Seth Klarman Quotes

373 Seth Klarman Quotes

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[In November 1991.] Investing is a full-time job.
Seth Klarman

[In November 1991 on how to choose a money manager.] Do they ‘eat home cooking’ – managing their own money in parallel with their clients? I can think of no more important test of the integrity of a manager and the likelihood of investment success than his or her own confidence in the approach pursued on behalf of clients. It is interesting to note that few, if any, junk-bond managers invested their own money in junk bonds. In other words, they ate out.
Seth Klarman

[In December 1995.] We hold only those securities that are significantly undervalued, and hold cash when we cannot find better alternatives… We prefer investments, when we can find them at attractive prices, that involve a catalyst for the realization of underlying value.
Seth Klarman

[In December 1995.] Just as seeds are sown during the seven lean years that allow the seven fat years to ensue, so does the reverse hold true.
Seth Klarman

[In December 1995.] The true investment challenge is to perform well in difficult times. It is unfortunately not possible to reliably predict when those times might be. The cost of performing well in bad times can be relative underperformance in good times. We have always judged that a worthwhile price to pay.
Seth Klarman

[In June 1996.] We buy absolute bargains when they become available, and sell when they are no longer bargains. We hold cash when there is nothing better to do…
Seth Klarman

[In December 1996.] Flexibility has been, we believe, at the core of our investment success over the years. Like Baskin Robbins ice cream, opportunities come in dozens of flavours, not all of which are served at the same time. (Like Haagen Dazs, some of these flavors are fantastic.) Investors who find an overly narrow niche to inhabit prosper for a time but then usually stagnate. Those who move on when the world changes at least have the chance to adapt successfully.
Seth Klarman

[In December 1996 but later experiences leading to him making less investments in the future in the emerging markets area.] The same flexibility that led us into a heavy concentration in thrift conversions in the mid 1980’s and distressed corporate debt in the mid-late 1980’s, has led us into a moderate investment in Russian stocks earlier this year, and an important position in European holding companies in 1995-1996.
Seth Klarman

[In December 1996.] We regard investing as an arrogant act; an investor who buys is effectively saying that he or she knows more than the seller and the same or more than other prospective buyers. We counter this necessary arrogance (for indeed, a good investor must pull confidently on the trigger) with an offsetting does of humility, always asking whether we have an apparent advantage over other market participants in any potential investment. If the answer is negative, we do not invest.
Seth Klarman

[In December 1996 on investing in a new area.] Typically, a new are is not a wild leap from anything we have done before, but rather a smaller step from something we already do, with only one variable changing.
Seth Klarman



[In December 1996.] We are not able to predict the future (it is hard enough to understand the present)…
Seth Klarman

[In June 1997.] We remain risk averse value investors and will never own what we perceive to be expensive stocks in the hope that they could somehow rise even higher.
Seth Klarman

[In December 1997.] Value investing is not designed to outperform in a bull market. In a bull market, anyone, with any investment strategy or none at all, can do well, often better than value investors. It is only in a bear market that the value investing discipline becomes especially important because value investing, virtually alone among strategies, gives you exposure to the upside with limited downside risk.
Seth Klarman

[In December 1997.] In a stormy market, the value investing discipline becomes crucial, because it helps you find your bearings when reassuring landmarks are no longer visible. In a market downturn, momentum investors cannot find momentum, growth investors worry about a slowdown, and technical analysts don’t like their charts. But the value investing discipline tells you exactly what to analyze, price versus value, and then what to do, buy at a considerable discount and sell near full value. And, because you cannot tell what the market is going to do, a value investment discipline is important because it is the only approach that produces consistently good investment results over a complete market cycle.
Seth Klarman

[In December 1997.] In investing, nothing is certain. The best investments we have ever made, that in retrospect seem like free money, seemed not at all that way when we made them. When the markets are dropping hard (as they are right now in Asia) and an investment you believe is attractive, even compelling, keeps falling in price, you aren’t human if you aren’t scared that you have made a gigantic mistake. The challenge is to perform the fundamental analysis, understand the downside as well as the upside, remain rational when others become emotional, and don’t take advice from Mr. Market, who again and again is a wonderful creator of opportunities but whose advice should never, ever be followed.
Seth Klarman

[In June 1998.] The many wonderful benefits of long-term stock ownership, so well hidden in the U.S. from 1973 to 1982, and well camouflaged in Asia at this very moment, are currently apparent to U.S. investors with extraordinary clarity. What is clear to us, and relatively few others, is how disappointing those long-term returns will actually be from today’s market levels. Future returns have increasing been accelerated into the present and recent past. We have entered greater fool territory, and decent market returns from here, while still a distinct possibility, will depend on an even greater sucker showing up.
Seth Klarman

[In June 1998.] You might think that the increasing percentage of investor funds managed by professional (‘Professional’?) money managers would serve as a check on market excess. If you did, you would be seriously wrong. Very few professional investors are willing to give up the joy ride of a roaring U.S. bull market to stand virtually alone against the crowd, selling overvalued securities without reinvesting the proceeds in something also overvalued. The pressures are to remain fully invested in whatever is working, the comfort of consensus serving as the ultimate life preserver for anyone inclined to worry about the downside. As small comfort as it may be, the fact that almost everyone will get clobbered in a market reversal makes remaining fully invested an easy relative performance decision. Isn’t this what always happens at the top of historic bull markets? The answer, of course, is of course.
Seth Klarman

[In June 1998.] Persuading budding analysts to postpone the immediate gratification of a momentum or growth stock career for a long-term value investment philosophy is a formidable challenge indeed. Leaving this extraordinary party early, or contemplating not even going, isn’t very appealing if all your friends will be there having a great time while it lasts, which appears to be well into the night… The really bad hangover…
Seth Klarman

[In December 1998.] Investing in a stock is really the purchase of a fractional ownership in a business, and the value of that business is determined by its fundamentals, not by the stock market (which, in the words of Ben Graham, is a voting machine, not a weighing machine.) Ultimately, undervalued stocks appreciate toward their underlying value; the market eventually recognizes the business fundamentals, or a catalyst, such as a takeover, forces the valuation gap to close.
Seth Klarman

[In December 1998.] Overconfident individual investors, projecting the stock market’s recent performance indefinitely into the future, have developed a blind faith in the merits of equity investing, the fundamentals notwithstanding. They have also developed supreme confidence in their own willingness to remain invested in the face of unfavourable developments, a confidence reinforced by their successful buying of the market’s dips for the past 16 years. When the tide goes out, as it has in Japan for the past eight years, money will flow out of the market and out of mutual funds (as it has in Japan); buying the dips will significantly exacerbate the pain.
Seth Klarman



[In February 1999.] What happens in bear markets… Good bargains become even better bargains.
Seth Klarman

[In February 1999.] When stocks are rising for no better reason than that they have risen, the greater fool is at work.
Seth Klarman

[In February 1999.] An investor who initially purchases on value knows to buy more when an already undervalued stock falls and to sell when it becomes fully valued. An investor in an Internet stock or in the extraordinarily expensive shares of a very good company has no idea what to do when the price moves up or down.
Seth Klarman

[In June 1999.] Unprecedented gains in large capitalization growth stocks continue to generate a mistaken faith among individual investors in the safety of owning stocks, as well as an erroneous impression of the potential future returns from equity ownership. Success begets additional success as investors project future results from the rear view mirror. One particularly irksome development is that fundamental research is today a significant impediment to good short-term results, as the most overvalued securities have steadily been the best performers and the most undervalued the worst. More and more, stocks are seen as apart from the businesses underlying them, with capital gains a product of investor money flows rather than corporate profit growth. The Internet stock market bubble has been expanding at an accelerating rate…
Seth Klarman

[In June 1999 during irrational Internet bubble times.] We would rather be overly cautious and forego some profit than overly optimistic and potentially much poorer.
Seth Klarman

[In June 1999 more on the internet bubble.] Sentiment, existing only in the minds of investors, is subject to change quickly and without notice. Perhaps today’s dreams will become realities for some of the current Internet and technology favourites; and perhaps not. For many, the dream will be replaced by a nightmare. Then, the escalating bill for betting on dreams rather than on realities will have to be paid up.
Seth Klarman

[In June 1999.] Real value, of bricks and mortar, finished goods inventories, accounts receivable, operating factories and businesses, and even brand names, is hard, although far from impossible, to destroy. If you don’t overpay for it, your downside is protected. If you purchase it at a discount, you have a real margin of safety.
Seth Klarman

[In June 1999.] We have ruled out short selling for a number of reasons, including the unlimited downside risk that short selling poses.
Seth Klarman

[In December 1999.] We underperformed in 1999 not because we abandoned our strict investment criteria but because we adhered to them, not because we ignored fundamental analysis but because we practiced it, not because we shunned value but because we sought it, and not because we speculated but because we refused to do so. In sum, and very ironically, we got hurt not speculating in the U.S. stock market.
Seth Klarman

[In December 1999.] 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 easy for 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 Klarman



[In December 1999.] A value approach to investing… is, above all, risk averse, and focused on preserving capital over the long run. This approach demands both discipline and patience. Discipline is required to buy only bargains and sell fully-priced holdings, never becoming swept up in the enthusiasm of the herd. Patience is required to wait for just the right opportunities, avoiding the pressure to make investments that don’t meet the most stringent criteria of quality and undervaluation, and then to hold on, allowing an investment sufficient time to come to fruition.
Seth Klarman

[In December 1999.] The stalwart performers of today’s stock market trade at higher valuations than any of the bull market favourites of yesteryear. The major stock market indices are, by virtually all measures, extremely overvalued.
Seth Klarman

[In December 1999.] On December 15, the Dow, S&P and Nasday Indices all rose sharply; that same day 49 NYSE stocks made new highs whiles a whopping 455 posted new lows. It is hard to imagine a worse environment to assess the merits of a value investing approach (nor, ironically, a more favourable environment in which to practice it.) The gravitational force of the Internet and technology stock bubble is exerting a strong pull on the assets of investors. Money is draining from other sectors of the market into these strongly performing ones, causing share prices of more mundane companies not merely to underperform but actually to decline. Like a gambler withdrawing his or her savings for a trip to Las Vegas, investors are literally dumping their conservative shareholdings at giveaway prices to try their luck at the technology casino.
Seth Klarman

[In December 1999.] I heard about a recent business school discussion where an entire class of students expressed a preference to own Microsoft (60 times earnings, 20 times revenues) rather than General Motors (under 10 times earnings). One student indicated that he would not choose General Motors at one half or even one fourth of its current price. The professor asked if there were any price at which the student might prefer General Motors. The student started to reply in the negative, hesitated, and then allowed how he might take it were it offered for free. This so perfectly captures today’s investment mentality.
Seth Klarman

[In December 1999.] A great many companies meet or exceed estimates only with a great deal of accounting legerdemain [deception or trickery]: write-ups and write-downs, changes in accounting procedures, modifications to actuarial assumptions, one time charges or gains and other forms of chicanery. There is little incentive for the market cheerleaders on the sell side of Wall Street to bring the goings-on to light. Such practices render the stock market even more overvalued than commonly recognized…
Seth Klarman

[In December 1999.] The memory of most investors only incorporates what recently has been successful.
Seth Klarman

[In December 1999.] We believe it is important in every investment to have an edge, an advantage over the herd. This edge could be a willingness to take a long-term perspective in a short-term-oriented market, a tolerance of complexity when others crave simplicity, or the absence of constraints which either impede the ability of others to act or force them to act in uneconomic ways.
Seth Klarman

[In December 1999.] Financial markets act as allocators of capital, but they function much more efficiently when things are going well than when they are not. When an industry, asset class, security type, or geographical region is out of favor, profitable opportunities can be available to those who have cash and the expertise and willingness to deploy it.
Seth Klarman

[In December 1999.] Investors must never mistake an investment that is down in price for one that is bargain-priced; undervaluation is determined only by a security’s price compared to its underlying value.
Seth Klarman

[In June 2000.] Bargains exist because the financial markets are inefficient, yet many investors lack the requisite patience and discipline to take advantage of them.
Seth Klarman



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