Seth Klarman

  • 13 Jun
    Margin Of Safety – Seth Klarman’s 10 Rules For Investing Success

    Margin Of Safety – Seth Klarman’s 10 Rules For Investing Success

    • After summarizing Seth Klarman’s book, I thought added value could be created by listing his most important investing rules.
    • Some rules are easy to understand and apply, while some go against what the majority thinks. Think averaging down.
    • Klarman achieved returns of over 20% for more than 35 years. Therefore, it’s extremely important to learn and listen when he says something as he doesn’t speak much.

    Introduction

    We have completed the chapter by chapter summary of Seth Klarman’s book, Margin of Safety. Click here to view all of these articles on the Investiv Daily website.

    As I find Klarman’s investment style so powerful and yet so simple, I thought it would be a good idea to conclude the summary of his book with 10 of his investment rules. You may want to bookmark today’s article to compare future investment ideas and opportunities against Klarman’s view on investing. More →

  • 02 Jun
    Should You Follow What Hedge Fund Managers Are Doing?

    Should You Follow What Hedge Fund Managers Are Doing?

    • I’ll describe in detail how you can follow hedge fund managers.
    • It’s very important to understand the risk reward profile of the fund manager.
    • Following allows us to find great investment ideas, but there are also big traps.

    Introduction

    Every fund has to disclose its portfolio to the SEC quarterly in a 13F form which allows us to track hedge fund managers’ portfolios. It’s easy to track what George Soros, David Tepper, Seth Klarman, Dan Loeb, Carl Icahn, David Einhorn, Bill Ackman, Warren Buffett, and many, many other interesting investment stars have been doing. The data is usually disclosed 45 days after the end of the quarter, but nevertheless shows what these guys have been doing.

    When you see the research power all those funds use, you might think it’s an excellent free lunch. Well, it could be, but there are a few things to be careful of. More →

  • 23 May
    Portfolio Management & Trading – The Value Investing Way

    Portfolio Management & Trading – The Value Investing Way

    • A value investor should trade when a better bargain present itself.
    • Liquidity is a key component of an investment and of a portfolio.
    • Klarman’s advice is to stay in touch with the market to find opportunities, average down, and hold ten to fifteen stocks max for proper diversification.

    Introduction

    We’ll continue with the analysis of Seth Klarman’s book Margin of Safety. Today we’ll discuss chapter 13, Portfolio Management and Trading. More →

  • 17 May
    Hunting For Bargains? Look For These Special Situations

    Hunting For Bargains? Look For These Special Situations

    • Apart from finding bargain investments, understanding the catalysts that will unlock value is even more important.
    • Complex securities, risk arbitrage, liquidations, and spinoffs are bargain hunting territory for the value investor.

    Introduction

    Today, we’ll look at Chapter 10 of Seth Klarman’s seminal work on value investing, Margin of Safety. Chapter 10 digs deeper into value investing and discusses complex situations.

    We would all love to just run a screen, find a few cheap stocks to buy, and then wait a year or two to enjoy triple digit returns. However, as the book value of the S&P 500 is just a third of its market value, value investors are in a difficult position and therefore are forced to look for bargains in all kinds of places, dig deeper, and comprehend complex situations.

    Unfortunately, if a value investment is simple to analyze, it’s also an obvious thing for other investors which limits the discount and potential returns. This leads value investors to do research into areas such as corporate liquidations, complex securities, risk arbitrage, and spinoffs. More →

  • 09 May
    Investment Research: The Challenge of Finding Attractive Investments

    Investment Research: The Challenge of Finding Attractive Investments

    • Bargains can be found through book value, special situations, 52 week lows, merger arbitrages, bankruptcies, etc.
    • It’s necessary to be a contrarian to be a value investor, though it might be painful for a while.
    • With experience, it will take less and less time to assess a stock and whether it has the potential to be a good investment.

    Introduction

    Last week we discussed Klarman’s view on the best business valuation methods. You can find the article here. Today we’ll discuss his approach to investment research.

    Studying fairly priced securities won’t get you far because you’re competing with thousands of others who have researched those companies and, especially in the current market environment, if there is anything worth owning, it will probably be expensive. Therefore, to find bargain investments, an investor has to look where others aren’t looking or refuse to look. More →

  • 02 May
    The Art Of Business Valuation – Three Valuable Valuation Methods

    The Art Of Business Valuation – Three Valuable Valuation Methods

    • Don’t expect precision from business valuation, but accuracy helps a lot.
    • Calculating net present values, liquidation values, and stock market values are the best methods to use according to Klarman.

    Introduction

    Today, we’re really digging into the essence of Seth Klarman’s book Margin of Safety.

    Some think the market, being efficient, will tell you the exact value of a business, but history has shown that in the short term it often happens that the market values businesses extremely irrationally, either on the upside or on the downside. Knowing how to properly value a business gives an investor the perfect investing edge as it allows them to disregard what the market thinks and turn that into their own advantage by exploiting market mispricings.

    Let’s see what Klarman has to say about business valuation by going through chapter 8 of his book. More →

  • 25 Apr
    Klarman’s View On Risk & Return

    Klarman’s View On Risk & Return

    • It’s essential to focus on risk, whether you are a trader, dividend investor, or value investor.
    • One of the biggest investment fallacies is that risk and return are positively correlated.
    • The market is inefficient because of extreme liquidity provided by central banks, passive investments, and share repurchases.
    • Volatility is low, but this doesn’t mean risks are low.
    • Klarman provides a simple and powerful definition of risk.
    • If you can’t tolerate price volatility, you shouldn’t invest in stocks. Own T-bills instead.
    • A declining stock price should increase your returns.

    Introduction

    Today I’ll continue summing up Klarman’s iconic investing book Margin of Safety.

    Every time I reread the book, I’m more astonished by the wisdom it contains. I hope to transfer as much value as possible to you as the book is extremely difficult to get (lowest price on Amazon is $1,000). Today’s topic is from Chapter 7, The Nature of Risk. More →

  • 17 Apr
    Forget About The Market & Focus On Absolute Performance

    Forget About The Market & Focus On Absolute Performance

    • Would you instantly sign up for a 15% yearly return for the next 10 years with inflation at 2%? The answer is probably yes.
    • Would you feel the same joy if the market could do 20% per year over the next ten years? Even if the answer is irrational, that is how we as humans are wired.
    • Chasing market performance is a self-reinforcing cycle that slowly builds up, but it takes less than two years for the house of cards to crash completely.

    Introduction

    Today I’ll continue with my analysis of the investing concepts discussed in Seth Klarman’s book Margin of Safety. Today’s topic is relative and absolute performance. More →

  • 10 Apr
    Are You A Top Down Or Bottom Up Investor?

    Are You A Top Down Or Bottom Up Investor?

    • It’s best to use a bottom up and not a top down approach to investing if you want to lower your risk and increase your returns.
    • A value investor doesn’t like risk and invests with a huge margin of safety, is patient, happy to stay in cash if there are no bargains, constantly looks at balance sheets, and buys the present. Positive future developments in a business are just a bonus.

    Introduction

    We’ve covered more than half of Seth Klarman’s book Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor. I’ve received amazing feedback on the series and hope you will be satisfied with the summary and comment on the second half of the book. You can read the previous articles on the topic here. More →

  • 13 Mar
    Value Investing: The Importance of a Margin of Safety

    Value Investing: The Importance of a Margin of Safety

    • A margin of safety and value investing aren’t so attractive in rising markets, but become essential in declining markets.
    • The lower the price, the higher the margin of safety, no matter what the market thinks. Klarman usually buys more in such occasions.
    • Algorithms and numbers don’t make great investors. Discipline, patience, and judgement do.

    Introduction

    We have finally arrived at the core of Seth Klarman’s book Margin of Safety, i.e. Value Investing and the Margin of Safety.

    “Value investing is the discipline of buying securities at a significant discount from their current underlying values and holding them until more of their value is realized.” Klarman

    The essence of value investing is finding a bargain, i.e. buying a dollar for much less than one hundred pennies. When a bargain is found—and they can be very difficult to find, especially in a market like the one we’re in now—the next step is to determine the margin of safety, or the discount the price offers in relation to the undiscovered value. The bigger the discount, the better. More →

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