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.
Seth KlarmanSuccessful investors must temper the arrogance of taking a stand with a large dose of humility, accepting that despite their efforts and care, they may in fact be wrong.
Seth KlarmanSuccessful investors like stocks better when theyโre going down. When you go to a department store or a supermarket, you like to buy merchandise on sale, but it doesnโt work that way in the stock market. In the stock market, people panic when stocks are going down, so they like them less when they should like them more. When prices go down, you shouldnโt panic, but itโs hard to control your emotions when youโre overextended, when you see your net worth drop in half and you worry that you wonโt have enough money to pay for your kidsโ college.
Seth KlarmanThe overwhelming majority of people are comfortable with consensus, but successful investors tend to have a contrarian bent.
Seth KlarmanA value strategy is of little use to the impatient investor since it usually takes time to pay off.
Seth KlarmanUnlike 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.
Seth Klarman