Seth Klarman

  • “By the time the uncertainty is resolved, prices are likely to have risen. Investors frequently benefit from making investment decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty”
  • “Since security prices reflect investors’ perception of reality and not necessarily reality itself, overvaluation may persist for a long time”
  • “If the behaviour of institutional investors weren’t so horrifying, it might actually be humorous…The prevalent mentality is consensus, groupthink. Acting with the crowd ensures an acceptable mediocrity; acting independently runs the risk of unacceptable underperformance
  • “Investors must try to understand the institutional investment mentality for two reasons. First, institutions dominate financial market trading; investors who are ignorant of institutional behavior are likely to be periodically trampled. Second, ample investment opportunities may exist in the securities that are excluded from consideration by most institutional investors. Picking through the crumbs left by the investment elephants can be rewarding”
  • “My view is that an investor is better off knowing a lot about a few investments than knowing only a little about each of a great many holdings. One’s very best ideas are likely to generate higher returns for a given level of risk than one’s hundredth or thousandth best idea”
  • “Hedges can be expensive to buy and time-consuming to maintain, and overpaying for a hedge is as poor an idea as overpaying for an investment”
    • “When the cost is reasonable, however, a hedging strategy may allow investors to take advantage of an opportunity that otherwise would be excessively risky. In the best of all worlds, an investment that has valuable hedging properties may also be an attractive investment on its own merits”
  • Value investing is at its core the marriage of a contrarian streak and a calculator. The strategy of buying what’s in favour is a fool’s errand, ensuring long-term under-performance. Only by standing against the prevailing winds — selectively, but resolutely — can an investor prosper over time.
  • When investors worry about what a client will think rather than what they themselves think, the process is bad.
  • (Investing) necessitates dealing with imperfect information — knowing you will never know everything and that that must not prevent you from acting.
  • It requires a precarious balance between conviction, steadfastness in the face of adversity, and doubt — keeping in mind the possibility that you could be wrong.
  • When people start to give something away at a ridiculous price because they have to, not because they want to, that’s a good time to buy.
  • And in the financial markets, I’ve always been — and I think all investors should be — worried about that: that there are so many smart people out there, that this room is filled with plenty of capable competitors, and that the markets are thus also filled with them.
  • It is much harder psychologically to be unsure than to be sure; certainty builds confidence, and confidence reinforces certainty. Yet being overly certain in an uncertain, protean, and ultimately unknowable world is hazardous for investors.
  • In a world in which most investors appear interested in figuring out how to make money every second and chase the idea du jour, there’s also something validating about the message that it’s okay to do nothing and wait for opportunities to present themselves or to pay off. That’s lonely and contrary a lot of the time, but reminding yourself that that’s what it takes is quite helpful.
  • One way of dealing with information being more available is to stop playing the game and seek out securities or asset classes where there’s less information or competition.
  • As Graham, Dodd and Buffett have all said, you should always remember that you don’t have to swing at every pitch. You can wait for opportunities that fit your criteria and if you don’t find them, patiently wait. Deciding not to panic is still a decision.
  • We make no heroic assumptions in our analysis, hoping, instead, that by compounding multiple conservative assumptions, we will create such a substantial margin of safety that a lot can go wrong without impairing our capital much or even at all
  • I’ve felt a sort of serenity in knowing that if I’ve checked and rechecked my work, one plus one still equals two regardless of where a stock trades right after I buy it.
  • But because investing is, in many ways, a zero-sum activity in which your returns above the market indices are derived from the mistakes, overreactions or inattention of others as much as from your own clever insights, there is a second element in designing a sound investment approach: you must consider the competitive landscape and the behavior of other market participants. As in football, you are well-advised to take advantage of what your opponents give you: if they are defending the run, passing is probably your best option, even if you have a star running back. If scores of other investors are rigidly committed to fast-growing technology stocks, your brilliant tech analyst may not be able to help you outperform. If your competitors are not paying attention to, or indeed are dumping, Greek equities or U.S. housing debt, these asset classes may be worth your attention, regardless of the currently poor fundamentals that are driving others’ decisions. Where to best apply your focus and skills depends partially on where others are applying theirs.