In this article we present the list of Warren Buffett Disciple Guy Spier’s 10 High Conviction Stock Picks.
Guy Spier’s Aquamarine Capital Management is a Zurich, Switzerland-based investment manager that employs the same long-term oriented, value investment approach as Warren Buffett, who Mr. Spier proudly considers himself a disciple of.
Spier earned a degree in philosophy, politics, and economics from Oxford University in 1988 and followed that up with an MBA from Harvard Business School. Foollowing that, he spent several years working as a researcher and investor on Wall Street, including stints at Braxton Associates and Buffett’s Berkshire Hathaway, the latter of which inspired him to launch his own value investing fund in 1997.
Spier is noteworthy in the investment world for his $650,100 lunch (alongside Mohnish Pabrai) with Warren Buffett in 2007, which was purchased through a charity auction. Spier took several important lessons from that meeting, including the necessity of saying no, and ultimately wrote a book about his takeaways from that lunch and his broader investment journey entitled ‘The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment’.
Mr. Spier makes all of his firm’s investment decisions himself and is an even more ardent value investor than Buffett, holding on to many of his positions for several years without touching them. In the second quarter the fund added two small new positions to its 13F portfolio while otherwise leaving the rest of it untouched. Its 13F portfolio held $263 million worth of assets on June 30, 74% of which were invested in finance stocks.
Aquamarine’s total return stands at 874% since inception through the end of 2023, or 9% annually, outperforming the S&P 500’s 717% returns during that period. Spier’s fund hasn’t been as successful in recent years however. It returned 18.7% last year, which underperformed the market, the sixth-straight year it’s failed to top the market. 2000, 2002, and 2006 were three of the fund’s strongest years, as it beat the market by more than 20%.
In this article we’ll take a look at Guy Spier’s ten high conviction stock picks, all of which were left untouched during the second quarter of 2024.
Our Methodology
The following data is gathered from Aquamarine Capital Management’s latest 13F filing with the SEC for the reporting period of June 30, 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here). That’s why you should pay close attention to this important indicator.
Note: All hedge fund data is based on the exclusive group of 900+ active funds tracked by Insider Monkey that filed 13Fs for the Q1 2024 reporting period.
Warren Buffett Disciple Guy Spier’s 10 High Conviction Stock Picks
10. Alphabet Inc. (NASDAQ:GOOGL)
Value of Aquamarine Capital Management’s 13F Position (6/30/2024): $2.91 million (GOOGL)
Number of Hedge Fund Shareholders (3/31/2024): 222 (GOOGL), 165 (GOOG)
Alphabet Inc. (NASDAQ:GOOGL) is first up among Guy Spier’s high conviction stock picks, with his fund owning an even 16,000 of the tech giant’s class A shares. Aquamarine Capital bought the majority of its Alphabet stake in the fourth quarter of 2022 and has left it alone ever since. Alphabet is the most popular stock among hedge funds as well as a popular pick for other value investors like Donald Yacktman, whose firm owns 3.53 million class C shares as of June 30.
Alphabet Inc. (NASDAQ:GOOGL)’s latest quarterly results were solid, with revenue growing by 14% year-over-year to $84.7 billion, nearly 60% of which was courtesy search advertising. Operating margin rose 300 basis points to 32%, driving increased profitability (EPS rose to $1.89 from $1.44) even as Alphabet’s capital expenditures nearly doubled to $13.2 billion during the quarter. The company is investing heavily in AI to try and stave off competitors like the AI-powered search engine SearchGPT, which threatens to jeopardize Google’s highly lucrative monopoly over the search engine space.
Patient Capital Opportunity Equity Strategy believes that Alphabet Inc. (NASDAQ:GOOGL)’s aforementioned investents in AI are being underappreciated by the market, as the fund shared in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
9. Alibaba Group Holding Limited (NYSE:BABA)
Value of Aquamarine Capital Management’s 13F Position (6/30/2024): $3.42 million
Number of Hedge Fund Shareholders (3/31/2024): 103
Aquamarine Capital has held the same 47,500-share position in Alibaba Group Holding Limited (NYSE:BABA) since the second quarter of 2021, when it first added BABA to its 13F portfolio. That stake was valued at $10.8 million at that time, which has since fallen to just $3.42 million, showcasing the stock’s extremely poor performance over the past three years. Other hedge funds have steadily bailed on Alibaba during that time, with smart money ownership of the Chinese e-commerce behemoth down by 33.5% since the middle of 2021.
Alibaba Group Holding Limited (NYSE:BABA) appears to have weathered the worst of the storm that resulted from the antitrust crackdown it faced in 2021, which contributed to revenue slumping to just 2% growth during the company’s fiscal 2023. That figure rebounded to 8% growth in fiscal 2024 with the same expected for fiscal 2025. Alibaba’s EPS is expected to surge by 34% year-over-year in fiscal 2025 thanks to the company’s steadily growing operating margin, which has topped 13% each of the last four quarters.
O’keefe Stevens Advisory laid out some of the risks facing facing Alibaba Group Holding Limited (NYSE:BABA) in its Q2 2024 investor letter, but believes the stock is very cheap despite them, saying:
“We initiated two new positions during the quarter: Alibaba Group Holding Limited (NYSE:BABA) and Perrigo (PRGO). Both have seen their stocks decline over 70%+ from their all-time highs.
Alibaba is the largest e-commerce player in China, with 40% gross merchandise volume (GMV) market share through its Taobao and T-mall businesses. While the cloud computing business is relatively small, its 37% market share in China positions it well to capitalize on the increasing demand for AI-related products. In the most recent quarter, AI-related cloud revenue recorded triple-digit growth y/y, with the expectation that total cloud revenue will accelerate to double-digit growth in 2H 2025.
It’s rare to find a dominant market share business with significant tailwinds trading for ~10x adj. EPS. After accounting for their ~$60B net cash balance sheet, the stock is trading at 6-7x, which, we believe, is far too cheap. We understand this business would not trade at this price if it were a U.S. business. However, the valuation gap at a high single-digit P/E is pricing in a combination of the following risks – 1. China invading Taiwan. 2. Cash can never leave mainland China (disproven). 3. Increasing competition from Pinduoduo and Shien resulting in market share loss 4. China’s geopolitical tensions worsen. 5. Economic slowdown stemming from the recent housing market downturn. 6. VIE structure creates doubt over the actual ownership of the business. All risks have merit, with cash distribution restrictions at the lower end due to the recently announced dividend and special dividend. Cash returned to shareholders totaled $16.5B in FY24, up from $13.4B in FY23…” (Click here to read the full text)