t recall, but it was basically the tax loss carry forward. There was not a, just kind of a more esoteric asset than actual cash buildings, accounts receivable, profitable business, profitable sales base, those kinds of things. It just did not have that, and I had made money in those kinds of stocks.

[00:20:02] John Spears: I understood them, I understood the theory of doing it, the model, it all made sense to me. It seemed like it offered a margin of safety. I used to think that you know, you’d find something that didn’t have much leverage and you’d figure out that the real value of the business, if it was sold, if you acquired it, or if a competitor acquired it, the likely price that the business would go for, you could buy into some companies at half that and really, Their financial capacity, what a leverage buyout firm could do in acquiring that.

[00:20:35] John Spears: They could finance more than the stock price per share. They could borrow, go to a bank and borrow more than the stock price per share. Those kinds of things made sense to me. It was sort of like a bond or a bond. You had bond capacity or financing capacity of the business that was more than the stock price.

[00:20:51] John Spears: So in a theoretical, see-through way, you were kind of like buying a bond, but you didn’t have a maturity date. You didn’t have [00:21:00] regular interest payments, but you had that margin of safety based on the price that you were buying the price that you were getting into the enterprise. And that was equivalent to the margin of safety that a bond.

[00:21:12] John Spears: On that company would have, I don’t know whether that’s at all clear, but that was the idea.

[00:21:17] William Green: Our audience is much smaller than and I am with these things. So they’ll understand you with the things that I don’t dance everywhere.

[00:21:22] John Spears: No. I’d say you’re an A plus questioner.

[00:21:25] William Green: Oh, thank you. So you then went off and you sent a couple of years studying finance and accounting at colleges like the Babson Institute of Business Administration and Drexel Institute of Technology. And I think you’ve spent some time going to Wharton trying to avoid getting drafted in Vietnam. Right. Which I think is very wise Indeed.

[00:21:42] William Green: And then you dropped out and merged to your parents’ dismay. And I’m wondering how come why did you decide that you didn’t want to complete your college education, and did you ever regret not having a college degree?

[00:21:54] John Spears: Well, I think the answer, I think is I was really just interested. I was so focused in a way on pursuing this investing course that I just didn’t want to take the time to study all the other things.

[00:22:09] John Spears: And also, I had a kind of a weird way of looking at things as a result of studying people that had become successful in business and had become wealthy. Many of them were immigrants. Many of them were college dropouts, some in some instances, even high school dropouts. Thank God my parents didn’t ma to do that.

[00:22:29] William Green: Would you have [00:22:30] dropped out of high school if they had allowed you?

[00:22:32] John Spears: I was kind of inclined to do that for a while. But thank God I did not do that. But anyway, so I was determined to learn these, learn accounting and finance, and somehow make money and get in business. And my parents when I first dropped out of Babson, after nine months at the school, I’ve been getting A’s and B’s. I was doing fine, but I just felt twitchy. I had this energy to get into business and do something. You were a man in a hurry. And I was in a hurry. I was in a hurry. My mother, you know, said Johnny, do you want to pump gas the rest of your life? She was just very upset about it.

[00:23:07] John Spears: But it turned out that they had a very luxurious retirement as a result of investing with Tweedy, Browne.

[00:23:14] William Green: And it’s interesting because you strike me as a very cully and bookish guy. I know how much you love your books. I remember seeing your absolute gorgeous library in your house in New Jersey, and it just strikes me that you’re a very independent learner and thinker.

[00:23:27] William Green: And so probably in a way, the characteristic that led you to leave college and just be studying on your own at a maniacal pace, it’s probably pretty integral to your success, right? That kind of personality.

[00:23:40] John Spears: I think that’s right. Yeah. Yeah. Independent learner. Independent learner. I think I learned better through reading than through, for example, going to a long lecture course.

[00:23:52] John Spears: So I just found it to my liking to be an independent student. I’m still an independent student of investing. I still read [00:24:00] investing related books. I’ve, I read academic studies about different stock market approaches, such as copying insiders or buying into companies that have bought back their own stock.

[00:24:12] John Spears: And I’m still doing today empirical work right now on copycatting C-suite or top executive insider trades for companies, not only in the United States, but throughout the world. And it’s interesting, they tend to beat the market.

[00:24:30] William Green: I’ve been following some of what you’ve written and said of on this subject, we’ll come back I hope, to this idea of empirical research later because it’s very distinctive to Tweedy, Browne.

[00:24:38] William Green: But tell us quickly, like what does it show you when you follow what the president or the CFO or the CEO or the treasurer or whatever, what they do in terms of their own investments in their company?

[00:24:49] John Spears: On average, if you bought all of the ones that they bought over time, you tended to beat the market. And the market is, was defined as the S&P 500 in the study that I did, or the firm did, using the US market as the universe in using companies with at least a $500 million inflation adjusted market capitalization. So they were mostly bigger companies. The kinds of companies that other academics said, insiders don’t tend to do that.

[00:25:19] John Spears: Well, you know, big company you know, efficient market theory and all that. Well, what we found studying the US market, is that insiders C-Suite [00:25:30] insiders, top executive insiders such as the c e o, president, treasurer, chief Financial Officer, chairman of the board, they tended to beat the market by a gr much greater amount when they were buying value stocks.

[00:25:44] John Spears: When they were buying stocks that if you ranked stocks on price earnings ratios, if you ranked the top executive, if a universe of their only top executive purchases, then you rank all those stocks on price earnings ratios and sort them into deciles. The cheapest stocks on PE ratio tended to have the best excess return, the best alpha, you know, more than 10 percentage points on average.

[00:26:12] John Spears: But that doesn’t mean that any librarian or that we can just assume that all of those stocks work. They don’t. I mean, I think with our US study, 75% of the stocks that were in the cheapest two deciles of price earnings ratio had some gain, but 25% had absolute losses. And then of the whole universe, 65% of the stocks that were in the cheapest two deciles of price earnings ratio, beat the market had exceeded the s and p 500 by more than 10 percentage points.

[00:26:46] John Spears: So those are fabulous results. But there’s definitely statistics, there’s skewness, you know, you don’t have every, all of them winning. And you have some very, you know, you might have in that sample something with a 400% return, and [00:27:00] that’s something with an 80% loss. So it’s not nirvana, but it’s pretty damn interesting.

[00:27:07] William Green: And it’s a powerful enough signal that it’s presumably very powerful for you as an idea generator. And then if you can combine this kind of tracking of C-Suite insider buying with stocks being cheap, it’s presumably a pretty good pond to be fishing in for you.

[00:27:23] John Spears: Exactly. Indeed. Indeed. I think it’s; I think it’s the best pond.

[00:27:28] William Green: That’s interesting. And it’s interesting, it goes back in a way to Ben Graham who also found these statistical, empirical ways of looking at the market, where you could say, well, on average, I’m going to do pretty well if I fish in this type of pond.

[00:27:43] John Spears: Indeed, he was sort of a quant. I mean, he’d talk about buying a group, a basket of stocks, selling below current assets, net of all liabilities, senior to the common stock, and also including the deduction of preferred stock.

[00:27:57] John Spears: And if you could buy those, it’s two thirds of that net. Net current asset value. You tended to make money and he did. I mean, it, it made a lot of sense to him. He didn’t really study each company that carefully. But it tended to work. And we’ve done that sort of thing too, especially in our early days when we managed less money.

[00:28:16] William Green: Can we go back to those early days because to resume our story of the young John Spears in a hurry, you trained as a stockbroker in New York City, I think back when you were about 20 and then worked for a couple of brokerages, and then when you were maybe [00:28:30] even 22, set up your own investment partnership with about $30,000 from about four people and a few thousand of your own, and then drove a limousine at night.

[00:28:39] William Green: Can you talk a bit about what that period was like for you when you were just starting out and you were figuring out the game and you were applying this Ben Graham type style of investing at a time when really almost nobody else had got that religion?

[00:28:56] John Spears: It was indeed a time of the nifty 50 stocks where companies like Avon would sell at 80, 90, 100 times earnings, Polaroid, et cetera.

[00:29:05] John Spears: These stocks that were, had great track records, they would keep growing forever. And people, major bank trust companies all own these same stocks. And anyway, none of that made sense to me. I just thought that the opportunities buying bargains, I could understand it, it made sense to me, but going.

[00:29:25] John Spears: I was very fortunate to join horn Learn Weeks. Hemphill, no, a New York Stock Exchange member firm with an office in Philadelphia in their stockbroker training program. They looked at my kind of quirky background, my educational background and background as developing this little business, selling Christmas cards and things like that.

[00:29:46] John Spears: And they, I guess, you know, obviously they decide they take a chance on this weirdo and so you had to be at age 21 to legally be a registered representative, to be a stockbroker. So [00:30:00] I took the test. I was the youngest person to ever take the New York Stock Exchange registered representative test. And I waited around for a while and at age 21 they gave me a desk and a phone and said, go out and cold call and meet people that had money and make a lot of commissions, and you can get part of the commission and we’ll get part.

[00:30:20] John Spears: So I started trying to do that and I was just so young. Most of the people with money have accumulated money as they’ve aged. So I was trying to meet owners of businesses that might be 50 or 60 years old, and I was frugal. I tell, I went a few times. I took people out to lunch, and it was just so dumb.

[00:30:41] John Spears: I’ve waited until hopefully they would pick up the check. Not right. I mean, just ridiculous. Anyway, I did meet a few people and I explained my value-oriented approach. And I found a stock that was a closed end investment company. I think it was called the Abacus Fund that was selling at about 66% of its cash and securities.

[00:31:02] John Spears: And I got a number of them of my few clients into that stock. It eventually worked out just fine. I think it eventually was taken over by maybe Payne Weber company in a deal, and he got all the shareholders, got book value. But anyway, I was not a very successful salesperson. And I did not like the kind of, to me it seemed like a high-pressure sales organization where they had a chart, it was like a horse race, and they’d [00:31:30] show the broker with the, who was leading in the horse race with the highest commissions.

[00:31:34] John Spears: And at that time there could be secondary offerings where the insiders were selling their own shares and they, the commission on placing those shares with your clients was a higher percentage commission than what you would get buying a hundred shares of General Motors, et cetera. I didn’t, it just didn’t smell right to me.

[00:31:53] John Spears: I didn’t feel very comfortable with that. So after about nine months, I decided this just was not for me, and I probably would’ve been fired if I had not decided that it was not my cup of tea.

[00:32:04] William Green: I remember you saying that you had this image of your local doctor, Dr. Woodruff, who cared for his patients and helped them and that you, in a way, rather than being a hustler trying to get commissions, you kind of, you wanted to be a bit more like him, but in a financials environment.

[00:32:21] John Spears: Yes. I liked the idea of having a community of interest, of helping people with their finances, with helping people become more prosperous. Wealthier. And yeah. He was a great example. He was a kind, caring man and So I admired that. I wanted to have that sort of a reputation.

[00:32:42] William Green: And then you met one of these other outlier figures in those early days as an investor who was Bill Rue, who was a great friend of Buffett’s and Rue also, who was a very kind and caring bloke. Then introduced you to Tweedy, Browne. So you started at Tweedy, Browne in 1974. For people who are listening who don’t really know [00:33:00] what an extraordinary and historic firm this is, was founded, I think in 1920, can you talk a bit about the connection that it had with Ben Graham, the connection that it had with Warren Buffett, the connection that it had with Walter Schloss.

[00:33:14] William Green: I mean, this is kind of ground zero for the value investing community, and you were there at a time when it was a tiny firm managing, I think about 8 million. So I’d love to get a sense of what it was like and what the history of this firm was within the value investing community.

[00:33:32] John Spears: Sure, sure. The firm was founded in 1920 by Forrest Tweedy who was a real character.

[00:33:39] John Spears: And he would go to the stockholders meeting of some very closely held companies that traded in the over-the-counter market, had traded. The people who were not my age stocks used to trade just by phone calls between different brokers, market makers. And Forrest Tweedy developed a business of market making in a mail order way.

[00:34:02] John Spears: He’d go to Smith Van Manufacturing, he’d learn, he’d get a copy of the shareholder’s list, and he’d send out postcards saying, I’m willing to buy shares of Smith Manufacturing at $10 a share. If you want to buy Smith Manufacturing for me at $11 a share, I’ll sell them to you. So he did this kind of thing, and it was a, I guess, a prosperous enough little business.

[00:34:22] John Spears: And he added one of his partners in the business, Howard Brown, the father of my two longstanding [00:34:30] partners, deceased partner, Chris Brown, and my current partner Will Brown. And Howard was just a great guy and he made markets in the pink sheet’s stocks. He was really a step above Mr. Tweedy, and it turned out that Benjamin Graham had his office in the same building. And at that time, stocks were not trade, were not, the ownership was not transferred through the Depository Trust company. It was transferred through actual delivery of share certificates from one office to another. And then people would put those certificates in a vault.

[00:35:08] John Spears: And so I think there was a convenience factor that Ben Graham could place orders to buy and sell stocks with Howard Brown at Tweedy, Browne. And that was an original connection as far as I recall, the history. And of course, Warren Buffett was working as a 20 some year old as an analyst for Benjamin Graham Newman Corporation, which was sort of an early, early, kind of a hedge fund or an incentive.

[00:35:36] John Spears: Somehow. The Graham Newman Fund was a percentage of the gain kind of a deal, like current hedge fund structure. So Warren was working there. Tom Damp, one of my deceased partners, also worked side by side with Warren Buffett, and so did Walter Schloss. And when Warren decided that he didn’t want to live in New York City, wanted to work in Omaha, he stayed in touch [00:36:00] with Ben Graham.

[00:36:01] John Spears: With certainly with Ben Graham, but with Tom Knapp and another one of my partners, ed Anderson, who has also passed away. Ed knew Warren through working for Charlie Munger for a few years out in California. And so that’s how Ed came to Tweedy, Browne.

[00:36:19] William Green: Wasn’t Howard the broker, who even helped Warren? Tell us the story. It’s so remarkable.

[00:36:25] John Spears: Sure. He, Howard was well regarded by Warren Buffett as a person who could keep a secret, a person who was very trustworthy. And Howard was a wonderful person, but a person of fewer words than many people was a bridge player too. He was a, he could remember lots of things very quickly and so he was very good at.

[00:36:45] John Spears: Game of their, this business of accumulating shares in companies and being very quiet about it. And so Warren trusted him. And so nearly all of the, maybe all of it, maybe all of the shares of Berkshire Hathaway that Warren Buffett owns, were accumulated using Tweedy, Browne as the broker. And we used to keep track of the transactions before computers by writing down every transaction on a card.

[00:37:11] John Spears: So we had our card for Warren Buffett, Berkshire, and Berkshire Hathaway bought hundred shares at this price. And think one time we joked, well, Warren will send you back the transaction cards if you send us back to share.

[00:37:25] William Green: And just to clarify for our listeners, this is back when Berkshire Hathaway, this is [00:37:30] in the 1960s when this was an old textile mill in Massachusetts.

[00:37:34] William Green: Yes. And so, right. So this was a pretty lousy investment in some ways. There was a cigar, but that he was buying incredibly cheap, but then because he was the greatest investor of all time, proceeded to turn it into, you know, one of the great success stories in investment history.

[00:37:48] John Spears: Indeed. I think he was I think he might have been paying $10 a share or something for his stock in Berkshire Hathaway.

[00:37:54] William Green: Yeah. Another legendary character that you had in the office who you mentioned previously was Walter Schloss, who, again, some people in our audience won’t realize just what a legendary figure he was, but he was an also wonderfully eccentric. Can you talk a bit about Walter Schloss?

[00:38:13] John Spears: Well, Walter also was an employee of he was an investment analyst working for Benjamin Graham at the same time as Warren and Tom Nap. And Walter had great energy. He’d kind of run up and down the hallways and stuff. He’d run to the trading desk, and he very frugal man, very lived very below his means. And he had office space in Tweedy, Browne. And we didn’t charge him, we didn’t charge him any rent, but he had, essentially, in the early days, he had an office about the size of a closet.

[00:38:44] John Spears: And in fact, Chris Brown used to talk about the water cooler was in the closet beyond Walter’s chair and desk. So to get to the water cooler, Walter would’ve to push his chair in so he could get. But he was a very interesting investor. He stuck to his [00:39:00] knitting. He always bought stocks below networking capital or ADD or below.

[00:39:04] John Spears: Tangible book value. He felt very comfortable with that approach. To the best of my knowledge, he never really interviewed managements. He would look in value line or maybe look in the Moody’s manuals, S&P manuals for cheap stocks. And he was quirky about his diversification. He would own a lot of stocks.

[00:39:23] John Spears: He might own a hundred stocks, but if he found one that would decline from his original price, he would often just keep buying and averaging down his cost. And I learned at one time there was one stock he owned, Hudson Pulp Company, which was a paper making company and also owned Timberland, et cetera. And it was a controlled company. You couldn’t buy control in the open market. Couldn’t tender Ford or anything like that. So it was not a place, it was not a kind of a stock that an activist might stir things up with. But I learned that he had about 25% of his investment partnership in Hudson Pulp.

[00:39:58] John Spears: And I just he had a kind of a diverse, a bunch of little things over here. And then there’s barbell over here with Hudson pulp. So I, he had courage to do that, but I wouldn’t do that with my net worth.

[00:40:10] William Green: So you in a way, were really at the heart of the value investing community, right? You had partner?

[00:40:17] John Spears: No, I don’t know about that.

[00:40:18] William Green: Well, well, but physically you were at the center of this ecosystem, right? Yes. You had, Tom Knapp was a colleague who’d taken Ben Graham’s course at Columbia with Buffett, and then worked for him and then joined Pretty Brown. You [00:40:30] had Howard Brown trading, helping Buffett.

[00:40:32] William Green: You had Ben Graham as using the firm as a broker of him in the thirties, forties and fifties. You were meeting people like Bill Ru. So you were kind of, you were all part of this church of Ben Graham, and in a way, Graham has really defined your entire career over the last almost 50 years, now that you’ve been at Tweedy, Browne.

[00:40:52] William Green: What was the essence of the idea that you took and obviously adapted, and you evolved it over the years by studying Buffett and then adding your own twist to it. But what’s the essence of what you took from. Graham that has turned out over the last half century to be incredibly robust.

[00:41:10] John Spears: Well, I think it has been that the, just the whole idea of valuation of a business and that the valuations, real world valuations can be much higher than stock market valuations.

[00:41:23] John Spears: You know, a transaction hundred shares of some stock at a price are not necessarily representative of the value of the entire company. Yet, companies are valued through these quotations, through fractional ownership. Interests in real businesses are taken as serious where to us the real serious value.

[00:41:45] John Spears: Is the value, let’s say an acquisition value or a liquidation value or the highest and best value for a particular company and for us these days, mostly it’s using comparables, using acquisition comparables, [00:42:00] doing investment banking type appraisals. Of businesses. This is what a, you know, a cement manufacturer looks at cement manufacturing acquisition deals and look at multiples of EN, you know, enterprise value to earnings before interest and taxes, to edit, or enterprise value to earnings before interest taxes, depreciation, or, and amortization ebitda.

[00:42:23] John Spears: So those are, you know, that they’re really two prices. There’s the price of the business and that would be a multimillion-dollar transaction price, a very serious price. And then there are these little ditzy under chairs at a time, you know, that people take seriously. And so we, having this independent figure in mind when buying a stock and deciding when to sell it has been enormously useful and has kept us away from some of the emotional, behavioral aspects of investing.

[00:42:56] John Spears: If you don’t have that and your stock is going down, you could get into a tizzy, you be quite nervous, but you’re more at ease. You’re more at peace with some knowledge that your business is likely to be worth a lot more than what you’re paid for it.

[00:43:13] William Green: So in, in many ways, you’ve evolved the way of measuring value way beyond what Ben Graham might have done back in those days, but still it’s all centered on exploiting the discrepancy between price and value.

[00:43:28] John Spears: Yes, indeed. [00:43:30] Yes indeed. I would say that Benjamin Graham appreciated qualitative factors that can determine the earning power and the valuation of a business. But in, in his book Security Analysis or the Intelligent Investor, he didn’t really go into how to assess qualitative factors. He was much more quantitative and when he wrote the books that he wrote, it was a much more of an asset.

[00:43:58] John Spears: Business economy. So tangible book value was a very important measure in working capital and we learned, we’ve learned a lot from reading Warren Buffett from reading what Charlie Munger is. Has said written about qualitative factors. So we use that. We graduated from being an investor in net current asset stocks to I think our first more of an earnings-based stock was a company that Chris Brown and I discussed called Benny and Smith, which was selling it book value.

[00:44:32] John Spears: It had no debt, good earnings, power. We were paying a very low, maybe four times earnings and it was eventually taken over, probably a double we that we had paid, but it was a decent business. It was a good business. So, we’ve become much more interested in some characteristics of better businesses that generate a lot of free cash flow, et cetera.

[00:44:53] John Spears: But we still will buy things that are deep discount to book type stocks that where we’ve, we [00:45:00] think that the debt asset, the net tangible asset value is real. And I remember in my own case when Morgan Stanley in 2000, around 2008, 2009, in that period, the financial crisis was selling at 60% of tangible book value.

[00:45:15] John Spears: And insiders were buying it. CEO, chief financial officer and directors, other directors were all buying the stock. I bought some with my own account there. There were great concerns about. Morgan Stanley not being able to revolve its financing. And it was, you know, it was wild times in for financial businesses at that period, but I thought, well, it’s way below tangible book.

[00:45:36] John Spears: They’ve got an investment management business that generates a lot of money that’s not an asset intensive business. And so I bought some at less than tangible book and 20, I think it was 10, 20 bucks a share. We had around a 30 tangible book, went to 12, bought some more. Not enough. But anyway that’s the kind of thing we own.

[00:45:55] John Spears: We bought Jeffrey’s group not too long ago. When the CEO bought about 10,000 shares at 17 book was around 34, and we’ll buy some of these things. It’s had an up in, Jeffrey’s had a kind of a volatile record as most brokers.

[00:46:12] William Green: It feels like you are not purists. You are not just looking for amazingly high-quality companies at reasonable prices.

[00:46:19] William Green: You’ll buy stuff that’s really cheap, that’s a little ugly. You’ll buy stuff that’s higher quality. It’s sort of different variations on the seam of value investing.

[00:46:28] John Spears: Indeed. We’ll even hold [00:46:30] on to some things. I mean, Berkshire Hathaway taught us that. taught me that, you know, I was, I mean, I remember, oh, it was terrible thinking about it, that, I would way, way back decades ago, I would do updates, updated valuations of Berkshire Hathaway and I, it was really more of a book value type valuation.

[00:46:50] John Spears: And I remember suggesting to one of our clients who had a lot of Berkshire athletic based stock that maybe you should diversify a little bit. And I’ve always regretted that. But it just shows that business growth is important. I mean, obviously business growth is important. You can own a business that’s privately held.

[00:47:07] John Spears: And if it’s generating a lot of cash and if the sales are growing, the earnings are growing. It’s a growing asset. So we have a number of things that we bought cheap that we thought had reasonably good growth prospects, good competitive positions, and they’re not necessarily that cheap right now.

[00:47:24] John Spears: Like Heineken, not a, doesn’t punch you in the faces a bargain. It’s probably over 20 times earnings. Nestle, we’ve owned a long time. Diagio, the liquor company. So we’ve got there, we’re kind of, you know, riding with the business.

[00:47:37] William Green: So we’ve got a few of those. High quality compounders. [Crosstalk] Yes. High quality. Quality compounders. Stable Indeed. Stable earners. Yes. Very much. Tom Russo type stocks in a way.

[00:47:47] John Spears: Yes. Yes. Yep. But he’s more, obviously, he’s more of a purist.

[00:47:51] William Green: Yeah. Yeah. He just sticks with that. He wouldn’t buy the ugly stuff.

[00:47:54] John Spears: No, he’s not going to buy some stock you know, at half and net cash with a low [00:48:00] return on equity and no, no growth.

[00:48:01] William Green: Yeah. One thing, John, that’s very distinctive about Tweedy Brown that we mentioned before, is the fact that you do this empirical research, as you were saying, studying insider buying. And one of the seminal research studies that you did as a firm and then you published a white paper on, was called What has Worked in Investing, studies of Investment Approaches and Characteristics associated with exceptional returns.

[00:48:23] William Green: And I was looking at it yesterday, and it’s basically, as I understood it, an overview of about 50 academic studies of different investment criteria that have produced really high rates of return. And I’m wondering, when you look back now, based on that research and on the performance that you guys have had since you set up the Tweedy, Browne International Value Fund your flagship fund back in 1993, which has done very well over almost three decades, what do you now believe all of this research and your own experience shows about what works well?

[00:48:57] John Spears: I think that you, in long run, I think it has worked, but it doesn’t work all the time. And our approach has not worked all the time and we’ve certainly, as a value investor in the last few years, the s and p 500 has been incredibly difficult to beat, to add excess returned, add value What you can get for almost, you can, you almost no fee to invest in these index funds.

[00:49:22] John Spears: So, it’s humbling. But I think that the value approach will continue to work. And certainly the value approach with [00:49:30] the added aspect of C-Suite type executive insider purchase has worked on average extremely well in these empirical studies. Whether it will continue to do that, who knows, but so if we look at it just makes sense. And I think it’s going back to, I think it’s an investor, it’s very helpful to do something that makes sense to you to stick to your netting and do that.

[00:49:57] William Green: So John, looking at some of those characteristics that you highlighted in this empirical study, the characteristics that are associated with high rates of return.

[00:50:05] William Green: So we’re talking about things like low price to book value, low price to earnings, low price to cash flow, low price to net current assets, or to the previous stock price. High dividend yield, small companies which tend to have higher growth rates and are more likely to be acquired. And then, as you were saying, this pattern of stock purchases by insiders.

[00:50:22] William Green: So I mean, it’s worth highlighting that these things are fairly obvious. They’re fairly logical. They do work overtime, and yet as you say, there’s this torture that there are these long periods where it doesn’t seem to work. And so we’ve just gone through, what about nine years where this style of investing hasn’t particularly worked.

[00:50:42] William Green: It’s done okay, but it’s lagged massively. How do you keep the faith during these very difficult periods where you are applying a, you’re applying a strategy that’s disciplined, that’s prudent, that makes logical sense, that you believe in that, you know, works in the long term, and yet it just sort of defies logic and just tortures you for year after [00:51:00] year.

[00:51:01] John Spears: Yeah, and I, now, if we did an update of these studies, I don’t know, and we looked at them year by year. I don’t know what the result would be. It used to be the case, well, it was the case with a number of our own track records, and we’ve had, we have some data where we’ve looked at, I think one year, three-year, five years, and 10-year rolling.

[00:51:23] John Spears: Returns versus index versus an index return versus a benchmark. And it used to be the case, it may still be the case that in about 70% of the 10 year rolling periods, fleet Brown’s stocks would beat the benchmark, would beat the particular benchmark. And 30% of the time, not now, you can flip it over and say, and look at the benchmark.

[00:51:47] John Spears: And you could say that the benchmark was only beating the Tweedy return in 30% of the rolling 10-year periods. And what’s lagging in 70%. And so it’s, part of it is the way you flip these things around. But I think that for me, none of us knows exactly what’s going to happen in the future. And if it was as simple as saying that the s and p would just continue to be outperforming value as much as it has. We should all just give up the value school and just do that.

[00:52:20] John Spears: But I think that, that’s an unlikely thing. And again, going back to you’re investing your own real money, your own wealth, and do you want to take that [00:52:30] bet or do you want to stay with something that makes a lot of sense to you and has worked on average over a long period of time? And again, it’s real money.

[00:52:39] John Spears: It’s real money. I could go out and buy Amazon. Or I could have, you know, could have bought it much higher. The growth rate is fabulous. It’s a fabulous business, but is the price, right? It just I don’t have that much confidence in being able to project really high rates of growth going far out into the future.

[00:53:00] John Spears: I just have a hard time with that. I’m much, much easier time understanding what we do, and again, myself, I’m investing my family wealth and I don’t want to lose it. And I do the best I can.

[00:53:13] William Green: I think that’s always been one of the striking things about Tweedy, Browne is that you guys as insiders have enormous amounts of money riding on the same things as your shareholders.

[00:53:23] William Green: And I remember looking most recently, I think it was up to about 1.3 or $1.5 billion Yes. Of assets from you and your colleagues. Correct. So there’s a tremendous alignment of interest, which also seems to. the, when we are looking for someone to manage our money, you want to know that your manager is eating their own cooking.

[00:53:41] William Green: So if they’re wrong, at least they’re suffering alongside you. Exactly.

[00:53:45] John Spears: Exactly. It’s shared misery.

[00:53:47] William Green: Yeah, but it should be pointed out that your returns since 1993 for this flagship fund, I mean you’ve, I think when I last checked it was about 900% was the cumulative return and it had beaten the MSCI EAFE [00:54:00] index by hundreds of percentage points.

[00:54:02] William Green: So I mean, for me, the lesson is that in the long run, this works, but you’ve got to actually be able to handle the pain of multi-year periods where you look kind of foolish and out of touch and you start to wonder if it doesn’t work anymore. And most retail investors can’t do.

[00:54:18] John Spears: Exactly. No, they can’t. They, it’s just not how people think about it.

[00:54:22] John Spears: They don’t have sort of the faith or the basic idea that you own a bunch of things that are worth a lot more than their current market quotations, and that you think that’ll, things will work out well for you, that you’ll make money and make sense. Seems low risk. But they don’t have that faith.

[00:54:38] John Spears: People just want those excess returns. They want to have a bigger pile of wealth over a period of time that comes from excess returns, you know, obviously over a long period of time. 1, 2, 3 percentage points of annualized excess return results in what most investors want over a period of time. A bigger pile of money.

[00:55:00] John Spears: A bigger chunk of wealth to do whatever they want to do with it at some future point in time.

[00:55:07] William Green: Joel Greenblatt said to me that the thing that makes it possible to outperform in the long run for him is the fact that he’s prepared to handle these periods of underperformance, that he can handle that pain.

[00:55:19] William Green: And so it just seems like you have to have this deep-seated understanding of why this works over time, buying cheap stocks, then the discipline to stick with it, and then [00:55:30] the kind of ornery, contrarian, stubborn personality to be able to go your own direction when the hood is going. In the other direct.

[00:55:37] William Green: and is making a fortune overnight in Solana and Ethereum. Right. And so it requires a certain type of weirdo.

[00:55:44] John Spears: Yes, it does and especially I think, a weirdo to do it commercially. It’s a business because you do have people abandoning you in the lousy periods. That’s just part and parcel to being in the business and doing what you do with your own money for other people.

[00:56:01] John Spears: It doesn’t always work. It doesn’t always beat the market doesn’t always generate what everyone wants, which is excess returns.

[00:56:09] William Green: Do you find that emotionally painful when shareholders are leaving you? Because I mean, it obviously it damages your business, but you are also aware that they’re hurting themselves and you’ve been trying to help them and you’re ending up having them lock in the bad period’s, returns and miss out on the rebound during the good.

[00:56:27] John Spears: Well, you get used to it. It’s been a good business. I’m very grateful to have been in the investment management business for a long time. I’m terribly fortunate. But that’s just what it is.

[00:56:39] John Spears: You can’t beat an index fund by being one. You have to be different. And we’ve done studies, we did a 20, I think it was a 27-year study where we took all equity mutual funds that were listed, I guess, by Lipper.

[00:56:54] John Spears: And at the starting gate you know, let’s say for every a hundred of those equity mutual funds, there were only [00:57:00] about 50 at the end of the 27-year period of time. And of those 50, about, I think it was about maybe 25 or 30% had beat the s and p 500 over that 27-year period. and the ones that beat it tended to beat it in about half the years.

[00:57:17] John Spears: It wasn’t a real consistent type thing. They had good years and bad years, but they still developed a bigger pile of money than the index. At least pre-tax. At least pre-tax.

[00:57:29] William Green: Yeah. I think it’s important to kind of hammer in these points that we’ve been making because I hope some people out there are listening and are thinking, oh, okay, so I get what works in the long run.

[00:57:40] William Green: At least this is one path up the mountain that’s really good. There are other ways to make money and do really well, but this is a tried and tested way that Freddie Brown has been doing, but decades that Ben Graham was doing, Buffett was doing. We know this works, but we also know how painful it is and that there are periods where it doesn’t work.

[00:57:57] William Green: And so I’m hoping there are going to be some people in our audience who are like, okay, this clicked, I’m going to do it, but I know that it’s going to be painful at times.

[00:58:07] John Spears: Well, that’s right. And it depends on, there are certainly periods of underperformance, but you’re still making money. You’re just not making as much.

[00:58:16] John Spears: That’s the other person, the other woman or man who, who bought particular benchmark that’s doing better.

[00:58:22] William Green: But we’ve also just seen people having that money just absolutely vaporized with [00:58:30] cryptocurrencies and the implosion of FTX sandbank when Freed’s Crypto Empire and all the hot tech stocks that people were buying on the assumption that would go up forever.

[00:58:39] William Green: So in a way, this is a perfect, this period we’ve just come through is a perfect example of the dangers of being in a hurry.

[00:58:46] John Spears: Or the I guess the arc performance has not been the best Yeah. Kathy Woodsman. Yeah. Yeah. Right, right, right. Indeed. You can lose a lot of money in these things that previously were so exciting to people.

[00:59:00] William Green: And you’ve lived through this a bunch of times, right? You’ve lived through it with the nifty 50 in the seventies with the Japanese bubble in the eighties, with the.com bubble. Now with this latest crypto and hot tech stock bubble, if you were to draw a moral for regular investors on how to stay out of trouble and a avoid these kinds of manias so that they can succeed over the long run, what would you say? What advice would you want to impart?

[00:59:26] John Spears: Well, I would say that I don’t think it makes a lot of sense to leverage, you know, I think you, you’re more able to be at ease and stay in the game if you’re not if you’re not hacked up. If you’re not leveraged.

[00:59:38] William Green: And if you buy stuff cheap as well, right? With a margin of safety.

[00:59:42] John Spears: That certainly has been. Obviously, that’s what we like to do. But can I guarantee that over the next five years, the s and p 500 will be worse than what we’re doing? I can’t guarantee that based on the history of winning periods and losing periods. I think it will, but I [01:00:00] can’t, you know, you got to be realistic.

[01:00:02] John Spears: You can’t predict those things.

[01:00:04] William Green: You also said to me once, John, that our real goal wasn’t necessarily to beat the market, although we hoped we could, and we ended up doing it. You said the real goal was to make money in a pretty low risk way, and that seems to me a hugely important point. Can you talk a little bit more about that?

[01:00:21] William Green: because we are so obsessed with this horse race aspect of whether you can beat the market and add value, but for most of us actually staying in the game and getting decent returns and surviving, that seems to be a pretty good goal.

[01:00:34] John Spears: That’s my goal. Yeah, I mean, Ben Graham in security analysis had a sentence said, an investment operation is one that offers safety of principle and the prospect of a satisfactory return.

[01:00:50] John Spears: He didn’t say a return that beats a market cap weighted index such as the s and p 500. He was really looking at making money, doing things that would likely not lose money because they possessed a margin of safety. And, but that’s not the commercial business of managing money in a way. It’s really, its consultants looking at.

[01:01:13] John Spears: How did you do the last three years versus a benchmark the last five years? Going back to inception, they don’t necessarily look or pay much heed to that.

[01:01:22] William Green: It’s really hard to market satisfactory. Right. But actually for most of us, that satisfactory return, I mean, I always sort [01:01:30] of feel like if I could get something approaching 10% a year over time, whether it’s after tax returns, before tax returns, or even just me adding to the pot through my savings so that I get to 10%, I’m going to be okay. I mean, it’ll be fantastic over decades.

[01:01:47] John Spears: Yeah. Right. Especially if you don’t pay too many taxes.

[01:01:51] William Green: Yeah. So I feel like this emphasis on satisfactory nurse avoiding disaster and staying in the game is vastly underrated.

[01:02:01] John Spears: We need more clients like you.

[01:02:04] William Green: I’ll send over my money tomorrow, John. Unfortunately, there’s not enough of it.

[01:02:10] John Spears: I’m certainly that type of client at Tweedy, Browne.

[01:02:13] William Green: One thing you told me when we last met that I thought was a really interesting insight into your personality is you were talking about how safety conscious you were temperamentally and you said to me, when, whenever I’m looking at a new car, the first thing I look at is it’s crash test results.

[01:02:29] William Green: And you told me that you’d bought Lincoln town car because you saw that it would do pretty well in a crash. Can you talk about that?

[01:02:36] John Spears: Sure the Lincoln Town car was one of the first cars that had airbags. So, it was kind of, I wasn’t really interested in having a Lincoln, because a Lincoln was a showier kind of a car.

[01:02:48] John Spears: But it, it did have that aspect. So I thought, oh, what the heck I’ll be a little showy and maybe it’ll save my life because it’s got airbags. But absolutely, we just happened to have [01:03:00] had two of our cars totaled because we’re right on the beach in Naples and we had a big flood surge and our cars and other neighbors’ cars in our condominium association, our parked underground.

[01:03:11] John Spears: And so we lost two cars and just had to buy two cars Recently, they were both cars that met the Insurance Institute for highway safety designation, top safety pick plus, this is the highest designation, the best crash test results, the best rollover results, all those things. So we. We narrowed our list just to, to heavier cars, typically heavier cars not Cooper Mini or something like that.

[01:03:38] William Green: Well, what did you get, John?

[01:03:39] John Spears: My wife got a ha Hyundai Santa Fe, and I got the more of a luxury car in that by, from high end, a, that’s called the Hi Hyundai Genesis, which for taking our daughters or for taking some friends out to dinner. They sit in the back seat. It’s got more leg room. It’s the South Korean equivalent.

[01:03:59] John Spears: It’s sort of the South Korean limousine car. It has a hundred-thousand-mile warranty. I think 10 years. I, it’s got a great warranty and I’ve had, and it, I think JD Powers has said good things about the reliability of it.

[01:04:14] William Green: If I were writing a profile of you, John I would be sort, really thinking about this as a metaphor for how you live your life, right? Like it’s safety conscious, it’s durable, it’s frugal, you know, it’s not super flashy.

[01:04:28] John Spears: Well, it’s relatively frugal. [01:04:30] We used to buy only used carriers, but, but it’s frugal in terms of capacity of spending, capacity of means. I’ve always lived below fairly well, below my means.

[01:04:40] William Green: You once said to me, you also had never borrowed any money, that you didn’t have mortgages, you never owed anyone any money.

[01:04:47] William Green: Can you talk about that way of living as something that enables you to be more resilient as an investor and too sure to deal with the stress of these periods of challenge?

[01:04:58] John Spears: Absolutely. Going back to the example, the tax loss carries forward company, Paul Hardiman, when I had tried to convince a friend of my father, he’s a very frugal man who was an in investor, in stocks, in farmland and a little tiny apartment buildings and stuff.

[01:05:16] John Spears: Mr. Clark wrote me a nice letter about the not getting it over your head, not being too greedy, not being too self-confident, and he was absolutely right and that was, as I described before, a cold shower, a shock to the system, a wakeup call. So there was that, and there was also a letter that I wrote just after I’d started my little investment partnership.

[01:05:39] John Spears: When I was driving in the airport limousine at night to support myself, I wrote a letter to Warren Buffett, and I’d read this great article in Forbes Magazine about the Buffett partnership and about it. His long run investment returns, which were phenomenal. And I had read an academic paper by these two pro finance professors, Miller and [01:06:00] Modigliani, and they had this idea that if you bought shares of a company with low leverage with let’s say no debt on the balance sheet, that investors of their own.

[01:06:10] John Spears: Accord would go out and offset that. They would borrow money that the company itself maybe should have had on its own balance sheet, but they would borrow money to own the stock. So it was kind of, they would merge their capital structures, the capital structure of the owner, call it an individual, call it a holding company with the non-leverage doc.

[01:06:29] John Spears: So I thought, well, maybe. Buffett was using this Miller Modigliani idea and using a lot of leverage to buy into very low leverage bargain stocks. And so I wrote him a letter and he was very nice to respond to me. He said, no, I’ve never thought of it that way. And I just think that having margin is a bad idea.

[01:06:48] John Spears: And you want to stay in the game. You don’t want to get tapped out. And so I think that the resilience, that not having debt makes one more at peace with reversals, with the down periods, with things that don’t go well. And you want to be able to stay in the game because it’s a long run game. It’s a game of averages.

[01:07:07] John Spears: And for me it just made things less stressful. I knew. Well, my stock portfolio’s way down, but I don’t have any mortgage debt on the house. I’m living below my means. I’m not living paycheck to paycheck. I’ve got some reserves; I’ve got some cash. It just was, for me, a less stressful way to live and a less [01:07:30] stressful way to live in the volatile field of investing where you do have ups and downs, you do have stocks that don’t work out.

[01:07:37] John Spears: You do have all these kinds of things. So for me, it’s been good behaviorally, but I could be a lot richer if I had put everything, you know, and into stocks. I’ve always had for a long time. I’ve had probably too much cash, but I don’t force it. I don’t force it of like, if I can’t find something I like and I do have a diversification constraint, I will just, I’ll just have more cash.

[01:08:02] William Green: Can you talk a little about diversification? Because your strategy with diversification is also pretty distinctive, right? In the International Value Fund, I think you have about 55% of the portfolio in about the top 20 positions, but at the same, which seems relatively concentrated, but actually you own about 99 stocks when I last looked for the third quarter, and so it’s actually a really interesting mix of being concentrated and diversified.

[01:08:29] William Green: Can you talk about your view of diversification and how to balance that desire to outperform by being fairly concentrated and the importance of diversifying so that you actually survive?

[01:08:42] John Spears: Well, I think that the value strategy statistically, is more likely to prove itself out and add value if you’ve got kind of a statistical diversification, a lot of large numbers, a lot of different bets.

[01:08:56] John Spears: So we’ve normally had fairly large number of [01:09:00] bets now, but sometimes we let, like, like a Heineken, we’ll let these things roll along and they might become 4% or 5%, but we’re comfortable with the business. We’re comfortable having that kind of concentration in that sort of a business in a number of portfolios.

[01:09:16] John Spears: We’re fairly, we have fairly large bets in Berkshire Hathaway just because we’ve owned it for a long time, and it’s grown faster. It’s the value, it’s compounded better than other stocks we’ve owned. But I think it’s the statistical law of large numbers make the strategy work, and also it just seems less risky.

[01:09:36] William Green: When I looked at your latest report to shareholders, which I think is as of the end of September, the investment committee that you’re part of was writing the report said the opportunity set being presented to us today in non-US equities is one of the best we have seen in well over a decade. It’s obviously become pretty unfashionable to invest outside the us People have kind of lost faith and in some ways international investing has been a bit of a disappointment for many years.

[01:10:02] William Green: I was looking at what the statistics for the International value fund, which has, you know, outperformed by a very large distance, but it’s still, it’s only returned something like 8.1% since 1983, which is very good when you compare it to the average fund, which is about 5.4%. So a big margin about performance.

[01:10:21] William Green: But when I look at that and I think, wow, so all of these people who own foreign funds, the average foreign fund, were making five and a bit percent for the last 30 years. It’s [01:10:30] really hard to keep faith in diversifying overseas. And yet we know historically that it’s really important. Can you talk about this issue of whether to diversify internationally and why at the moment it seems like a particularly smart idea to you, given the opportunity set?

[01:10:48] John Spears: Well, I’d say that in terms of the track records, international investing has had periods in the past where it’s performed better than the US market. But you’re absolutely right about the more recent past. Now I’m not my partner, Bob Wykoff, would be much more up to date on these different track record periods for International versus US stocks, but clearly there are a lot of cheap non-US stocks, and you know, good prospects based on low valuations. Low valuations have historically tended to predict higher returns.

[01:11:25] William Green: You also had a very interesting statistic in that report, which you’d done a study or were citing a study that said, from 1969 to 2022, the US market outperformed internationally, and I think maybe it was like 55% of 10 year rolling periods.

[01:11:44] William Green: So there were these long periods where overseas stocks beat the s and p, and it seemed like the lesson was just that, that you didn’t want to be all in on just domestic stocks. Is that fair?

[01:11:57] John Spears: Well, I would say for us it’s, we look at [01:12:00] it as a different way. My deceased partner, Chris Brown, used to say, well, we like to invest outside the United States because it just gives us a bigger shopping aisle of bargains.

[01:12:10] John Spears: And from the standpoint of a US investor in our international fund, Tweedy Bryan International Fund, because we hedge the current, the currency risk a large part of the currency risk, not all of it, but a large part of it, we’re equating a business in terms of the US return, plus or minus the interest rate differential on the hedging instrument to a local US return.

[01:12:33] John Spears: So basically, it’s just, it’s another place to find bargains and we’re finding quite a few.

[01:12:40] William Green: I was interested to see that Tweedy, Browne International has something like 16% of the portfolio in the UK in companies like Diagio and GlaxoSmithKline and the AE Systems and Unilever and Tesco and the like.

[01:12:52] William Green: And obviously as an Englishman, I’m particularly invested emotionally in this question, but there’s a sense when you read the newspapers these days that the UK is a basket case, that Brexit was a disaster and it’s politically dysfunctional and the best years are behind us. And I just thought that was really interesting that it’s more than three times the size I think, of your China investment.

[01:13:12] William Green: Can you talk about why these sorts of fairly mature markets like the UK and Switzerland where you also have a big stake, are actually surprisingly attractive hunting grounds for investors like you?

[01:13:24] John Spears: Well, a number of them, a number of those stocks just are plain cheap on the [01:13:30] statistics. And I mean, there’s a company sky in the ball bearings business that we’ve been, we’ve bought some shares of, and insiders have been buying it with their own money.

[01:13:40] John Spears: And I don’t know, stocks really cheap on the numbers. So it’s just again, it’s the shopping aisle idea and bargains, the typical bargain that we’re buying new, fresh today, rather than a company like Heineken or Diagio that we’re, we’ve been holding, but they’re not, they’re undervalued. If somebody bought the company in an acquisition, but they’re not super, super undervalued, and the owner earnings yield, you know, if you own a stock at 20 times earnings and then they pay, the company paid out a hundred percent of the earnings, you get a 5% return.

[01:14:16] John Spears: It’s not your 10% return that you’re looking for, but you probably get, get some growth in addition, growth in the value of the business. So on a total return basis, you do okay. But again the most recent buys would be things that are typically quantitatively cheaper and, in many instances, recently have had this insider purchase signal. So they’re attractive to us.

[01:14:39] William Green: And you’re not really making top-down calls, big macro calls. You are just finding stuff that’s cheap.

[01:14:44] John Spears: We’re finding stuff that’s cheap. We’re not, we may, if you ask privately different individuals on the investment committee their opinions about some of these things.

[01:14:54] John Spears: They’re undoubtedly, we would be different ideas or different nuances. But the [01:15:00] overriding ideas still just to buy bargains throughout the world. So it happens that commercially. Our international fund serves a purpose by being concentrated in that. Now, I personally, I’m in the International fund.

[01:15:15] John Spears: It’s one of my largest mutual fund Tweedy Mutual Fund Holdings, but I also own individual US Securities and a fairly large position in the Tweedy, Browne Value Fund, which is a global fund, but in the international fund it’s 90% non-US securities. I’m not sure whether that answers the question.

[01:15:34] William Green: China also obviously is a particularly interesting case and it’s striking that you don’t have a huge investment in China. But on the other hand, you own these stocks, like at least the last time I checked from the third quarter, you had Alibaba, Tencent, Baidu, a lot of so, so trio of these companies that have been hit by the government’s, very heavy handed regulation and the slowing economy and all these fears about geopolitical conflict.

[01:16:01] William Green: And I, you know, I have a vested interest here because after talking to Charlie Munger and Lou Simpson, who I know you were friends with about Alibaba, I bought Alibaba and I’m down 60% so far. But I’m curious how you think about these companies and how you consider all of the people who are saying no, China now is reinvest.

[01:16:21] John Spears: It’s a great question. Now, I don’t own Alibaba. I did own one. I own a few Chinese stocks myself. But I think it would be better if you asked one of [01:16:30] my partners about that.

[01:16:31] John Spears: They could clearly, in terms of the analysts following those companies, they see them on the numbers as being very cheap and still major businesses with growth prospects in China. But you know, you’ve got to, you do have a very good question with Mr. Z and his most recent pronouncements, and the way China seems to be tilting.

[01:16:56] William Green: In my recent interview with Tom Russo, he just said, look, this goes on the two hard piles. And he said I was wrong about Alibaba. It’s, it may do well, but it was just too hard.

[01:17:06] William Green: And he just said I should have listened to Buffett when he said, you don’t need to. Jump over high hurdles.

[01:17:11] John Spears: I think there’s some wisdom in that. I mean, I always, for myself, when I have a choice of buying something or not, my framework is comparisons and let’s say I find something, I don’t know, like Tesco, I own Tesco personally in my own account, and there’ve been insider buying in it.

[01:17:28] John Spears: It seemed pretty low price, earnings ratio, pretty good dividend yield. They own a lot of their own stores in fee. They’re not all leased stores, so there’s a value in the real estate. I felt very comfortable with that. I’m less comfortable personally with the tech companies that, that the dictator of China seems to be going after. I mean, comparison, do I have to buy in my own account? Alibaba? I don’t have to do that.

[01:17:55] John Spears: I can buy doll old Tesco. Now, which one will do better? I don’t know. I [01:18:00] don’t know. Obviously, the firm thinks that these companies are worth holding and they do value. Low valuations are part and parcel to behavioral aspects to people feeling negative about things.

[01:18:12] John Spears: So it could these stocks could be great. It would be arrogant and obnoxious of me to say that they won’t be great, that they’re, you know? So, I don’t know. I do own a few shares of a company in China, Haitian group, which-

[01:18:27] William Green: And that’s another one where there was insider buying. I remember you saying-

[01:18:30] John Spears: Plastic molding equipment and stuff. Yeah. And that was CEO buying and I think that’s, A little bit more of a business that might be off the radar as a business that the Chinese Communist Party wants to attack. Yeah. Yeah. So I don’t know. I don’t know. But it’s interesting because comparisons, comparison always compare.

[01:18:51] William Green: Yeah. And you’re also setting yourself up to do well on average over time with a portfolio of stuff that’s cheap. So you don’t need everything to work out. You just need on average to be right over time.

[01:19:03] John Spears: Exactly. The way I think of it is, as on a group basis, you on a number of these things, you’ll do okay, you’ll make money, you’ll have a satisfactory return, you’ll sleep at night. You’ll have an inherent theoretical, see through to the business versus the stock price margin of safety.

[01:19:20] William Green: It’s a more grown up and realistic way of investing than, you know, rolling the dice on Chinese tech stocks and growth companies with, [01:19:30] you know, no profits and cryptocurrencies that aren’t backed by more than air. It’s like a little bit more realistic and subdued and less intoxicating.

[01:19:40] John Spears: Well, William, I hope you’re right.

[01:19:42] William Green: Hey, yeah me too. I wanted to switch direction a little, and it struck me years ago when I spent the day with you and again today, that I always had the impression rightly or wrongly, that you were happier than a lot of the very successful ambassador I’ve encountered over the years. And you had a kind of glow about you, and I’m, you know, look this podcast in my book are called Richard Wiser, happier, and I wanted to get a sense from you when you look back of what’s contributed to you having a pretty happy life, like what’s actually. What have been the most important factors for you?

[01:20:17] John Spears: Well, I don’t know anything about comparative happiness every once an individual Yeah. You don’t, you know, you don’t know their happy day to sad day ratios and stuff, but I think I’m, I am pretty happy most of the time. And I think that I’m, I count my blessings.

[01:20:34] John Spears: I’m grateful for my good fortune. I’m grateful to have the luck of having great business partners. I was reluctant to do this interview because I don’t, I think that-

[01:20:45] William Green: Most people feel that way about interviews with me. John, you’re a good company.

[01:20:48] John Spears: Okay. Anyway, you’re a great interviewer.

[01:20:51] William Green: Oh, thank you.

[01:20:51] John Spears: But I think the spotlight should be on the whole firm. The firm is a team. I’m just one wheel on the bicycle, on the [01:21:00] tricycle or the car and the employees, and, you know, these others. It’s all these things have contributed to my luck and a good fortune in life. I’m very grateful for that.

[01:21:11] John Spears: I’m very grateful for being able to work in a field that. Intellectually stimulating to me enjoyable. I read the newspapers, I read the New York Times, wall Street Journal. Occasionally I read The Financial Times. Not every day, like a number of people in my firm, but they’re always things that were, they’re just so interesting, the things that Are quirky and defy, you know, things that you didn’t think would happen that did happen.

[01:21:38] John Spears: And so there’s a sense of humor about reading or irony about reading the newspaper surprise things that you know, what’s happened to Facebook in terms of the relationship to Apple and changes in their growth rates. And you, this guy going into, you know, stream world, the meta world.

[01:21:56] William Green: Yeah. The metaverse. Yeah. So, you know, yeah. Elon Musk going to Twitter and screwing it up so massively. It’s riveting to what?

[01:22:04] John Spears: It’s riveting. It’s so interesting though. So there’s a great fun in reading the newspaper with an economic orientation, a philosophical orientation, though.

[01:22:15] John Spears: That’s a blessing. I think that if I’d been married to a woman who was an enormous spender, you know, just wanted to buy the fanciest car or this or that, that. It would’ve been a very tense relationship. It wouldn’t have worked. My, my wife is [01:22:30] very content with, we’ve always felt wealthy, always, because we’ve always lived below our means.

[01:22:35] John Spears: And when we were young, we, we ate in cheap cheaper restaurants. And now we spend more, but we have more than we can spend. So I think having a partner who’s supportive of your work is a blessing.

[01:22:51] William Green: And you’ve been married almost 50 years, right?

[01:22:54] John Spears: Almost. Yeah. Yeah. Right. The next June 2nd will be the 50th. And she put up with me.

[01:23:01] William Green: That’s an amazing thing.

[01:23:02] John Spears: I mean, in a way, I’m not the best kind of a husband because I have been a fairly hard worker, I mean, know through enjoyment or maybe obsessiveness. I’ve enjoyed the, I’ve enjoyed the work, so I will often do things on the weekend that are work oriented and business-oriented reading and stuff.

[01:23:19] John Spears: So I don’t have as many diverse interests as a lot of human beings. And I think, you know, that’s not necessarily a positive in every, in a marriage, you know, quality time.

[01:23:30] William Green: You strike me as someone who’s always been profoundly captivated by this game, even though you liked the money and you like watching your money grow, like there’s a certain there’s a certain joy in watching the money compound for you. Yes. I don’t think you were ever really, at a certain point, it seems to me like you loved the game more than actually getting rich. Is that fair to say?

[01:23:52] John Spears: I think that’s fair to say. Yeah. You know, what’s another so many millions and, you know, you reach a point where [01:24:00] it really is, you’re just acclimated and interested in the game and the process.

[01:24:04] John Spears: I think where I am now personally, I do have a real, like of the people at Tweedy, Browne. I’m not as large a shareholder in Tweedy as I used to be, but it’s, I’ve still got something. It’s not an enormous part of my wealth, but I still have some skin in the game, but I really like the people and the business has not had a great last few years because of the younger performance of the value style.

[01:24:28] John Spears: Even though our largest pool of capital has done extremely well compared to other international investment managers. But the absolute returns have, as we both know, have not set the world on fire compared to. Competitive returns such as an index funds that where the fees are much lower than our fees.

[01:24:49] John Spears: But anyway, I’d like to see the firm continue for another many decades. Yeah. 102 years.

[01:24:55] John Spears: Yeah. Like I’d like to, I think Brown Brothers Harriman has 200-year history. Wouldn’t it be nice if Tweedy could have that and continue doing sensible things with other people’s money? So like the, to the firm to be an in ETFs?

[01:25:10] John Spears: I think the firm should be in ETFs. We’re exploring that. ETFs have great, under current tax rules, have great tax advantages for tax paying investors. I think that makes sense. It’s serving. Our clients, our tax paying clients who are like me and Will Brown and Tom Schrager and [01:25:30] Bob Wykoff and other people in the firm are obviously we’re tax paying investors.

[01:25:34] John Spears: So it’s again, this community of interest. So I’d like that and we’re exploring other things having to do with the insider signal as a very good pond to fish in.

[01:25:46] William Green: Yeah. The insider buying. The other thing that struck me very much about you, when I was thinking about various reasons why you seem happier than most great investors, to me, it seems to me you structured your life in a way that really suited you where you would be telecommuting decades before it was.

[01:26:03] William Green: In fashion before the rest of us became remote workers. And so you were dividing your time between your home in Florida and New Jersey, and then you were building a home in Pennsylvania, and then to be near your grandson. And then, you know, you had the office in Sanford, Connecticut. And that strikes me as a really important part of a successful life that you are living in a way that suits you as a little bit of an independent self-learning machine who likes a bit of space. Like, is that fair to say that you structured your life in a way that’s worked for you?

[01:26:33] John Spears: Yes. Yes. I think that is fair to say. You hit it on the right, on the head, right on the nail. Yeah. I think that I, that’s one, I mean, I like working in a quiet room, working at things that interest me. I have other interests that have come with having some wealth.

[01:26:48] John Spears: I’ve got some philanthropic interests that, provide a little diversity.

[01:26:53] William Green: You were very involved with charter schools last time we spoke.

[01:26:58] John Spears: That’s one of my favorites. I’ve always [01:27:00] thought that they, well, I, the charter schools that I’ve been involved with have been in Trenton, New Jersey, which is a very poor area. Most of the people are either African Americans or people of Hispanic descent. And New jersey has report cards. Were all the public schools and charter schools, so you can see what percentage of the students are proficient in math and reading. And in Trenton, the public-school results are absolutely atrocious.

[01:27:28] John Spears: Five, you know, like schools were, 5% of the kids were proficient in math or 10% proficient in reading, just abysmal. And the amount of spending per pupil at those schools is among the highest in the country. And typically right now, I think it’s around 24, 20 5,000 per student. And the results stink. But I’ve invested in three different charter schools.

[01:27:55] John Spears: The last one, most recent one, has been a great Success Foundation Academy Charter School. And you know, it’s when all schools in New Jersey, all public schools and charter schools are ranked on educational results, educational outcomes for the student’s academic results. It’s in the top 8%, 90, 92% are lower academically than this school.

[01:28:17] John Spears: And all the kids are selected through lottery. And I just feel I’m getting a good bang for the buck supporting this school. Helping kids. Really, all the seniors last four or five years [01:28:30] have been admitted to some college, some further education. So I help support that. I feel very good about that.

[01:28:36] William Green: It’s a great social return on investment.

[01:28:38] John Spears: It’s a great social return on investment. I’ve been blessed with an oddball education, but a good one, an efficient one for what I wanted to do. But I think it’s just a rip-off that these kids are not getting a good education in the public schools.

[01:28:52] John Spears: And in a way there’s a political aspect to it. And also the teacher’s union. Yeah, there’s a huge contributor to Democratic party politicians that negotiate wage agreements, contracts with the teacher’s union. And anyway, that’s just what it is. That’s politics in New Jersey.

[01:29:11] William Green: Yeah, I think everywhere my son Henry teaches in a charter school in New York City, that’s part of the network that Joe Greenblatt’s set up. And so I think about this a lot.

[01:29:20] John Spears: Oh, is that right now? [Crosstalk] it’s now Success Academy, not The Success Academy. That’s where Henry, oh, Eva. Eva Moskovitz. Yeah.

[01:29:26] William Green: Exactly. Exactly.

[01:29:28] John Spears: Wonderful work. Yeah. My God.

[01:29:30] William Green: It’s an amazing, I mean, I look at someone like Henry.

[01:29:32] John Spears: Good for your son.

[01:29:33] William Green: Well, thanks. I mean, I’m a proud father of a kid who, you know, I paid for four years of his Columbia education and then he goes to become a teacher and I couldn’t be happier with the investment.

[01:29:42] William Green: I mean, I think there’s a wonderful thing. Yeah. Those kids are blessing. Lucky to have someone like that teaching.

[01:29:47] John Spears: But I’m, well, thank him. Thank him for me, for his service to our society.

[01:29:51] William Green: Thank you. I’m a very, I’m a very biased father, but-

[01:29:54] John Spears: She’d be very proud.

[01:29:55] William Green: Thank you. I, they could behave terribly, and I’d still be very proud of.

[01:29:59] John Spears: [01:30:00] Yep, Unconditional love.

[01:30:01] William Green: Exactly. Speaking of unconditional love, Quaker has obviously been a really important part of your life, and I, last time we met, we chatted about this and you had talked about how I think your wife had introduced you when you were probably in your late twenties or early thirties to correct the Quaker Church.

[01:30:18] William Green: And I was reading last night a little bit of faith and practice. The book that you said had really kind of had a huge impact on you early on, and I was struck. It said, recognition that God’s light is in every person helps us to overcome our apparent separation and differences from others. It leads to a sympathetic awareness of their needs and a sense of responsibility towards.

[01:30:40] William Green: And I wonder if you could talk about how some of these ideas that you drew from Quaker have enriched your life and kind of been a really important guide to you on how to behave towards others, how to behave as a money manager, how to behave as a husband or father, because it’s obviously been a really essential part of your life and thinking about how to live.

[01:31:01] John Spears: I’m really impressed with that. You read that? That’s so interesting. It has had a big influence. I mean, the idea of that, of God in every person we’re all children of God. That idea is very appealing to me. And it’s, it sets up a way of trying to live your life, of trying to behave with other people, of trying to think of people as equal under God and not necessarily as a people who have equal [01:31:30] outcomes in life or any of that, but just a kind of a common humanity.

[01:31:34] John Spears: So I think that it has helped me in trying to deal with other people would hopefully deal be an okay partner with my partners to sometimes disagree. But with respect and with humility that my opinion could be way wrong. you know, I don’t have any perfect track record, any of that kind of thing.

[01:31:57] John Spears: Trying to live with in one’s family with those ideas. Yeah. And also the Quakers, the Religious Society of Friends is both communitarian and at the same time, individualistic, the founder of Quaker is George Fox would say to his followers, what can thou say? Meaning, what can you say as a human being, as an individual, as a unique creature, one of one of God’s children?

[01:32:26] John Spears: What can you say? Meaning sort of speak your truth. Be honest. Try to be honest and truthful and try not to fake it. If you’re faking it, you’re he called it your mask. It’s you want to be, try to be honest. Oh, that’s something that has had an impact on me. I’m no perfect person, but these Quaker sayings and mottos I think have been very useful to me.

[01:32:53] William Green: When we were having lunch a few years ago I was looking at my notes again over the last couple of days from our luncheon farm meeting at your house, [01:33:00] and we were talking about this subject. And one thing that you said that really struck me at the time is you were talking about forgiveness as well, and you said, yeah, trying to forgive yourself to realize you are not perfect.

[01:33:10] William Green: And that was really striking to me because I sort of, for me, I tend to be fairly self-flagellating and I’m, I’ve always struck by all of the many ways in which I’m failing to live up to the values that I espouse. Can you talk a bit about that idea of forgiveness and self-forgiveness?

[01:33:27] John Spears: Well, I’ve always liked the idea of imperfection oh, good. And I just think that humility under God that none of us are perfect creatures. I often, when my wife or somebody does some dumb little thing, I’ll say, well, you’ll be perfect in that next 12 months. 12 months rather you’ll finally be perfect. And I think that attitude applies to oneself.

[01:33:52] John Spears: I mean, you try to do the best you can, but kind of a recognition almost of God’s grace of kind of your count your blessings. Look at the, try to look at the glass half full, but don’t whip yourself too hard when you make a mistake or you’re not perfect, or you say something that was stupid or dumb and you regret saying it, try to get over it. Move on.

[01:34:15] William Green: There’s a beautiful story, I think of some old zen monk that I’m no doubt gobbling who said something like last year, a foolish old man this year, no change. And I always love that, right? Because yeah.

[01:34:29] John Spears: Right and there’s [01:34:30] another one somebody said, God laughed, and you can laugh a lot at all the things that have to do with human behavior, human nature, all. If you approach looking at the newspaper with a sense of humor.

[01:34:43] William Green: I remember Tom Gayner, who grew up Quaker actually.

[01:34:46] John Spears: Oh, did he?

[01:34:47] William Green: Yeah.

[01:34:47] John Spears: The guy at Markle?

[01:34:49] William Green: Yeah, exactly. He a yeah, sure. Wonderful guy. And actually he, like your wife, I think ended up becoming Episcopalian, if I remember correctly. But it’s deep, deeply influenced by Quaker. He once was talking to me about, you know, how deeply flawed humans are, and he said something about human foibles and flaws and then just chuckled up roly.

[01:35:08] William Green: And there was something kind of lovely about it that he wasn’t appalled and disgusted by how flawed we were. He was kind of amused. There was a sort of gentle, a gentle awareness of our-

[01:35:19] John Spears: Right. A sort of an ironic chuckling of yeah. The humor in life.

[01:35:23] William Green: I feel like I take things too seriously. So I was, I think I was struck when you said that about trying to forgive yourself and to realize you’re not perfect. So that helped me. So thank you.

[01:35:32] John Spears: Well, I think it’s rational too. It’s rational. We, I mean it. It’s just plain. True. Yeah.

[01:35:38] William Green: Yeah. I also really liked when I was reading about Quaker last night, and also looking back on my notes from our earlier conversation, this idea that you are connecting to the light within, in this very direct unmediated way, so you don’t need a priest, a rabbi, a monk, a bishop, or whatever.

[01:35:57] William Green: It’s you trying to connect to this kind of [01:36:00] transcendent part of yourself, and I thought there was something kind of lovely about that. Can you say something about that, because it seems very distinctive, this idea that there’s something in us that you don’t need mediated by an authority, by a, by an institution.

[01:36:15] John Spears: Indeed. I mean, I remember the first time I ever attended a Quaker meeting for worship, just by struck by that, by the equality of it, that there was no, no minister, there was no, this is the way you have to do it. This is our checklist. This is, we have all the answers. There was none of that. And it was an idea of, I call it direct dial to God without a priest or a minister.

[01:36:43] John Spears: And I just, I liked that idea, and I liked the idea of sitting in silence. And sometimes someone will speak and have, you’ll just be moved by it. A remarkable feeling. And I remember, maybe it was Warren Buffett, said one time that you really don’t need to get a PhD in theology. You can do pretty well with the 10 Commandments.

[01:37:07] John Spears: And reading the Sermon on the Mount, you know, that people throughout time, or, I mean not everyone, but a lot of people have had a spiritual sense a sense of things. It could be a sense of awe about beauty, about natural beauty or a great conversation that you had with someone or all kinds of things.

[01:37:27] John Spears: You can have a connection that is [01:37:30] remarkable and uplifting with someone at the cash register at the supermarket or with a someone who’s server at a restaurant. I just, I don’t know, it’s just kind of a but I’ve often had experiences in, in meeting for worship that for me have been very moving. And I and strange. Kind of like, where did that come from? Or what’s going on here?

[01:37:51] William Green: Yeah. I have that a lot when I was younger. I mean, I’ve got, I’ve done a sort of grand tour of all of the spiritual positions, so I was a relatively conservative Jew as a kid going to synagogue. because I had to.

[01:38:03] William Green: Then I became kind of agnostic. Then I became atheistic, and then I became increasingly spiritual when I hit 40 and it became a much more important part of my life over the past 14 years.

[01:38:13] William Green: So you know that I’ve been wrong over the years because I’ve had every position, but I think one of the things that appeals to me is the sense of mystery.

[01:38:21] William Green: The sense that there’s just stuff we can’t really fathom and absolutely. Yeah. And that to me is kind of beautiful. But it goes in a way-

[01:38:29] John Spears: It’s awesome. It is awesome. Yeah.

[01:38:32] William Green: Yeah. The sense of deep mystery that there are things, you can’t understand why certain things happen, but there’s, I don’t know. I wonder about this sometimes because when I started to interview great investors, very seriously for my last book, Richard Wiser, happier, I had this kind of prejudice that I assumed that most of them would be so super rational that they wouldn’t have very serious spiritual.

[01:38:53] William Green: And I was surprised to find how many of them really did. And it’s a I don’t know if I’m articulating this well, but it seems, there seems like a [01:39:00] paradox here, right? That in some ways the investing world, it’s such a rational game, it’s so empirical, and yet there’s this other thing where you just have to say, yeah, I just don’t know.

[01:39:09] William Green: There’s something so mysterious that I can’t fathom it. Do you think about this?

[01:39:14] John Spears: Yes. Yes. And I think you know, working as a, as an investor, you’re dealing with thinking about things that could, might happen in the future, obviously is not knowable. It’s guessable, but it’s not knowable. So you have sort of a framework of faith and anticipation of rational anticipation, of surprise, of things that are, that can turn out quite unpredictably, quite unlike what you thought in earlier.

[01:39:41] John Spears: So there’s kind of a mystery and awe in that. And I think that there is or is not, depending on the person, this sort of leap of faith or you can say, well, why not have some faith? Why not?

[01:39:56] John Spears: You could be wrong. But I think that for many of us human beings it’s useful, it’s healthy, and for many of us, and it’s certainly seeming for you, it’s natural.

[01:40:08] John Spears: It’s, you come into a place of naturally being willing to have a bit of a spiritual sense in your life and not just saying, well, I, I can’t prove it though. I’m, you know, but I respect that too.

[01:40:22] William Green: Yeah. And for me don’t know, there’s a, I remember studying pragmatic philosophy a bit after Bill Miller turned me onto these people like William James. [01:40:30] [01:40:30] William Green: And they had this idea that, well, they would talk about ideas as being like forks and knives. You know, they have utility. And so they would say, it’s not like these things are empirically provable in many cases. I’m no doubt distorting what they say, but it’s directionally correct as Tom Gainer would say.

[01:40:45] William Green: And so you can choose your own idea depending on whether it’s helpful to you. And it seems to me that the idea of thinking that we live in this very mysterious world where we don’t really understand that much, but there’s something really beautiful that’s bigger than us, that’s a pretty good idea. And having trust that things are going to work out in some way, and that it’s a, I would’ve rolled my eyes at this in the past.

[01:41:09] William Green: When I first interviewed Sir John Templeton, 20 something years ago, I found his faith really irritating.

[01:41:16] John Spears: Oh, you did? Oh, you did. I’ve loved his books.

[01:41:18] William Green: Yeah. No, it drove me crazy back then. And then a few years ago when I was reading one of his books, I just, I blushed and I was like, oh my God. That was what he was trying to teach me all those years ago, and I was too stupid and too arrogant to listen to him.

[01:41:31] William Green: And so, I don’t know. I just think it’s a useful, it makes you happier and is useful to believe that you live in this kind of benevolent world where there is a kind of order and if you behave in a certain way, Things are likelier to turn out well than if you behave badly. And I don’t know whether any of this is I mean, I remember talking to Ed Thorpe about his views on religion and he said, no data and, yeah, there’s no data.

[01:41:57] William Green: But on the other hand, I think it kind of a lot of these [01:42:00] beliefs and principles they work, and I like the fact that, from what I’ve read of the Quaker movement, that it’s not institutionalized. It’s more your personal experience of how these things apply in your life.

[01:42:11] John Spears: I don’t know if that indeed makes sense.

[01:42:12] John Spears: Indeed. It’s a, it is described as an experiential religion without a creed. Very nice.

[01:42:18] William Green: So is there any

[01:42:19] John Spears: final, I would say that I would say the current creed of a lot of people is climate change.

[01:42:23] William Green: Yeah. I think that was one of the things that Tom Gayner said to me is that it became increasingly politic.

[01:42:29] William Green: And I think that was one of the things he struggled with. And I remember reading something that you had Oh, me too. Me too.

[01:42:34] John Spears: Yeah. How about that? Interesting. Yeah.

[01:42:36] William Green: Well, you had written something about it was a sort of autobiographical sketch that you’d given to someone within the Quaker church that was reading yesterday and you talked about how part of this political movement, in a way was an alienation with the business world in this sense that the commerce was somehow bad, or Tory and I immoral, right? Yeah.

[01:42:56] John Spears: Yeah.

[01:42:56] William Green: Can you just talk about that, because I think that’s such an important idea, right? This hostility towards business in capitalism, which I think gets reinforced by all of these shows like Succession and Billions or reading the papers and seeing the FTX scandal, there’s a sense that business and capitalism have become kind of corrupted, and my sense is that your view is very,

[01:43:17] John Spears: Extremely different in my estate planning.

[01:43:20] John Spears: I think my largest other than my family, my largest recipient will be if I die tomorrow. American Enterprise Institute. I believe [01:43:30] that strongly in the good that capitalism does. I mean, obviously it employs people. It’s creative, new products, new innovations, improvements on what had been before.

[01:43:42] John Spears: That benefit all of society. And I’ve always had that idea of the of a sort of a smile on the face of capitalism, of the moral rightness in general, of capitalism. Of course there are a lot of, there are crooks in business there, but I just think that’s a truth and that you can, most businesses I think are honestly run.

[01:44:04] John Spears: If they’re not, they lose their employees. They lose their customers. There are constraints on the behavior. Of businesses that I think are good. So I just don’t understand that that anti-business aspect of current Quaker society, at least on the East coast of the United States as I perceive it.

[01:44:23] William Green: Well, and not just Quaker society, there’s a huge and well, it’s everywhere this sense.

[01:44:27] William Green: I think that the and it’s not helped by things like the FTX scandal, this sense that if, you know, when people are talking about, if Sam Bankman-Fried was talking about taking his wealth and giving away billions, and then you’re like, well, actually it was sort of stolen money. I mean, who knows what really happened?

[01:44:41] William Green: We’ll find out more in the coming months. But it doesn’t, it gives you a sense that there’s a lot of hypocrisy and greed and so I, I don’t know, I like the fact that when I look at your approach of having made money in a kind of prudent, fairly frugal way, trying to do a decent responsible job liking your colleagues, that seems to [01:45:00] me a better way to do capitalism. And it’s not, the capitalism is good or bad necessarily. It’s like there’s a better way to do it.

[01:45:07] John Spears: I think that capitalism in general has as I just said, has a very positive Yeah. Effect on society itself. I mean, you know, bill Gates is going to give away most of his fortune, but I think his, the Microsoft products are enormously useful. You know, I use Excel all the time and we’re in some of these things. So I just think that’s true. I think that there’s a perception by many in society that allocation of re more and more resources to the government is morally the way to go. And there are nice things about safety net welfare programs.

[01:45:45] John Spears: And I support a safety net in society. But I think that from my standpoint, if you have a shifting gradually of more and more resources from the more creative and more efficient and dynamic private sector to the government sector with aspects of inefficiency, a politicization, bureaucracy, et cetera, and no, no real incentives to be more efficient, that it’s a, it’s kind of bad long run for society.

[01:46:14] John Spears: And that’s a very big philosophical view, but it’s one that that I happen to hold, and I can be all wrong. Two of my three daughters don’t agree with me. I mean, they’re not in my political camp.

[01:46:25] William Green: But yeah, I’m sort of agnostic about politics in general. But I do think this sort of [01:46:30] knee-jerk sense that capitalism is kind of Tory and vulgar and selfish, is it underestimates the degree to which we rely on companies to do incredible, innovative, dynamic things.

[01:46:43] William Green: Absolutely. Yeah. Is there any last word you’d like to leave us with before I finally let you go, John?

[01:46:48] John Spears: Well, sure. I would say that William Green is an excellent interviewer. Was probing questions that make you make one think. And I’ve appreciated the opportunity to have this interview with you. To know you. I felt that way also when we met, I guess seven years ago.

[01:47:08] William Green: Thank you. Yeah, It was a memorably enjoyable day for me, and I came away thinking not only, oh, he’s a really good guy and a really good investor, but it struck me that your kind of joyfulness and I, there’s a beautiful photo of you in the Great Minds of investing, which my friend Michael O’Brien took, and I remember showing it to my daughter, and she said she must have been about 14, well probably 15 at the time.

[01:47:30] William Green: And she said he’s a happy guy, and said it was nice as a kind of, you have a kind of a raised eyebrow and there’s a kind of-

[01:47:37] John Spears: And, well, I know I need an eyebrow lift after my cornea transplant.

[01:47:43] William Green: But I liked it. And I think, you know, I’ve had several people ask me questions in the last couple of years about whether you can be a hugely successful investor and have a good family life and, you know, have some degree of balance and the like, and you know-

[01:47:56] William Green: Tom Gayer, Nick Sleep, and a few other great investors I’ve interviewed gave me a sense it’s, no, it’s possible not to leave a trail of destruction and but actually to have a happy and somewhat balanced life. Although I do think you’ve still got to be kind of maniacal to be really extraordinary at anything,

[01:48:13] John Spears: I think, yeah, I think having focus and obsessiveness probably is a long-run edge.

[01:48:19] William Green: Yeah. I think it’s hard to avoid that.

[01:48:21] John Spears: Yeah. Chuck the disability of obsessiveness is a gift. Maybe.

[01:48:27] William Green: I think the fact that you profoundly love this work and this research, it’s such a strong advantage. Like you’re, you are not you know, you’re never tired of it.

[01:48:35] William Green: Right. It just is inherently interesting, the actual game. It’s a huge edge. John, I’ll let you go. Thank you so much. It’s been such a delight chatting with you and I hope to do it way before seven- or eight-years elapses again, we have to do it more often.

[01:48:50] John Spears: God willing.

[01:48:51] William Green: Absolutely. I’ll second that.

[01:48:53] John Spears: Alright. Thank you.

[01:48:54] William Green: Take care, lovely to see you.

[01:48:55] John Spears: Have a great day.

[01:48:55] William Green: Thanks so much. Bye.

[01:48:58] William Green: All right, folks. Thanks so much for joining me for this conversation with John Spears. I’ll be back very soon with some fantastic guests, including a great investor named Fred Martin, whom I wrote about at length in my book.

[01:49:10] William Green: After that, I’ve got interviews lined up with an array of great investors, including Ray Dalio, Guy Spier, and Tom Gayner. In the meantime, I really wanted to take this opportunity to thank all of you who listened to the podcast over the last year. My very first podcast episode was published back on January 1st, 2022.

[01:49:32] William Green: That was a conversation that I had with Ray Dalio when I was a guest host on the We Study Billionaires Podcast. A couple of months later in March 2022, I launched the Richer, Wiser, Happier Podcast, which also airs on the feed of We Study Billionaires. Initially, I thought that I’d maybe do 6 or possibly 12 episodes of the podcast, but it’s been such an enjoyable journey that I’ve never stopped, and I now hope to keep going more or less indefinitely.

[01:50:01] William Green: One reason why I so enjoyed hosting the podcast is that I love having these in-depth conversations with fascinating guests, but what’s also made this experience deeply rewarding is that I’ve received so much warm and enthusiastic feedback from you, the listeners. So thank you truly for making this such a life-enriching adventure.

[01:50:23] William Green: I’d also really like to thank my partners, Stig Brodersen and Preston Pysh, who co-founded The Investor’s Podcast Network about eight years ago and have built it into what it is today. They’re not only great entrepreneurs and excellent podcast hosts, but exceptionally kind and decent people, and I’m just very lucky to have met them and to count them as my friends and partners.

[01:50:46] William Green: Thanks also to my fellow podcast host Clay Finck, who traveled to New York to help set up my equipment a year ago and to answer all of my foolish questions about technology. Finally, I really want to give a huge vote of thanks to the wonderful team in the Philippines that works tremendously hard behind the scenes to edit and produce these podcasts and to make everything possible.

[01:51:08] William Green: This includes Bianca, Cyril, Camille, Ana, Jedidiah, Learich, Noelle, and Kristine. I’m really grateful for all of your hard work and heroic patience in dealing with me while I try to figure out the world of podcasting. In any case, thanks again to all of you for listening, and I wish you a very happy and healthy holiday season.

[01:51:29] William Green: I look forward to being with you again very soon in the new year. Until then, take care and stay well.

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