Seth Klarman Quotes

The way to maximize outcome is to focus on the process.

The government - the ultimate short-term-oriented player - cannot withstand much pain in the economy or the financial markets. Bailouts and rescues are likely to occur, though not with sufficient predictability for investors to comfortably take advantage. The government will take enormous risks in such interventions, especially if the expenses can be conveniently deferred to the future. Some of the price-tag is in the form of back- stops and guarantees, whose cost is almost impossible to determine.

You probably would not choose to dine at a restaurant whose chef always ate elsewhere. I do eat my own cooking, and I don't "dine out" when it comes to investing.

While knowing how to value businesses is essential for investment success, the first and perhaps most important step in the investment process is knowing where to look for opportunities

A tipping point is invisible, as we just saw in Greece. In most situations, everything appears fine until it's not fine, until, for example, no one shows up at a Treasury auction.

It sounds kind of crazy, but in times of turmoil in the market, I've felt a sort of serenity in knowing that I've checked and re-checked my work, one plus one still equals two regardless of where a stock trades right after I buy it.

It is crucial in a sound investment process to search a mile wide than a mile deep with they find something - also.. never stop digging for information.

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.

It's awful to have a depression, but it's a great thing to have a depression mentality because it means that we are not speculating, we are not living beyond our means, we don't quit our job to take a big risk because we know we might not get another job. There is something stable about a country, a society built on those values.

Be focused on process and not outcome

All investors must come to terms with the relentless continuity of the investment process.

Here's how to know if you have the makeup to be an investor. How would you handle the following situation? Let's say you own a Procter & Gamble in your portfolio and the stock price goes down by half. Do you like it better? If it falls in half, do you reinvest dividends? Do you take cash out of savings to buy more? If you have the confidence to do that, then you're an investor. If you don't, you're not an investor, you're a speculator, and you shouldn't be in the stock market in the first place.

Courage is a function of process.

There is an old saying, "How did you go bankrupt?" And the answer is, "Gradually, and then suddenly." The impending fiscal crisis in the United States will make its appearance in the same way.

Because investors are not usually penalized for adhering to conventional practices, doing so is the less professionally risky strategy, even though it virtually guarantees against superior performance.

I know of no long-time practitioner who regrets adhering to a value philosophy; few investors who embrace the fundamental principles ever abandon this investment approach for another

We work really hard never to get confused with what we know from what we think or hope or wish.

While it might seem that anyone can be a value investor, the essential characteristics of this type of investor-patience, discipline, and risk aversion-may well be genetically determined.

Warren Buffett likes to say that the first rule of investing is "Don't lose money," and the second rule is, "Never forget the first rule." I too believe that avoiding loss should be the primary goal of every investor. This does not mean that investors should never incur the risk of any loss at all. Rather "don't lose money" means that over several years an investment portfolio should not be exposed to appreciable loss of principal.

The overwhelming majority of people are comfortable with consensus, but successful investors tend to have a contrarian bent,

Value in relation to price, not price alone, must determine your investment decisions. If you look to Mr Market as a creator of investment opportunities (where price departs from underlying value), you have the makings of a value investor. If you insist on looking to Mr Market for investment guidance however, you are probably best advised to hire someone else to manage your money.

We are not so brazen as to believe that we can perfectly calibrate valuation; determining risk and return for any investment remains an art not an exact science

Having clients with a long-term orientation is crucial. Nothing else is as important to the success of an investment firm.

The risk of an investment is described by both the probability and the potential amount of loss. The risk of an investment-the probability of an adverse outcome-is partly inherent in its very nature. A dollar spent on biotechnology research is a riskier investment than a dollar used to purchase utility equipment. The former has both a greater probability of loss and a greater percentage of the investment at stake.

We continue to adhere to a common-sense view of risk - how much we can lose and the probability of losing it. While this perspective may seem over simplisticor even hopelessly outdated, we believe it provides a vital clarity about the true risks in investing.

There are only a few things investors can do to counteract risk: diversify adequately, hedge when appropriate, and invest with a margin of safety. It is a precisely because we do not and cannot know all the risks of an investment that we strive to invest at a discount. The bargain element helps to provide a cushion for when things go wrong.

When you buy bargains and they become better bargains, it is easy to start to question yourself, which can impair your judgement. Real or imagined concerns about client redemptions, employee defections can greatly influence behavior away from rational.

Be indifferent if you lose your short term clients, remember they are your own worst enemy

My view is that an investor is better off knowing a lot about a few investments than knowing a little about each of a great many holdings. One's very best idea's are likely to generate higher returns for a given level of risk than one's hundredth or thousandth best idea.

The trick of successful investors is to sell when they want to, not when they have to.

Individual and institutional investors alike frequently demonstrate an inability to make long-term investment decisions based on business fundamentals.

Unlike return, however, risk is no more quantifiable at the end of an investment that it was at its beginning. Risk simply cannot be described by a single number. Intuitively we understand that risk varies from investment to investment: a government bond is not as risky as the stock of a high-technology company. But investments do not provide information about their risks the way food packages provide nutritional data.

At the worst possible moment, when your fund is down because cheap things have gotten cheaper, you need to have capital, to have clients who will actually love the phone call and-most of the time, if not all the time-add, rather than subtract, capital.

If you can remember that stocks aren't pieces of paper that gyrate all the time
they are fractional interests in businesses
it all makes sense.

When a stock is selling at a discount to liquidation value per share, a near rock-bottom appraisal, it is frequently an attractive investment.

By investing at a discount, Benjamin Graham knew that he was unlikely to experience losses.

As value investors, our business is to buy bargains that financial market theory says do not exist. We've delivered great returns to our clients for a quarter century-a dollar invested at inception in our largest fund is now worth over 94 dollars, a 20% net compound return. We have achieved this not by incurring high risk as financial theory would suggest, but by deliberately avoiding or hedging the risks that we identified.

Costs and liabilities are rarely overstated.

Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.

As Buffett has often observed, value investing is not a concept that can be learned and gradually applied over time. It is either absorbed and adopted at once, or it is never truly learned.

You need to balance arrogance and humilitywhen you buy anything, it's an arrogant act. You are saying the markets are gyrating and somebody wants to sell this to me and I know more than everybody else so I am going to stand here and buy it. I am going to pay an 1/8th more than the next guy wants to pay and buy it. That's arrogant. And you need the humility to say 'but I might be wrong.' And you have to do that on everything

At Baupost, we constantly ask: 'What should we work on today?' We keep calling and talking. We keep gathering information. You never have perfect information. So you work, work and work. Sometimes we thumb through ValuLine. How you fill your inbox is very important.

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.

Generally, the greater the stigma or revulsion, the better the bargain.

Selling, in particular, can be a challenge; many investors are tempted to become more optimistic when a security is performing well. This temptation must be resisted; tax considerations aside, when a security reaches full valuation, there is no longer a reason to own it.

Short-term performance envy causes many of the shortcomings that lock most investors into a perpetual cycle of underachievement. Watch your competitors not out of jealousy but out of respect and focus your efforts not on replicating others' portfolios but on looking for opportunities where they are not. The only way for investors to significantly outperform is to periodically stand far apart from the crowd, something few are willing, or able, to do.

Great investments don't just knock on the door and say "buy me".

There are no long-term lessons - ever.

Investing is the intersection of economics and psychology.

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.

In a rising market, everyone makes money and a value philosophy is unnecessary. But because there is no certain way to predict what the market will do, one must follow a value philosophy at all times.

I think Buffett is a better investor than me because he has a better eye toward what makes a great business. And when I find a great business I'm happy to buy it and hold it. Most businesses don't look so great to me.

Always look for forced urgent selling.

We are big fans of fear, and in investing it is clearly better to be scared than sorry.

Most investors are primarily oriented toward return, how much they can make and pay little attention to risk, how much they can lose.

The latest trade of a security creates a dangerous illusion that its market price approximates its true value. This mirage is especially dangerous during periods of market exuberance. The concept of "private market value" as an anchor to the proper valuation of a business can also be greatly skewed during ebullient times and should always be considered with a healthy degree of skepticism.

The government can indefinitely control both short-term and long-term interest rates.

Flexible approach - will look at ALL asset classes.

Things that have never happened before are bound to occur with some regularity. You must always be prepared for the unexpected, including sudden, sharp downward swings in markets and the economy. Whatever adverse scenario you can contemplate, reality can be far worse.

Investment success cannot be captured in a mathematical equation or a computer program.

One thing I want to emphasize is that, like any human being, we can discuss our view of the economy and the market. Fortunately for our clients, we don't tend to operate based on the view. Our investment strategy is to invest bottom up, one stock at a time, based on price compared to value. And while we may have a macro view that things aren't very good right now - which in fact we feel very strongly we will put money to work regardless of that macro view if we find bargains. So tomorrow, if we found half a dozen bargains, we would invest all our cash.

Targeting investment returns leads investors to focus on potential upside rather on downside risk ... rather than targeting a desired rate of return, even an eminently reasonable one, investors should target risk.

The government can reasonably rely on debt ratings when it forms programs to lend money to buyers of otherwise unattractive debt instruments.

I think markets will never be efficient because of human nature.

One must understand the importance of an endless drive to get information and seek value.

Risk is not inherent in an investment; it is always relative to the price paid. Uncertainty is not the same as risk. Indeed, when great uncertainty - such as in the fall of 2008 - drives securities prices to especially low levels, they often become less risky investments.

There is no amount of bad news that the markets cannot see past.

Never stop reading. History doesn't repeat, but it does rhyme.

Value investing is simple to understand but difficult to implement. Value investors are not supersophisticated analytical wizards who create and apply intricate computer models to find attractive opportunities or assess underlying value. The hard part is discipline, patience, and judgment. Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgment to know when it is time to swing.

Value investing is the discipline of buying shares at a significant discount from their current underlying values and holding them until more of their value is realised. The element of a bargain is the key to the process.

Bad things happen, but really bad things do not. Do buy the dips, especially the lowest quality securities when they come under pressure, because declines will quickly be reversed.

Value investors will not invest in businesses that they cannot readily understand or ones they find excessively risky. Hence few value investors will own the shares of technology companies. Many also shun commercial banks, which they consider to have unanalyzable assets, as well as property and casualty insurance companies, which have both unanalyzable assets and liabilities.

Avoiding where others go wrong is an important step in achieving investment success. In fact, it almost assures it.

In investing it is never wrong to change your mind. It is only wrong to change your mind and do nothing about it.

It is crucial to have a strategy in place before problems hit, precisely because no one can accurately predict the future direction of the stock market or economy. Value investing, the strategy of buying stocks at an appreciable discount from the value of the underlying businesses, is one strategy that provides a road map to successfully navigate not only through good times but also through turmoil.

When a government official says a problem has been "contained," pay no attention.

When excesses such as lax lending standards become widespread and persist for some time, people are lulled into a false sense of security, creating an even more dangerous situation. In some cases, excesses migrate beyond regional or national borders, raising the ante for investors and governments. These excesses will eventually end, triggering a crisis at least in proportion to the degree of the excesses. Correlations between asset classes may be surprisingly high when leverage rapidly unwinds.

You must buy on the way down. There is far more volume on the way down than on the way back up, and far less competition among buyers. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy.

Warren Buffett once wrote that value investing is like an inoculation
it either takes or it doesn't
and when you explain to somebody what it is and how it works and why it works and show them the returns, either they get it or they don't.

I don't have a Bloomberg on my desk. I don't care.

The best protection against risk is knowing what you are doing.

One of the biggest challenges in investing is that the opportunity set available today is not the complete opportunity set that should be considered. Limiting your opportunity set to the one immediately at hand would be like limiting your spouse to the students you met in high school

You need humility to say 'I might be wrong.'

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 act is still a decision.

It is important to remember that value investing is not a perfect science. It is an, with an ongoing need for judgment, refinement, patience, and reflection. It requires endless curiosity, the relentless pursuit of additional information, the raising of questions, and the search for answers. It 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.

It turns out that value investing is something that is in your blood. There are people who just don't have the patience and discipline to do it, and there are people who do. So it leads me to think it's genetic.

Short sellers age in dog years.

When people give away stocks based on forced selling or fear that is usually a great opportunity.

While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.

Wall Street can be a dangerous place for investors. You have no choice but to do business there, but you must always be on your guard. The standard behavior of Wall Streeters is to pursue maximization of self-interest; the orientation is usually short term. This must be acknowledged, accepted, and dealt with. If you transact business with Wall Street with these caveats in mind, you can prosper. If you depend on Wall Street to help you, investment success may remain elusive.

Once you adopt a value-investment strategy, any other investment behavior starts to seem like gambling.

A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable and rapidly changing world.

Do not accept principal risk while investing short-term cash: the greedy effort to earn a few extra basis points of yield inevitably leads to the incurrence of greater risk, which increases the likelihood of losses and severe illiquidity at precisely the moment when cash is needed to cover expenses, to meet commitments, or to make compelling long-term investments.

Value investing is at its core the marriage of a contrarian streak and a calculator.

It's incredibly important to note that when you don't allow failure, you get more failure.

Graham's wonderful sentence as, an investor needs only two things: cash and courage. Having only one of them is not enough.

All an investor can do is follow a consistently disciplined and rigorous approach; over time the returns will come

Investing today may well be harder than it has been at any time in our three decades of existence,

The average person can't really trust anybody. They can't trust a broker, because the broker is interested in churning commissions. They can't trust a mutual fund, because the mutual fund is interested in gathering a lot of assets and keeping them. And now it's even worse because even the most sophisticated people have no idea what's going on.

If only one word is to be used to describe what Baupost does, that word should be: 'Mispricing'. We look for mispricing due to over-reaction.