1. Aquamarine
Fund
Zurich March 12, 2013
Dear Partner
Investment Results
In 2012, Aquamarine Fund returned 27.8% net of all fees to investors, as compared to 16% for the S&P
Index. For those investors in were with me at the very beginning, each $1 that you originally invested into
Aquamarine Fund is now worth over $4. If you had invested in one of the indices, you would have
doubled your money. This amounts to a 4.8% annual outperformance over the S&P Index.
My results are reported to you net of all fees and expenses, and the numbers for the S&P include
dividends in order to make it an apples-to-apples comparison.
Choice of Index: S&P vs. MSCI
Over the last year, I received a number of questions asking why I compare my performance to the S&P in
these reports rather than the MSCI World Index which covers a more global basket of stocks.
The short answer is that I do not want to “index shop”, or even go anywhere near that slippery slope.
Comparison: Aquamarine Fund vs. S&P vs. MSCI
Total Return Annualized
Aquamarine Fund 298.5% 9.5%
MSCI World 39% 2.2%
S&P 98.3% 4.3%
As the above table shows, the MSCI World has underperformed the S&P and may well continue to do so.
If you are the creator of indices, there is not much demand from the fund management industry for indices
that outperform the current ones. But there are plenty of underperforming funds that would like a better
comparison, and the index creation industry is happy to oblige.
The S&P, along with the Dow Jones Industrial Average, is an index that has been prepared for more than
100 years and serves as a reliable indicator of investment market performance.
Assets Under Management, Subscriptions & Redemptions.
Subscriptions
In 2012 we received $3.47 million in new capital. Half of this was additional investments from existing
investors, and half was from five new partners. Each one of these new partners is an individual or a family
investing their own money and whom I know personally.
Redemptions
We received redemption requests for $2.69 million. Of those redemption requests, four were complete
withdrawals totaling $320,000. The balance was partial withdrawals by existing investors which
represented a minority of their overall investment.
It gives me satisfaction to see my partners meet life goals as a result of the appreciation of their holdings
in Aquamarine Fund.

2. Aquamarine
Fund
Assets Under Management
We ended 2012 with $118 million in assets. This is sufficient to run Aquamarine Fund comfortably, while
also giving plenty of trading flexibility. We have low portfolio turnover and therefore, are not encumbered
by difficulties in executing trades. I am confident that I will be able to continue to operate in this mode
until the assets reach $1 billion or more.
The most important thing to you is and should be your own investment return. I give you these numbers
because I would want to know them if I were in your shoes. It should give you a sense of how
Aquamarine Fund is doing as an enterprise and offer an insight into my state of mind.
Net New Capital
Subscriptions net of redemptions for 2012 were $0.78 million, which is a slowdown relative to 2011,
during which I received $3.9 million in net new capital.
I cannot give a definitive explanation for this other than that we are not immune to the animal spirits of the
market. During 2009 and 2010, the S&P Index was up 20%. Aquamarine Fund by contrast had an
outperformance of 40% having returned +60% over those two years.
In 2011 the S&P took a pause and Aquamarine Fund was slightly negative. This may well have
subconsciously dampened the ardor of some potential new partners.
Analysis of Positions Exited in the Last Year.
Japanese Basket of Ben Graham-style Net-Nets
A Ben Graham style net-net is a company that is trading for less than liquidation value. In 2010, my global
screens for these sorts types of net-nets were showing a very high proportion of Japanese small-caps. This
led me to some further thinking about Japan. Contrary to reports of imminent demise, it was clear to me
that Japan is still an economic powerhouse. It is still among a handful of countries that are able to borrow
in their own currency, and its deep interconnection with the global economy was very evident during the
slowdown in the automotive supply chain in the aftermath of the 2011 Tsunami.
Moreover, the Nikkei index of Japanese stocks, after having peaked in 1989 at close to 40,000 Yen, was
trading at less than a quarter of that value.
I started purchasing Japanese net-nets as a basket in March 2011, selecting companies that met the
following criteria:
1. Cash on the balance sheet, net of debt and all other liabilities, greater than the market
capitalization.
2. Ratio of market capitalization to after-tax earning power in the single digits.
I would argue that these criteria made the basket even better than a Ben Graham portfolio.
In total, through the end of the third quarter of 2011, I had purchased shares in thirteen individual
companies. Then I stopped purchasing Japanese net-nets because I was finding much better opportunities
elsewhere – where there was better value and a better catalyst.
With the same alternative opportunities available in mid-2012, I started selling the basket to raise more
cash for other purchases. By December 2012, I had substantially exited the basket.

3. Aquamarine
Fund
The returns on individual names in the basket range from -20% to +46% and the overall return including
dividends was approximately 16%. While this far exceeds the return available on risk-free assets, the
basket underperformed Aquamarine Fund over the same period. Indeed, had I not diverted new money
away from the Japanese basket, our return in 2012 would have been substantially lower than the 27.8%
result.
This is the first time that I have held a Ben Graham Geiger-counter to the market and ferretted out net-nets
with real money and I can report that it works as well in practice as in theory.
There are some limitations. The main one is that there seems to be a correlation between how well net-nets
work and the efficiency of the market for corporate control. The United States has the deepest and most
effective market for corporate control which makes it far less likely that ridiculously cheap stocks will sit
around for long. This means that when they are found, the return is likely to be good.
Japan is not that way and taking an activist position in the Japanese basket was never an option that I
considered: The market capitalizations were too small. Moreover, using legal and other threats on any
management team is not my style and would have gone profoundly against the grain of Japanese culture.
Here is another consideration. Constantly updating stock screens, seeking the cheapest stocks and then
getting trades executed across time zones creates a lot of “busy work”: Plenty of activity, and not much
insight. Given that I could not read the annual reports in their original language, I could not gain a deeper
understanding of specific companies and the knowledge gained is a sort of an investment-research dead-
end.
Harley Davidson and Heineken
Also sold during 2012 were positions in Harley Davidson and Heineken. The shares of both these
companies were purchased around seven years ago and although we doubled our money in them, the time
it took to get that double resulted in a relatively low rate of compounding.
Harley Davidson and Heineken are examples of GARP (growth at a reasonable price) investing. It is a lot
of fun to own shares of companies like these. For example, Heineken’s promotion of the James Bond film
Quantum of Solace, starring Olga Kurylenko, enabled me to put up slides of Kruylenko at my partnership
meetings as well as one of myself on a Harley Davidson motorcycle. Any investor – current or prospective
will tend to raise their eyebrows approvingly at the mention of such familiar brands. It creates a common
point of interest and discussion, which feels really good for all concerned.
Aquamarine Fund is, and should be about delivering investment returns, not about feeling good.
The checklist item that these investments violated is one that asks, “does making this investment result in
some non-monetary, or psychic gain which interferes with my ability to think clearly about the investment
return?”.
Omaha in Zurich
I hope that you are as gratified by these results as I am. They are a direct result of things that I have
learned since 2008:
Although it took me a long time to figure it out, I have a much better sense of where and how to invest. It
is not about simply picking the best company, but about picking the best bet given the odds. Howard
Marks would call this second level thinking, and as with many things investment related, it is easy to
describe but difficult to implement.

4. Aquamarine
Fund
Some things have made it easier. For starters, I no longer talk publicly about current ideas. This gives me
a lot more freedom to invest in my best ideas, rather than getting tangled up with the complex
considerations that arise from talking about them.
One element of this is clarifying the difference between fundraising and investing. Much of the activity
that we see in the investment world has little to do with good investment practice and a lot to do with
attracting attention and raising funds. I understand this far too well – because I have been there.
My focus for the last three years has been on creating the right environment for good idea generation and
then executing well on those ideas. While I still have plenty of improvements to make, I am confident that
I am moving in the right direction.
Many people of the value investing ilk have been nurtured on stories of Warren Buffett working out of his
bedroom and Walter Schloss out of a small room in the offices of Tweedy Browne next to Grand Central
Station. The image is one of a semi-recluse, reading through annual reports and placing a stock trade every
now and then by phone.
This is not the whole picture. Certainly all successful investors do an enormous amount of reading,
especially of original materials, throughout their lives. When they are not reading, successful investors
work on and tap into rich and deep social networks that they also use to source and evaluate investment
ideas in tandem with original source material.
Everyone builds on different networks. When he was younger, Warren Buffett made regular and
extensive trips to New York City as well as Washington D.C. where he met a very diverse group of
people. Then he would return to Omaha to think through the ideas that he had heard. These days, he has
less need for that sort of travel, and most of the valuable insights that cannot be gained through reading are
available to him through a phone call.
In a similar fashion, when I knew fewer people I had to do more on the ground scuttlebutt research. Now,
with a richer and denser network of relationships, much scuttlebutt can be replaced by conversations with
well placed and knowledgeable people.
While the right meetings and conversations cannot replace source material, they can save time and make
all the difference between getting the right insight or not. Thus, although my pace of travel has not slowed
down much since I moved to Zurich, it is much more productive. In New York City, I spent more time
traveling to potential investors. By contrast, much of my current travel is focused towards developing
relationships – both within and beyond the narrow world of investing – that have had a substantial impact
in my investment decision-making.
Lastly, I believe that creating this new environment has vastly increased my ability to leave the portfolio
alone and let time work its magic.
Current Investment Climate
Like a number of other economic observers, I am a little aghast at the implementation of Quantitative
Easing around the world, and the prospects for inflation. That said, I have twice had the opportunity to
meet with Stanley Fisher, Governor of the Bank of Israel, and former thesis advisor of Ben Barnanke.
Both times, I posed my fears of inflation to Fisher directly, and he was respectfully and thoughtfully
dismissive in the way that perhaps only central bankers can be. Fisher was very confident in the ability of
central banks to take liquidity out of the markets when growth restarts in earnest, and before inflation
takes hold.

5. Aquamarine
Fund
My strong sense of his personality is that he is extremely sober and has no interest in taking policy actions
that would favor his own popularity over the benefit of humanity.
As they say, expect the best and prepare for the worst. With this in mind, I hope that he is right. Even so,
all the investments I make take into account the likelihood of substantial inflation (mid to high single
digits) over the next decade.
I think that investors in so-called risk free assets – especially government bonds – will do absolutely
terribly over the next decade, and that equity investors will do better. People who pick inflation-proof
stocks will do best. I very much intend to be part of that group.
I think that I have often underestimated the impact that low cost natural resources had on the industrial
revolution of the 19th century. Similarly, I suspect that much of the investment world underestimates the
ways in which low cost natural gas and oil from shale will invigorate the American economy.
A big takeaway from reading Jared Diamond’s “Guns, Germs and Steel” is that geography really matters.
Asia’s size and shape – spanning similar latitudes East-West, in contrast to Africa and the Americas which
span North-South, probably made it inevitable that human civilization would develop in Asia. Similarly,
Britain’s unique geography as an island off the coast of Europe gave it huge advantages before and during
the colonial age. Looking forward, my sense is that the United States – with its vast spaces, abundant
land, water and natural resources; with coasts facing Europe and China; a single market and political
system; and now low cost energy – will make the 21st century an American century in spite of its manifest
problems as well as challenges from other regions.
This is not to say that the rest of the world is not worth looking at, but only to say that I am not trying to
be fair in my allocation of capital when it comes to geography. My goal is to deliver the highest rate of
compounding that I can, wherever that may be.
Original, Management Fee Paying Share Class to be Closed.
Right now – two share classes are available to investors.
Original Share Class
This charges the investors a 1% management fee and a 20% performance fee over a four percent hurdle. It
is redeemable after one year on 60 days notice.
Zero Management Fee Class
This share class replicates the Buffett partnerships. It charges zero management fees and 25% of the
profits above a 6% hurdle. It is redeemable only once every year on the anniversary of the original
investment, with 60 days notice.
It is a better deal for investors, a better alignment of our interests and an arrangement that I much prefer.
Not surprisingly, the percentage of investors who have this share class has gradually increased.
Year End in 0 & 25 % share class Percentage of Total Assets
2007 0%
2008 3%
2009 4%
2010 6%
2011 13%
2012 16%

6. Aquamarine
Fund
With this in mind, my plan is to stop accepting new investors into the old, fee paying share class at the end
of 2013, after which the only share class available to new investors will be the Buffett style share class.
CISA: Swiss Collective Investment Schemes Act
As I write this, Switzerland is in the midst of enacting major changes to its regulatory regime for asset
managers – a rubric that I fall under. The popular mood in Switzerland is that voters are stung and
ashamed by the various banking and financial scandals that have engulfed the Helvetic Confederation in
recent history. They demanded and received legislation that has taken Switzerland from having a light
touch when it comes to financial regulation to careful and stringent regulation.
FINMA, the industry regulatory body, is currently writing detailed rules that will implement this
legislation. The details are not yet finalized, but this heavy regulatory touch may be cumbersome to our
mode of operation.
We will have plenty of time (two years) to comply with the new regulations. It is possible that we will
have to fully register as an asset manager. Another option under consideration would be to close the fund
to new investors which would mean that in 2015, we would fully close Aquamarine Fund.
In the Event of my Death or Incapacitation
Various investors and prospective investors have asked what would happen in the event of my death or
incapacity – which is not well handled by the documents. Here is a statement of my policy that I will
implement over the coming months.
Upon my death or incapacity, Aquamarine Fund would immediately open for redemption to all investors
who no longer wish to remain invested with Aquamarine Fund without me. I have asked a deeply
respected friend and peer investor to oversee an orderly liquidation of the portfolio in order to meet those
redemptions and he has agreed to perform that role.
For those investors who wish to remain invested in the fund, that peer friend and investor would continue
to operate the fund and facilitate an orderly incorporation of the remaining investors into his funds.
I will be happy to have an in depth conversation with you about this if you choose.
Our Value Proposition
I continue to believe that Aquamarine Fund offers an extraordinary value to its investors.
• Low/No Management Fees.
It is not unheard of in the fund management industry for investors to be charged 2% or even 3-4%
of their assets for the privilege of having their assets managed by some bank employee. At
Aquamarine Fund, the maximum fixed fee that you would pay is 1%.
• “We eat our own cooking.’
The vast majority of my net worth is invested in Aquamarine Fund and I have no material
investments elsewhere. My success in life is entirely dependent on the success of this vehicle. It
is an example of “put all your eggs in one basket and watch the basket”.
• No leverage, No margin loans, No short positions, No complexity.
I want to earn you a return by purchasing part ownership in businesses. In the past, banks have
tried to entice me to engage in complex transactions and I had no trouble resisting. Businesses are
the wealth creation engines of society, not derivatives.

7. Aquamarine
Fund
2013 Annual Meetings
I plan to hold three annual meetings – in London, New York and Zurich as follows:
Monday, October 7th at the Carlton Club in London
Thursday, October 10th at Zunfthaus zur Zimmerleuten in Zurich
Tuesday, October 15th at the Harvard Club in New York
Please email either Orly Hindi ohindi@aquamarinefund.com or Lynda Brandt
lbrandt@aquamarinefund.com if you are interested to attend.
Thank You
Part of my learning over the past three years has been to discover that I have a phenomenal set of investors
so thank you for investing with me.
In connection with this most people who invest with Aquamarine Fund came referred to me by existing
investors such as yourself. If you know someone who you think would benefit from investing in
Aquamarine Fund, please don’t be shy.
Please feel free to call me about referrals, or anything else via phone on +41 44 210 1900 or
+1 212 716 1352 (yes, it rings in Zurich!) or via email at gspier@aquamarinefund.com.
With warm regards,
Guy Spier
Managing Partner