Seth Klarman Quotes

373 Seth Klarman Quotes

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[In June 2000.] We believe that a value philosophy never goes out of style. When sentiment towards undervalued sectors of the market is at its nadir [the lowest or most unsuccessful point in a situation.], it is the best time to be buying value.
Seth Klarman

[In June 2000.] Undervalued stocks are of interest when several or all of the following criteria are met: if the undervaluation is substantial; if there is a catalyst to assist in the realization of that value; if the business value is stable and growing, not eroding; and if the company’s management is able and properly incentivized.
Seth Klarman

[In June 2000.] We consider for each of our investments not only whether a security is undervalued but why it is undervalued. If the reason is that there are uninformed or emotional sellers, we become more comfortable. Conversely, we do not want to ever be in the situation of having less information than the party selling to us.
Seth Klarman

[In June 2000.] We don’t buy ‘the market’. We invest in discrete situations, each individually compelling.
Seth Klarman

[In December 2000.] Clearly, the Internet bubble has burst. Nearly all publicly traded Internet stocks have come up snake-eyes, and there is considerable doubt about whether there is or ever was a ‘new economy.’ No longer can you add ‘dot com’ to a word, sell shares to the public, and join the Forbes 400. No longer can entrepreneurs count on investors to fund enormous and protracted operating losses.
Seth Klarman

[In December 2000.] The fantasy of a near-term Dow 36000, of holding stocks for the long run regardless of valuation, plays well in classrooms, computer models, and editorials. It fares less well in the real world, where earnings disappointments are met with share price demolition, and where corporate managements massage and manipulate results for gullibly compliant investors until the untidy reality inevitably peeks through. Like a couch potato clicking the remote control, real-world growth investors are continually switching their capital from areas of disappointment to areas of perceived opportunity, oddly unaware that all of the channels are showing reruns.
Seth Klarman

[In December 2000.] Last year, the story of rapid growth leading eventually toward profitability topped investors’ bestseller lists. Widely portrayed as non-fiction and sometimes masquerading as biography, it turned out to be science fiction.
Seth Klarman

[In December 2000.] The point of investing… is not to have a great story to tell; the point of investing is to make money with limited risk.
Seth Klarman

[In December 2000.] Value investors frequently invoke the explanatory device of Mr. Market, a disembodied character who establishes securities prices in the short run despite knowing nothing about investing. A manic fellow, Mr. Market will sometimes become exuberant, other times depressed. Investors who attempt to profit from Mr. Market’s manic depressive nature will be successful over the long run. These days, Mr. Market has run completely amuck, often manifesting manic and depressive behavior at the same time in different securities.
Seth Klarman

[In June 2001.] The lessons of the technology stock bubble have only partly been learned. The correct lessons – price matters, trees don’t grow to the sky, high risk does not necessarily correlate with high return, sometimes it is better to be risk-averse – have begun to be applied to technology stocks but not to most of the rest of the market. As we have said before, it appears likely that considerable pain must be incurred over a protracted period for investors to fully absorb these unavoidable lessons.
Seth Klarman



[In January 2005.] Investors remain the consummate yield gluttons, seeking high return without regard for the likelihood of actually achieving it or for the risk incurred in the process.
Seth Klarman

[In January 2005.] By holding expensive securities with low prospective returns, people choose to risk actual loss. We prefer the risk of lost opportunity to that of lost capital, and agree wholeheartedly with the sentiment espoused by respected value investor Jean-Marie Eveillard, when he said, ‘I would rather lose half our shareholders… than lose half of our shareholders’ money....’.
Seth Klarman

[In January 2005.] Why should the immediate opportunity set be the only one considered, when tomorrow’s may well be considerably more fertile than today’s.
Seth Klarman

[In January 2005.] While others attempt to win every lap around the track, it is crucial to remember that to succeed at investing, you have to be around at the finish. What matters is not who performs best during sequential short-term intervals…
Seth Klarman

[In January 2005.] Losing money is perhaps the only thing that makes most investors worry about losing money.
Seth Klarman

[In January 2005 on risk management and taking enough appropriate action to address concerns.] Successful investing goes hand in hand with productive worrying… Worry enough during the day and you can, in fact, sleep justifiably well at night.
Seth Klarman

[In January 2005.] You rarely, if ever, make money from worrying; it does not typically enhance return. But by avoiding loss, you are able to hang on to what you have accumulated, which is a cornerstone of successful investing.
Seth Klarman

[In January 2005.] Value investors thrive not by incurring high risk (as financial theory would suggest), but by deliberately avoiding or hedging the risks they identify.
Seth Klarman

[In January 2006.] These days, nearly anyone can start a fund to exploit every real or imagined mispricing, and huge sums are routinely allocated to the best performers until they resist new capital entirely, or accept it at the price of being forced to change their style beyond what has made them successful to date… More than ever before, past performance is not a reliable predictor of future results.
Seth Klarman

[In January 2006.] Should we accept a lower return than we used to in order to buy a bankrupt bond, corporate spinoff or half-empty office building? If we don’t, we may be forced to sit on a growing pile of cash, perhaps for a very long time, betting that the markets will revert to historical levels of valuation. If we do, we will be betting that times have changed, that investing to earn a barely adequate return is better than not investing at all. Rather than ratchet up risk, our approach has been to hold cash in the absence of opportunity, accepting a minor diminution in expected return where, and only where, the historic returns have been particularly outsized for the risk.
Seth Klarman



[In January 2006.] Jeremy Grantham at GMO has convincingly demonstrated that all financial bubbles eventually fully correct, and many overshoot to the downside. With valuations still universally high, once markets start dropping, even cautious investors are exposed to the significant risk of getting in too soon.
Seth Klarman

[In January 2006.] If you were clever enough to be out of the stock market in 1929, you might have congratulated yourself as you were picking up the bargains of 1930 30% lower than the year before. But by 1933, you would nonetheless have lost over 70% of your capital. In short, the declines from 100 to 20 and 70 to 20 feel almost exactly the same in terms of the pain experienced, and the debilitating effect on client morale and investor psychology are identical. If we do invest prematurely, as we inevitably will in the next severe bear market, having the correct mindset will be more important than ever. It will take tremendous resolve in the face of extreme markdowns to hold on or even add to positions rather than capitulate along with everyone else.
Seth Klarman

[In January 2006.] There is… a limit on the likely population of value investors because value investing involves more patience and discipline than many people can muster.
Seth Klarman

[In January 2006.] Many so-called value investors are what we would call value pretenders, ‘buy-the-dips’ specialists who buy what’s down but not necessarily what’s cheap. This trading strategy has worked well for a long time, but will disappoint in the next real bear market.
Seth Klarman

[In January 2006.] Markets are inefficient because of human nature – innate, deep-rooted, permanent. People don’t consciously choose to invest with emotion – they simply can’t help it. Investors cannot change their stripes and will always exhibit characteristics of greed and fear.
Seth Klarman

[In January 2006.] While rising interest rates seem to have cooled the housing market a bit, there is, as of yet, little pain. If conditions continue to deteriorate, as seems likely, there will be significant carnage (and perhaps investment opportunity) as a result of diminished affordability, excess supply, and foolhardy loans made to poor-quality borrowers.
Seth Klarman

[In October 2007.] The best investors do not target return; they focus first on risk, and only then decide whether the projected return justifies taking each particular risk.
Seth Klarman

[In October 2007.] While proper investing requires a disciplined and long-term perspective, few market participants are able to ignore short-term phenomena.
Seth Klarman

[In October 2007.] For 25 years, my firm has strived to not lose money – successfully for 24 of those 25 years – and, by investing cautiously and not losing, ample returns have been generated. Had we strived to generate high returns, I am certain that we would have allowed excessive risk into the portfolio – and with risk comes loses.
Seth Klarman

[In October 2007.] It seems unlikely that the debt crisis can be near an end when the solution offered – more debt – is in fact what caused the problem in the first place.
Seth Klarman



[In October 2007.] Counting on a government bailout for every market crisis seems a dicey proposition, especially when supposedly impossible events happen on Wall Street every few years.
Seth Klarman

[In October 2007.] By the time the market drops and bad news is on the front pages, it is usually too late for investors to react. It is crucial to have a strategy in place before problems hit, precisely because no one can accurately predict the future direction of the stock market or economy.
Seth Klarman

[In October 2007.] Value investing, the strategy of buying stocks at an appreciable discount from the value of the underlying businesses, is one strategy that provides a road map to successfully navigate not only through good times but also through turmoil. Buying at a discount creates a margin of safety for the investor – room for imprecision, error, bad luck or the vicissitudes of volatile markets and economies. Following a value approach won’t be easy for everyone, especially in today’s media-dominated, short-term oriented markets, in that it requires deep reservoirs of patience and discipline. Yet it is the only truly risk averse strategy in a world where nearly all of us are, or should be, risk averse.
Seth Klarman

[In October 2007.] In my entire professional career, now twenty-five years long, I have never calculated a beta.
Seth Klarman

[In October 2007.] Value investing involves the purchases of bargains, the proverbial dollars for fifty cents.
Seth Klarman

[In October 2007.] Value investing is, in effect, predicated on the proposition that the efficient-market hypothesis is frequently wrong.
Seth Klarman

[In October 2007.] Rather than buy from smart, informed sellers, we want to buy from urgent, distressed or emotional sellers.
Seth Klarman

[In October 2007.] The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions. Success in the market leads to excess, as bystanders are lured in by observing their friends and neighbours becoming rich, as naysayers are trounced by zealous participants, and as the effects of leverage reinforce early successes. Then, eventually, and perhaps after more time than contrarians would like, the worm turns, the last incremental buyer gets in, the last speculative dollar is borrowed and invested, and someone decides or is forced to sell. Things quickly work in reverse, as leveraged investors receive margin calls and panicked investors dump their holdings regardless of price. Then, the wisdom of caution is once again evident, as not losing money becomes the watchword of the day.
Seth Klarman

[In October 2007.] Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.
Seth Klarman

[In January 2008.] The capital markets, the economy, and Wall Street firms all experience cycles… For Wall Street firms, the cycles are of financial innovation, risk-taking, limit-pushing, and hefty compensation, followed by retrenchment, revulsion, write-offs, and layoffs.
Seth Klarman



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