Reblog: Seth Klarman: Mainstream Investing Has It Backwards


Some years ago Seth Klarman gave a fantastic speech at the MIT Sloan Investment Management Club. During his speech Klarman suggested that the mainstream approach to investing has is backwards saying:

“Right at the core, the mainstream has it backwards. Warren Buffett often quips that the first rule of investing is to not lose money, and the second rule is to not forget the first rule. Yet few investors approach the world with such a strict standard of risk avoidance. For 25 years, my firm has strived to not lose money—successfully for 24 of those 25 years—and, by investing cautiously and not losing, ample returns have been generated. Had we strived to generate high returns, I am certain that we would have allowed excessive risk into the portfolio—and with risk comes losses.”

He went on to discuss how you can successfully exploit opportunities by remaining calm, cautious and focused in the manic world of investing. Here is an excerpt from that speech:

As the father of value investing, Benjamin Graham, advised in 1934, smart investors look to the market not as a guide for what to do but as a creator of opportunity. The excessive exuberance and panic of others generate mispricings that can be exploited by those who are able to keep their wits about them.

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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: What Investors Need to Know About Investing in Low PE Stocks


Man and woman in business attire happily looking at computer screen
Value investing starts with low PE stocks, but it shouldn’t be an investor’s only financial metric.

What do Warren Buffett, Ben Graham, Seth Klarman, and Peter Lynch all have in common? Besides being wildly successful investors, they’re all are adherents to value investing, a method where one attempts to buy securities that have a higher intrinsic value than their current price.

One of the most basic forms of value investing is to find stocks with low price-to-earnings (PE) ratios. The PE ratio is a simple ratio that divides the current price per share of a company by the earnings per share over the trailing-12-month period. The logic behind buying low PE stocks is simple: As an investor, you are ultimately entitled to a pro-rata portion of company earnings, so paying the lowest cost, or multiple, for those earnings is preferable than paying a higher multiple. Essentially, your dollar is buying a larger portion of company earnings than it would with a high-multiple stock.


Reblog: How to Act in a Bear Market: Part 2


Last time, I wrote an article discussing a valuable piece of advice from Seth Klarman (Trades, Portfolio) on how to act in falling markets.

The key message of the article was that in a bear market, the best strategy to follow is to continue as you always have. As Klarman notes, “Controlling your process is absolutely crucial to long-term investment success in any market environment.” The last thing you should do is try to time the market:

“While it is always tempting to try to time the market and wait for the bottom to be reached (as if it would be obvious when it arrived), such a strategy has proven over the years to be deeply flawed…the price recovery from a bottom can be very swift. Therefore, an investor should put money to work amidst the throes of a bear market, appreciating that things will likely get worse before they get better.”

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Reblog: Seth Klarman: How to Act in a Bear Market


In today’s market, after nearly a decade of low volatility and steadily rising stock prices, it is easy to forget the turmoil that gripped the stock market, and the world, in 2008-09.

Even though a crash might seem a million miles away currently, you never know when the next decline might arrive, so it is always best to prepare for the worst. The best way to prepare is to read accounts of investors given at the time.

This will not give you answers as to when the next crash will arrive (all but impossible to predict), but it will provide a sort of template as to what goes on.

Learning from Klarman

One of the most fascinating accounts of investing during the crisis comes from Seth Klarman (Trades, Portfolio). In February 2009, Klarman wrote an article in Value Investor Insight titled, “The Value of Not Being Sure.” Within the article, he detailed how he was investing in the crisis and why he thinks fear is such a great motivator.

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Reblog: The Illusion Of Risk


When we find an attractive stock to invest in, we outlay money, aka invest, to earn an attractive return and the investment will involve a degree of risk.

One of the most dangerous, commonly accepted and ill thought out concepts in investing is the risk / return trade off.

That is: high returns equals high risk.

Unfortunately, Investopedia continues to spread this type dogma, as you can see by the graph below.

Illusion Of Risk

Volatility (standard deviation) is not risk!

The appropriate definition of risk is from the Oxford dictionary (or any other branded non-financial dictionary) as: Exposure (someone or something valued) to danger, harm, or loss.

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Reblog: Diversification Or Concentration? Quotes From Some Of The Best Investors


“There is one other rule you ought to keep in mind and that is to concentrate, and not only in the Zen sense. Sweet are the uses of diversity, but only if you want to end up in the middle of an average”  Adam Smith, the Money Game 1968

“Statistical analysis shows that security-specific risk is adequately diversified after 14 names in different industries, and the incremental benefit of each additional holding is negligible. We own 18-22 companies to allow us to be amply diversified but have the flexibility to overweight a name or own more than one business within an industry.” Mason Hawkins

“Empirical testing has proved beyond a reasonable doubt that the “riskiness” of a portfolio of 12-15 diverse companies is little greater than one loaded with a hundred or more” Frank Martin

“If you can identify six wonderful businesses, that is all the diversification you need. And you will make a lot of money. And I can guarantee that going into a seventh one instead of putting more money into your first one is gotta be a terrible mistake. Very few people have gotten rich on their seventh best idea. But a lot of people have gotten rich with their best idea. So I would say for anyone working with normal capital who really knows the businesses they have gone into, six is plenty, and I probably have half of what I like best. I don‘t diversify personally. ” Warren Buffett

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Reblog: Greatest Investors of All Time – How Did They Do It and What We Can Learn from Them


There are literally tens of millions of stock market and private investors today. The personal investing revolution has enabled anyone with a few hundred dollars to trade stocks. But we don’t have millions of great investors. Only a select few will ever be bestowed this title. So, how can you try to be one of them? You can emulate the people who were – or still are – the greatest. Below is our list of 8 of the greatest investors of all time; let us know in the comments below if you think we’ve missed out on any important names.

This list was compiled based on inputs from our members of Value Investing Clubs in UK, France, Belgium and Austria, and from our users at our FinTech company CityFALCON. Our focus at the Value Investing Clubs and CityFALCON remains on long-term fundamental investors who are looking to go through research to buy, hold and sell financial assets to generate strong higher than inflation returns.

Warren Buffett

We will just start off with the obvious case: Warren Buffett. Who doesn’t consider him one of the greatest, if not the greatest investor? Born just in time for the Depression (1930), Warren Buffett was born in Omaha, Nebraska, whence he eventually took his nickname “The Oracle of Omaha”.

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Reblog: The Benefits Of Productive Worrying – yes worrying can be good for you!!


Seth Klarman is one of the world’s most respected value investors, and when he speaks, it always pays to listen. Unfortunately, Klarman is relatively media-shy, his interviews over the years have been few and far between. You have to dig to find all of his prior media coverage.

This month’s copy of Value Investor Insight magazine pulls some Klarman wisdom out of the archives. The wisdom is taken from the pages of the value fund manager’s 2004 letter to investors of his industry-leading hedge fund, Baupost. Titled “productive worrying,” Klarman talks about one of the key traits every successful investor has and how the average investor can better their investing process by looking to the long-term and worry about the things that matter not the issues they have no influence over.

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