Dear Superinvestor Bulletin Follower,
Today I found on the internet 13 pieces of investing wisdom from Seth Klarman. I thought it made for some interesting reading and thought I’d pass it along.
- “Great investments don’t just knock on the door and say ‘buy me.’”
- “It is easy to find middling opportunities but rare to find exceptional ones.”
- “ When buyers are numerous and sellers scarce, opportunity is bound to be limited. But when sellers are plentiful and highly motivated while potential buyers are reticent, great investment opportunities tend to surface.”
- “ Rather than buy from smart, informed sellers, we want to buy from urgent, distressed or emotional sellers.”
- “ A bargain price is necessary, but not sufficient for making an investment, because sometimes securities that seem superficially inexpensive really aren’t.”
- “ Institutional constraints and market inefficiencies are the primary reasons that bargains develop. Investors prefer businesses and securities that are simple over those that are complex. They fancy growth. They enjoy an exciting story. They avoid situations that involve the stigma of financial distress or the taint of litigation. They hate uncertain timing. They prefer liquidity to illiquidity. They prefer the illusion of perfect information that comes with large, successful companies to the limited information from companies embroiled in scandal, fraud, unexpected losses or management turmoil.”
- “ We pursue opportunity largely off the beaten path, sifting through the debris of financial wreckage, out-of-favor securities and asset classes in which there is limited competition. We specialize in the highly complex while mostly avoiding plain vanilla, which is typically more fully priced. We happily incur illiquidity but only when we get paid well for it, which is usually when others rapidly seek liquidity and rush to sell.”
- “ When you have been doing this for a while, you start to become more proficient about where to look, which rocks to look under. The rocks we look under tend to have a few things in common.”
- “ 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.”
- “ Market inefficiencies, like tax selling and window dressing, also create mindless selling, as can the deletion of a stock from an index.”
- “ These causes of mispricing are deep-rooted in human behavior and market structure, unlikely to be extinguished anytime soon.”
- “ Investing is, in many ways, a zero-sum activity in which your returns above market indices are derived from the mistakes, overreactions, or inattention of others as much as from your own clever insights.”
- “ Typically, we make money when we buy things. We count the profits later, but we know we have captured them when we buy the bargain.”
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