“The function of margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future” Ben Graham “Margin of safety for us comes from the quality of the business and second from buying into it at a substantial discount to our estimate of intrinsic value. Neither is sufficient on its own for us to be interested. Seth Klarman’s Margin of Safety is a rare and elusive book that sells for a huge premium over its IPO original price. It’s a book about managing risk. And its namesake is the key to it all. Klarman follows a value investing philosophy that originated with Ben Graham – buying something for less its worth.

Klarman himself has written one of the most coveted books on value investing, Margin of Safety. The book is out of print,is one of the most stolen books from libraries, and sells for thousands of dollars online.

Seth Klarman is virtually unknown outside value circles, despite his impressive record and value of assets under
management. On average, Klarman’s hedge fund, Baupost has returned 19% p.a. despite holding a large portion of its assets in cash. During the financial crisis, Seth Klarman’s funds lost somewhere between 7% and 13%, certainly outperforming the majority of its hedge fund peer group.

Klarman is a traditional value investor, looking for companies, bonds, credit instruments and real estate opportunities that all trade below what he, and his analysts believe is intrinsic value. However, a margin of safety must be incorporated. Seth Klarman it seems will never chase a stock just because it’s the stock of the moment.

According to a lecture given by Bruce Greenwald: “Warren Buffett says that when he retires, there are three people he would like to manage his money. First is Seth Klarman of the Baupost Group, who you will hear from later in the course. Next is Greg Alexander. The third is Li Lu.”

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Seth Klarman: Authored books

Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor by Seth A. Klarman

Seth Klarman: Recommended books

Benjamin Graham. No description needed here really.

Joel Greenblatt. Greenblatt's book examines catalyst-based investing such as spin-offs, mergers, risk arbitrage, etc. to exploit market inefficiencies.

The Aggressive Conservative Investor.

Martin Whitman. A great guide for learning how to analyze and evaluate stocks.

Book Recommendations by Seth Klarman at the CFA Institute Annual Conference

Anything by Jim Grant:

The majority of students who become psycholinguists receive a master's degree or a Ph.D.; however, there are also some opportunities available for those who choose not to attend graduate school. Psycholinguistics is not usually a degree of its own; graduate degrees range from scientific studies to criminal justice. Psycholinguistics articles pdf.

• Mr. Market Miscalculates: The Bubble Years and Beyond.

Anything by Roger Lowenstein:

• When Genius Failed: The Rise and Fall of Long-Term Capital Management. This bestseller is the tale of the collapse of Long Term Capital Management (LTCM) in 1998. The Hedge fund management team consisted of some of the greatest minds of our time.
• Origins of the Crash: The Great Bubble and Its Undoing Lowenstein's tale of the tech bubble, and the collapse of Enron, and Worldcom.

Michael Lewis' classic. Another Michael Lewis book, The Big Short has also been recommended.

Andrew Ross Sorkin's book about the financial crisis.

Margin of Safety: Risk-averse Value Investing Strategies for the Thoughtful Investor is a 1991 book written by Baupost Group hedge fund manager and value investor, Seth Klarman, discussing about value investing, temperance, valuation, portfolio management, among other topics. The book draws on from The Intelligent Investor, chapter 20, which is titled 'margin of safety', coined by Benjamin Graham and David Dodd.

History[edit]

In 1991, when Seth Klarman was 34 years old, he published Margin of Safety with publisher, HarperCollins. The book initially sold just 5,000 copies for $25 a piece, and it was considered a 'flop.'^[1]

In a Charlie Rose interview, Klarman considered issuing a limited edition copy of Margin of Safety for charity but was otherwise not interested in reviving the book.^[1][2]

In July 6, 2018, a Kindle edition of the book was quietly released to the Amazon website. Within a matter of days, the non-authorized kindle edition of the book went to the #16 spot of 'business and investment' section of the online book store.^[3] Baupost Group responded to the illegal copy by saying 'The Kindle version of Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor on Amazon is an unauthorized version being sold in violation of its registered copyright, which is owned by Seth Klarman. Mr. Klarman has not authorized republication of Margin of Safety, electronically or in any other format. Our legal department is taking and will continue to take appropriate action with respect to this matter.'^[4] The Kindle edition book appeared to have been suggested by Oceanofpdf.com, an organization that offers free downloads of books online and believes 'that knowledge and information should be free and accessible to everyone around the globe.”^[4]

Reception and impact[edit]

Despite the initial flop, overtime the book has achieved 'cultlike' status amongst the value investing community and has been revered as a 'bible' of sorts.^[1][3] This has caused physical copies of the book to be worth to $500-$2,500 a piece.^[1][4] The high price of the book has resulted in piracy of the book.^[1]

The book has featured in a number of recommended reading lists in the investment press.^[5][6][7]

See also[edit]

References[edit]

1. ^ ^abcdeHa, Thu-Huong; Ha, Thu-Huong. 'Why an out-of-print investment book gets bootlegged and sells for $3,000'. Quartz. Retrieved 2019-02-15.
2. ^Jarvis (2017-03-03), Seth Klarman Interview with Charlie Rose - 2017, retrieved 2019-02-15
3. ^ ^abPatterson, Michael (July 10, 2018). 'Seth Klarman Book That Sells for $2,500 Is Now $9.99 on Kindle'. Bloomberg. Retrieved February 14, 2019.
4. ^ ^abcKim, Tae (2018-07-10). 'Seth Klarman's investing classic 'Margin of Safety' gets pirated on Kindle'. CNBC. Retrieved 2019-02-15.
5. ^'Fund managers' favourite investment books', Investors Chronicle (13 March 2013).
6. ^Patrick Commins, 'Do it by the Book', Financial Review (18 January 2013), Smart Investor supplement p. 24.
7. ^Vitaliy Katsenelson, 'My Investor Holiday Reading List, Part 1', Institutional Investor (January 2014).