Seth Klarman is one of a few investors in history who compounded at 17% annualized over multiple decades.
His book “Margin of Safety“ sells for thousands of dollars.
Here are the key concepts of his Investment Philosophy👇🏼
His book “Margin of Safety“ sells for thousands of dollars.
Here are the key concepts of his Investment Philosophy👇🏼
1. Everything Comes to an End
The economy and markets move in cycles.
Every bull, as well as every bear market, eventually ends.
Klarman benefits from these cycles by loading up on his ideas in bear markets and selling in bull markets.
Patience is key here.
The economy and markets move in cycles.
Every bull, as well as every bear market, eventually ends.
Klarman benefits from these cycles by loading up on his ideas in bear markets and selling in bull markets.
Patience is key here.
2. Embrace Underperformance
In theory, buying in bear markets and selling in bull markets sounds easy.
The problem is that, in reality, these cycles aren’t as clear to see.
Also, these markets can go on for years.
Just look at the tremendous growth of the last decade.
In theory, buying in bear markets and selling in bull markets sounds easy.
The problem is that, in reality, these cycles aren’t as clear to see.
Also, these markets can go on for years.
Just look at the tremendous growth of the last decade.
In those times, investors like Klarman mostly underperform.
Few to no stocks fit his requirements.
So the goal is to go with the market in such times.
Klarman also holds cash very frequently.
This non-participation in the markets causes him to underperform.
Few to no stocks fit his requirements.
So the goal is to go with the market in such times.
Klarman also holds cash very frequently.
This non-participation in the markets causes him to underperform.
3. Timing the Market
What we just learned could be summarized as “timing the market.”
Something that is generally labeled impossible by many value investors.
However, it’s about the time horizon you look at when timing the market.
What we just learned could be summarized as “timing the market.”
Something that is generally labeled impossible by many value investors.
However, it’s about the time horizon you look at when timing the market.
Klarman, Howard Marks, and many others pay close attention to cycles and invest accordingly.
However, they care about long time horizons of many years or even decades.
Most investors try to time the market on a weekly basis.
That’s a sure way to underperformance.
However, they care about long time horizons of many years or even decades.
Most investors try to time the market on a weekly basis.
That’s a sure way to underperformance.
4. Value Traps
A big problem for value investors are so-called “Value Traps.”
Scenarios that look like a great investment opportunity but turn out to be the opposite.
Klarman uses catalysts to avoid these traps.
A big problem for value investors are so-called “Value Traps.”
Scenarios that look like a great investment opportunity but turn out to be the opposite.
Klarman uses catalysts to avoid these traps.
Catalysts are particular reasons for a company to get fairly valued again.
That way, investors have additional protection against the downside and a more precise thesis.
Which makes it easier to compare the thesis with reality and exit the investment if it doesn’t deliver.
That way, investors have additional protection against the downside and a more precise thesis.
Which makes it easier to compare the thesis with reality and exit the investment if it doesn’t deliver.
That’s it for today!
If you learned something new, please Retweet and Like this Thread so more get to see it.
If you want to learn more about investing, follow me @MnkeDaniel to see them.
Have a great day!
If you learned something new, please Retweet and Like this Thread so more get to see it.
If you want to learn more about investing, follow me @MnkeDaniel to see them.
Have a great day!
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