Occasionally we are asked whether it would make sense to modify our investment strategy to perform better in today's financial climate. Our answer, as you might guess, is: No! It would be easyfor us to capitulate to the runaway bull market in growth and technology stocks. And foolhardy. And irresponsible. And unconscionable. 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.
Seth KlarmanHereโs how to know if you have the makeup to be an investor. How would you handle the following situation? Letโs 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 youโre an investor. If you donโt, youโre not an investor, youโre a speculator, and you shouldnโt be in the stock market in the first place.
Seth KlarmanValue 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.
Seth KlarmanHaving clients with a long-term orientation is crucial. Nothing else is as important to the success of an investment firm.
Seth KlarmanA 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.
Seth KlarmanInvesting 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. Knowing whether you stand there, buy more, or whether something has legitimately gone wrong and you need to sell, those are harder things. That you learn with experience, by having the right psychological makeup.
Seth Klarman