He discusses past market environments that provided great opportunity for value investors to show that they do occur and this strategy does work. My one criticism is against Klarman's sharp criticism of index funds, as I believe they are a reasonable cost-effective choice for many hands-off investors. However, the pros in this book far outweigh the cons, making Margin of Safety a good read for current and aspiring investors.
Jul 03, Ankur Gupta rated it it was amazing. Much to my delight, Seth Klarman does provide a sound method to achieve investment success that is based on business fundamentals than pernicious speculation, relying on the "wisdom" of the market.
The book is a fascinating read, especially for someone with a non-finance background but fresh out of a B-School, where basic theoretical knowledge is covered but not how to actually go about investing in the real world whilst being risk-averse. The two are a must read for people who want to build a career in investing.
Nov 24, Brady Bunte rated it it was amazing. But the most amazing part was that he did this in when the book was published and that is way before the mortgage CDOs were in full swing. I just wish I had read the book earlier. Brady Bunte Jan 15, Sasha rated it liked it. I had high hopes for this book since the ratings were amazing. However, I gave this book 2 stars because many of the ideas and concepts that were mentioned were already known to me.
I also found this book more difficult to read than other investment books, perhaps due to the writing style. View 1 comment. May 17, Korance Goodwin rated it liked it. The original value investor Benjamin Graham's current equivalent is this guy: Seth Klarman. Some may think that Warren Buffet is applying Graham's principles, but more than anyone Klarman really mirrors Graham's thinking.
Both did well in school and had plenty of opportunities in academia but decided to take to money management instead. What an unappealing mouthful of a name! I just call it the Thoughtful Investor. The weird thing about the Thoughtful Investor is that the book itself is kind of an object lesson in investing. As happens with many stocks this thing is way over-valued and if you are a real value investor you wouldn't think of paying that much for a silly book.
I think this also is telling of the kind of ridiculous thinking that goes on among the types of people have their head in finance.
People in these circles produce the outrageous thinking that paying crazy amounts of money for something so simple could actually be worth it! So what does Klarman talk about that is so valuable?
Really, its mostly a modern, version of The Intelligent Investor. The language is more polished, and the approaches are more up to date, but the principles are much the same. He defines Net Present Value as the discounted value of all future free cash flows a business is expected to generate. Klarman also mentions private market value as a rule of thumb which I completely agree with, to give an idea of a businesses value when the market's going nuts.
Even though Klarman isn't as original as Graham, he makes some great points and brings a modern intellect to Grahams principles. He has greatly added to the value investing cannon by writing and practicing value investing and is definitely a heavy hitter in the world of finance.
Also unlike Graham, Klarman is still active, you can look at his current interest at his fund www. Klarman thinks its necessary to "continually compare their current holdings in order to ensure they own only the most undervalued opportunities available. Klarman also says: "Few value investors own technology companies, banks or insurance companies because they have un-analyzable assets and liabilities. And finally, Klarman demands hard assets to provide safety while Buffet is more comfortable with a strong moat whether its tangible or not.
My favorite quote: "Value, like beauty is often in the eye of the beholder. Some people act responsibly and deliberately most of the time but go berserk when investing money.
It may take months or years of work and discipline to earn the money and only a few minutes to invest it. Some spend more time buying a stereo or camera than buying stocks.
Many regard the stock market as a way to make money without working rather than a way to invest capital in order to earn a decent return.
Greedy short-term-oriented investors may lose sight of a sound mathematical reason for avoiding loss. It is very difficult to recover from even on large, loss, which could literally destroy all at once the beneficial effects of many years of investment success. I believe indexing will turn out to be just another Wall Street fad.
Above all, investors must avoid swinging at bad pitches. If the prevailing stock price is not warranted by the underlying value, it will eventually fall. Value investors are not super sophisticated analytical wizards who create and apply intricate computer models to find attractive opportunities or assess underlying value.
The hard part is discipline to avoid the many unattractive pitches, patience to wait for the right pitch and judgment to know when to swing. There are only a few things investors can do about risk: diversify adequately, hedge when appropriate and invest with a margin of safety.
Many investors insist on affixing exact values to their investments, seeking precision in an imprecise world, but business value cannot be precisely determined. How do value investors deal with the analytical necessity to predict the unpredictable?
The only answer is conservatism. Spinoffs seem to frequently be undervalued and large emerging industries seem to be frequently overvalued like railroad companies were, air freight was, computer companies were. Rather they are a means to understand what is really happening in a company. Good investment ideas are rare and valuable things, which must be ferreted out assiduously.
Value investing by its very nature is contrarian. Value investing exists where the herd is selling, unaware or ignoring. No one understands a business and its prospects better than the management. Arbitrage is a riskless transaction that generates profits from temporary pricing inefficiencies between markets. Although trading based on inside information is illegal, the term has never been clearly defined.
Mar 22, Bryce rated it it was amazing. Margin of Safety is a famous phrase coined by Ben Graham half a century ago, and taken up by Seth Klarman here as a full volume. The book is in three parts. First, a strong case for fundamental value investing as the only sound framework for making investment decisions; second is a scathing critique of "institutional investing," culminating with Klarman's ri Margin of Safety is a famous phrase coined by Ben Graham half a century ago, and taken up by Seth Klarman here as a full volume.
First, a strong case for fundamental value investing as the only sound framework for making investment decisions; second is a scathing critique of "institutional investing," culminating with Klarman's ridicule of the "relative performance derby"; the last section of the book is Klarman's suggested process for determining value, and the construction and maintenance of portfolios.
My favorite portion of this book is the critique of the "relative performance derby," and it's something I've gone back and re-read several times. This critique is nothing new in fact.
Warren Buffett may have been one of the first to identify the problem in an annual letter to investors in his Buffett Partners fund, way back in "In the great majority of cases the lack of performance exceeding or even matching an unmanaged index in no way reflects lack of either intellectual capacity or integrity.
I think it is much more a product of Oct 12, Steve rated it it was amazing Shelves: investment. An excellent book written by an highly credible figure in the value investing world. I didn't always agree with the author.
However, I was extremely impre An excellent book written by an highly credible figure in the value investing world. However, I was extremely impressed with the thoughtful and consistent approach presented throughout and found myself nodding at much of what Klarman had to say.
All in all, MoS is a must read for all Graham and Buffet disciples. My only real complaint is that the book follows Graham's Intelligent Investor a little too closely. But in my humble opinion that's not a real negative since some of Graham's ideas can take a while to sink in and everyone can benefit from being hit over the head again with some good-ole Graham!
Make sure you download it in PDF form off the internet for free the original is out of print. Happy reading! View 2 comments. Jan 30, Kevin rated it it was amazing. Dec 03, Sukhesh Miryala rated it really liked it. Great outline about how to think about investing, and less about specific strategies to invest. Provides great lenses to look at investing followed by illlustrative anecdotes. Some of the actual advice is a bit dated but to be expected given the age of the book. This book is a must read if you are interested in learning about how value investors of which Seth Klarman is a legend think.
View all 3 comments. Sep 10, Tomas Krakauskas rated it really liked it. A lot of wisdom from personal S. Klarman experience, illustrated with real examples. However I find this book more suitable for novice investors who seek basic knowledge on value investing principles.
Jul 11, Jacob rated it liked it Shelves: economics , nonfiction , business , ebook , investing. When I saw someone reading this on the train to work one morning, I knew I should read it. It's exactly the kind of thing I'd be interested in. The fact that it turned out to be WAY out of print only fanned my desire to read it. Used copies go for hundreds of dollars! My library system didn't have it. I congratulated myself on using InterLibrary Loan to find some library in the US that did, only to find that it's so valuable no library was letting go of it, if their copy hadn't already been stol When I saw someone reading this on the train to work one morning, I knew I should read it.
I congratulated myself on using InterLibrary Loan to find some library in the US that did, only to find that it's so valuable no library was letting go of it, if their copy hadn't already been stolen. Finally, a helpful librarian pointed out there was a scanned copy available online as a Word.
How was that even a question? What amazing secrets did it hold that old copies were so valuable, and what was the establishment trying to keep locked away by refusing to reprint such an obviously in-demand book? And was it worth the badly OCR'd scan to get the content of this book whose sheer scarcity gave it legendary status in my mind?
Yes, although not by as clear a margin as I expected. I figured this out from reading between the lines stories about Warren Buffet kept mentioning his buying businesses and swaths of stock with cash during downturns and I thought to ask myself "where is he getting this cash to buy during a downturn? These include spinoffs, bankruptcies, and mergers. This is interesting, but it suffers from being tough to act on and a lot of this got covered later in an easier to read way in Joel Greenblatt's You Can Be a Stock Market Genius, labeled as "special situations investing".
The writing ended up being kind of dry, which is the main reason it took me over 10 months to actually finish this book. I'm pretty sure that's a record for me!
Mar 30, Simon rated it it was amazing. Geeking it out in the rain. Re-reading a book I bought randomly at The Strand and read in when I first started in the business. Is actually a great primer on how to think like a smart professional investor. Concepts aren't hard, but I don't imagine it would be all that interesting for the individual investor. Jan 10, Dude-von Dudenstein rated it liked it Shelves: finance , investment.
Good introduction to value investing. The author dwells too much on what's wrong with other valuation methods without talking about how should an investor go about executing value investing. Pros of value investing are too less compared to cons of investing time analysing the underlying businesses.
Book is not really targeted towards an audience and seems to wander between individual investor and institutional one. Recommended read but the content delivery is lacking coherence..
Jun 04, Arseny rated it it was amazing Shelves: reality , living-room-shelf , finance. Woke up regarding the meaning of Value. Very impactful book. Aug 08, Stacey rated it really liked it. Aug 13, Massgreen rated it really liked it.
I find the book a little bit disorganized, I have summarized a few points below: 1. There is one crucial difference between investment and speculation: Investments throw off cash flow for the benefit of the owners; speculations do not. They return to the owners of speculations depends exclusively on the vagaries of the resale market. One is where the asset itself delivers a return to you, such as I find the book a little bit disorganized, I have summarized a few points below: 1.
One is where the asset itself delivers a return to you, such as, you know, rental properties, stocks, a farm. Our research documents the unfortunate similarities between today and There are some charts that we believe will go down as infamous. Examples include:. Individuals have seen their life savings wiped out and others have committed suicide.
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