Seth Klarman is the CEO and President of Baupost Group.
From an early age, it was evident that Klarman had an interest in business and the stock market. From small entrepreneurial ventures like paper routes and snow cone stands to even giving his 5th grade class a presentation on how to buy stocks, Klarman clearly had an eagerness to become an investor.
After attending undergrad at Cornell University and graduating from Harvard Business School, one of Klarman's professors asked him to manage money on behalf of him and some partners. So in 1982, Seth Klarman started Baupost Group with $27 million in startup capital.
Over the subsequent 4 decades, Klarman made a name for himself by employing a traditional value investing approach across all sorts of different asset classes. While Baupost's returns aren't made available to the public, it has been reported that Klarman generated ~20% annual returns for more than 30 years!
Today, Baupost is home to $25 billion in assets under management which makes it one of the top 20 largest hedge funds globally.
While Klarman is often recognized for his impressive investment track-record (and deservedly so), he is also the author of one of the rarest books in the world on investing, Margin of Safety. In Margin of Safety, Klarman details the principles and guidelines he uses to identify great value investments, and a first edition copy of the book can cost as much as $10,000!
Fortunately, we’ve combed through dozens of Klarman’s speeches over the years and curated some of the most valuable advice he’s given investors.
Here are 8 investing lessons from one of the greatest hedge fund managers alive:
Lesson 1: Don’t Chase the Hottest Thing
"People who chase growth, who chase highfliers, inevitably lose because they paid a premium price. They lose to the people who have more patience and more discipline."
Lesson 2: Find Forced Sellers
"My experience is that when people want to give something away at a ridiculous price because they have to, not because they want to, that's a good time to buy."
Lesson 3: It doesn’t matter what price you paid
"After you buy something you paid for, it doesn't matter. People cling to the idea that at least they should get their money back; maybe there is bad news, and you should sell before it goes lower; maybe put it into something else where you get your money back, but people prefer to make it back where they lost it."
Lesson 4: Embrace Imprecision
"No matter how much research is performed, some information always remains elusive…Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices."
Lesson 5: Being Contrarian Isn’t Comfortable
"It is always easiest to run with the herd; at times, it can take a deep reservoir of courage and conviction to stand apart from it. Yet distancing yourself from the crowd is an essential component of long-term investment success."
Lesson 6: It’s a marathon, not a sprint.
"Warren Buffett never tried to make the most money. He never tried to get rich quickly. He tried to get rich slow, and I feel like that’s what value investing is; it's a philosophy that stays away from the hot flashy trendy investments and focuses more on never losing big."
Lesson 7: Margin of safety protects against uncertainty
"A margin of safety is necessary because valuation is an imprecise art, the future is unpredictable, and investors are human and do make mistakes. It is adherence to the concept of a margin of safety that best distinguishes value investors from all others, who are not as concerned about loss.”
Lesson 8: Good investing is more about temperament than economics
"Investing is the intersection of economics and psychology. The analysis is actually the easy part. The economics, the valuation of the business isn't that hard. The psychology - how much do you buy, do you buy it at this price, do you wait for a lower price, what do you do when it looks like the world might end - those things are harder.”