Reblog: Seth Klarman: Investing Requires A Degree Of Arrogance Tempered With The Humility Of Knowing We Could Be Wrong


Several years ago Jason Zweig did a great interview with Seth Klarman titled – Opportunities for Patient Investors, which was published by the CFA Institute. While the entire interview provides a number of value investing insights, one answer, in particular, provides a unique insight into Klarman’s psychology towards investing saying:

“In investing, whenever you act, you are effectively saying, I know more than the market. I am going to buy when everybody else is selling. I am going to sell when everybody else is buying. That is arrogant, and we always need to temper it with the humility of knowing we could be wrong—that things can change—and acknowledging that we have a lot of smart competitors.”

Here is an excerpt from that interview:

Zweig: In a Forbes article in the summer of 1932, Benjamin Graham wrote, “Those with enterprise haven’t the money, and those with money haven’t the enterprise, to buy stocks when they are cheap.” Could you talk a little bit about courage? You make it sound easy. You have great clients and great partners. Was it easy to step up and buy in the fourth quarter of 2008 and the first quarter of 2009?

Klarman: You may be sceptical of my answer, but, yes, it was easy. It is critical for an investor to understand that securities aren’t what most people think they are. They aren’t pieces of paper that trade, blips on a screen up and down, ticker tapes that you follow on CNBC.

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Reblog: Walter Schloss: What Kind Of Stocks Do We Look At For Investment


In 1993 Walter Schloss gave a great presentation called – Upper Level Seminar In Value Investing, at the Columbia Business School. Schloss’ notes for the presentation included a number of timeless investing lessons including the kinds of stocks he looks at for investment, how to scale into an investment, and how to manage a stock portfolio.

Here is an excerpt from the presentation:

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Reblog: Morningstar: Value Investing: Patience Will Be Rewarded


Here’s a great article from Morningstar which discusses the importance of patience as a value investor. One of the key takeaways is:

“However, by anchoring investment decisions to value, we can navigate challenging circumstances and look through market noise and emotion to identify and take advantage of opportunities that may present in times of market stress. This often sees our views as contrarian to others in the market.”

Here’s an excerpt from the article:

It is difficult to know how long it will take for an attractively priced asset to appreciate towards its fair value, long-term investors must be prepared to wait.

Value investing has a prominent place in our investment process and is backed up by a vast body of empirical evidence that supports this approach to investing.

Perhaps it can be best described through illustration in the diagram below:

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Reblog: Bruce Berkowitz – Our Successful Three Step Approach To Value Investing


One of our favorite investors here at The Acquirer’s Multiple is Bruce Berkowitz. He is the Founder and Chief Investment Officer of Fairholme Capital Management, and President and a Director of Fairholme Funds. In 2010 Berkowitz was named as the 2009 Domestic-Stock Fund Manager of the Year by Morningstar as well as the Domestic-Stock Fund Manager of the Decade (2000-2009), also by Morningstar. Most recently, he was named 2013’s Money Manager of the Year by Institutional Investor Magazine.

Here’s an excerpt from an interview with Berkowitz in which he succinctly lays out his three-step approach to value investing, including the example of Bank of America:

At Fairholme, we’re very focused on price. Price matters most to us. And we think that price determines much of the success you’re gonna have in the future. So rather than predict what’s going to happen with the company we try to price it correctly with a large margin of safety. So pricing with a significant margin of safety is very important in our rule number one of not losing.

Once we determine what a cheap price is, our next step is to look at the investment and the underlying company and stress test it to determine all the ways that business can go wrong, the environment can go wrong, the balance sheet can go wrong. Try to kill the company.

If we can’t kill the company and we’re buying it at a price that reflects near death we may be onto something very good.

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Reblog: Shelby Cullom Davis & The Wisdom of Great Investors


One of the best papers ever written on investing is The Wisdom of Great Investors, provided by Davis Advisors.

Davis Advisors was founded by legendary investor Shelby Cullom Davis, a leading financial advisor to governors and presidents, who parlayed an initial investment of $100,000 in the late 1940s into more than $800 million by the end of his career in the early 1990s. In 1969, Shelby Cullom Davis’s son, Shelby M.C. Davis, founded Davis Advisors after serving as the head of equity research at The Bank of New York.

Shelby Cullom Davis famously said:

“You make most of your money in a bear market, you just don’t realize it at the time.”

This timeless paper is a great reminder that wherever we are in the history of investing it is crucial that we don’t forget the painful lessons from investors of the past. Here are the most important takeaways from the paper:

Overview

It is important to understand that periods of market uncertainty can create wealth-building opportunities for the patient, diligent, long-term investor. Taking advantage of these opportunities, however, requires the willingness to embrace and incorporate the wisdom and insight offered in these pages. History has taught us that investors who have adopted this mindset have met with great success.

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