Quotessence
Home / Authors / Seth Klarman
Seth Klarman

Seth Klarman Quotes

Author

Filter quotes by topic

AllInvestorsInvestingValuesInvestmentRiskTermLongIfsShouldFinancialLong TermMayKnowsOpportunityReturnWellsLossNeedsWayBargains

Famous Seth Klarman Quotes

“In the financial markets, however, the connection between a marketable security and the underlying business is not as clear-cut. For investors in a marketable security the gain or loss associated with the various outcomes is not totally inherent in the underlying business; it also depends on the price paid, which is established by the marketplace. The view that risk is dependent on both the nature of investments and on their market price is very different from that described by beta.”

DifferentLossViewsClearCuttingRiskSecurityDependsGainsConnectionsPaidInvestmentInvestingFinancialVariousOutcomesDependentInvestorsInherentMarketplaceFinancial MarketsBeta
Author:Seth Klarman
Create image

“Rather, risk is a perception in each investor's mind that results from analysis of the probability and amount of potential loss from an investment. If an exploratory oil well proves to be a dry hole, it is called risky. If a bond defaults or a stock plunges in price, they are called risky. But if the well is a gusher, the bond matures on schedule, and the stock rallies strongly, can we say they weren't risky when the investment after it is concluded than was known when it was made.”

IfsMindWellsMadeLossResultsKnownRiskAmountProvePerceptionInvestmentInvestingOilHolesAnalysisDryInvestorsSchedulesProbabilityPlungeDefault
Author:Seth Klarman
Create image

“There are only a few things investors can do to counteract risk: diversify adequately, hedge when appropriate, and invest with a margin of safety. It is a precisely because we do not and cannot know all the risks of an investment that we strive to invest at a discount. The bargain element helps to provide a cushion for when things go wrong.”

KnowsHelpingCan DoRiskElementsSafetyInvestmentStriveInvestingAppropriateInvestorsMarginsBargainsDiscountsCushionsWhen Things Go Wrong
Author:Seth Klarman
Create image

“In a world in which most investors appear interested in figuring out how to make money every second and chase the idea du jour, there's also something validating about the message that it's okay to do nothing and wait for opportunities to present themselves or to pay off. That's lonely and contrary a lot of the time, but reminding yourself that that's what it takes is quite helpful.”

WorldIdeasOpportunityWaitingPayMessagesLonelyOkayInvestingContraryMaking MoneyHelpfulInvestorsRemindingEvery SecondReminding Yourself
Author:Seth Klarman
Create image

“Investors frequently benefit from making decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty. The time other investors spend delving into the last unanswered detail may cost them the chance to buy into situations at prices so low they offer a margin of safety despite the incomplete information”

WellsMayLastsChanceDecisionPerfectSituationRiskInformationCostOffersBenefitsLowsSafetyDetailsDespiteUncertaintyInvestorsMarginsIncompleteMaking DecisionsUnansweredDelvingIncomplete Information
Author:Seth Klarman
Create image

“As value investors, our business is to buy bargains that financial market theory says do not exist. We've delivered great returns to our clients for a quarter century-a dollar invested at inception in our largest fund is now worth over 94 dollars, a 20% net compound return. We have achieved this not by incurring high risk as financial theory would suggest, but by deliberately avoiding or hedging the risks that we identified.”

ValuesRiskCenturyTheoryReturnDollarsFinancialFundInvestorsQuartersClientsAvoidingBargainsCompoundsFinancial MarketsInceptionHigh RiskIncurringHedging
Author:Seth Klarman
Create image

“Short-term performance envy causes many of the shortcomings that lock most investors into a perpetual cycle of underachievement. Watch your competitors not out of jealousy but out of respect and focus your efforts not on replicating others' portfolios but on looking for opportunities where they are not. The only way for investors to significantly outperform is to periodically stand far apart from the crowd, something few are willing, or able, to do.”

WayAbleOpportunityCausesTermEffortWatchesFocusWillingPerformancesCrowdsEnvyCyclesInvestorsPerpetualLocksCompetitorsShort TermShortcomingsPortfolios
Author:Seth Klarman
Create image

“Value investors will not invest in businesses that they cannot readily understand or ones they find excessively risky. Hence few value investors will own the shares of technology companies. Many also shun commercial banks, which they consider to have unanalyzable assets, as well as property and casualty insurance companies, which have both unanalyzable assets and liabilities.”

WellsValuesCompanyTechnologySharePropertyAssetsInvestorsCasualtiesLiabilityInsurance CompaniesCommercial BanksAssets And Liabilities
Author:Seth Klarman
Create image

“Investors should pay attention not only to whether but also to why current holdings are undervalued. It is critical to know why you have made an investment and to sell when the reason for owning it no longer applies. Look for investments with catalysts that may assist directly in the realization of underlying value. Give reference to companies having good managements with a personal financial stake in the business. Finally, diversify your holdings and hedge when it is financially attractive to do so.”

KnowsGivingShouldLooksMayMadeReasonValuesPayAttentionCompanyManagementSellsInvestmentFinancialCurrentsCriticalRealizationPay AttentionAttractiveGood ManInvestorsStakesCatalystUndervaluedOwning It
Author:Seth Klarman
Create image

“To value investors the concept of indexing is at best silly and at worst quite hazardous. Warren Buffett has observed that "in any sort of a contest - financial, mental or physical - it's an enormous advantage to have opponents who have been taught that it's useless to even try." I believe that over time value investors will outperform the market and that choosing to match it is both lazy and shortsighted.”

TryingBelieveHas BeensValuesI BelieveWorstTaughtConceptsAdvantageFinancialSillyEnormousUselessOpponentsLazyInvestorsContestsBuffettWarren BuffetIndexing
Author:Seth Klarman
Create image

“Warren Buffett likes to say that the first rule of investing is "Don't lose money," and the second rule is, "Never forget the first rule." I too believe that avoiding loss should be the primary goal of every investor. This does not mean that investors should never incur the risk of any loss at all. Rather "don't lose money" means that over several years an investment portfolio should not be exposed to appreciable loss of principal.”

ShouldYearsFirstsBelieveMeanDoeGoalLosesLossForgetRiskInvestmentInvestingLikesPrimariesNever ForgetInvestorsExposedPrincipalAvoidingPortfoliosBuffettWarren Buffet
Author:Seth Klarman
Create image

“While no one wishes to incur losses, you couldn't prove it from an examination of the behavior of most investors and speculators. The speculative urge that lies within most of us is strong; the prospect of a free lunch can be compelling, especially when others have already seemingly partaken. It can be hard to concentrate on potential losses while others are greedily reaching for gains and your broker is on the phone offering shares in the latest "hot" initial public offering. Yet the avoidance of loss is the surest way to ensure a profitable outcome.”

WayHardLyingStrongWishLossShareProveBehaviorGainsHotPhonesOutcomesReachingUrgesLunchInvestorsOfferingCompellingInitialsProfitableExaminationAvoidanceProve ItBrokersSpeculatorsFree Lunch
Author:Seth Klarman
Create image

“Frequent comparative ranking can only reinforce a short-term investment perspective. It is understandably difficult to maintain a long-term view when, faced with the penalties for poor short-term performance, the long-term view may well be from the unemployment line ... Relative-performance-oriented investors really act as speculators. Rather than making sensible judgments about the attractiveness of specific stocks and bonds, they try to guess what others are going to do and then do it first.”

TryingFirstsWellsMayLongDifficultTermLinesPoorViewsPerspectiveJudgmentPerformancesInvestmentLong TermInvestorsRelativeSensiblePenaltiesUnemploymentShort TermAttractivenessRankingSpeculators
Author:Seth Klarman
Create image

“Wall Street can be a dangerous place for investors. You have no choice but to do business there, but you must always be on your guard. The standard behavior of Wall Streeters is to pursue maximization of self-interest; the orientation is usually short term. This must be acknowledged, accepted, and dealt with. If you transact business with Wall Street with these caveats in mind, you can prosper. If you depend on Wall Street to help you, investment success may remain elusive.”

IfsMindMaySelfHelpingChoicesTermInterestStreetsDangerousWallDependsBehaviorStandardsInvestmentAcceptedPursueInvestorsShort TermSelf InterestElusiveOrientationDangerous PlacesInvestment Success
Author:Seth Klarman
Create image

“When excesses such as lax lending standards become widespread and persist for some time, people are lulled into a false sense of security, creating an even more dangerous situation. In some cases, excesses migrate beyond regional or national borders, raising the ante for investors and governments. These excesses will eventually end, triggering a crisis at least in proportion to the degree of the excesses. Correlations between asset classes may be surprisingly high when leverage rapidly unwinds.”

PeopleMayEndsGovernmentSituationClassCasesSecurityDangerousDegreesCreatingStandardsCrisisBordersProportionAssetsInvestorsExcessPersistLendingCorrelationUnwindMigrateLaxDangerous SituationsNational BordersFalse Sense Of Security
Author:Seth Klarman
Create image

“Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return. Conservative positioning entering a crisis is crucial: it enables one to maintain long-term oriented, clear thinking, and to focus on new opportunities while others are distracted or even forced to sell. Portfolio hedges must be in place before a crisis hits. One cannot reliably or affordably increase or replace hedges that are rolling off during a financial crisis.”

ThinkingShouldLongDoeLastsOpportunityTermClearFocusRiskReturnIncreaseCrisisSellsDollarsStriveFinancialProfitConservativeLong TermConsiderationCrucialInvestorsRollingEnteringDistractedFinancial CrisisPortfoliosNew OpportunityBackseatClear Thinking
Author:Seth Klarman
Create image

“The government - the ultimate short-term-oriented player - cannot withstand much pain in the economy or the financial markets. Bailouts and rescues are likely to occur, though not with sufficient predictability for investors to comfortably take advantage. The government will take enormous risks in such interventions, especially if the expenses can be conveniently deferred to the future. Some of the price-tag is in the form of back- stops and guarantees, whose cost is almost impossible to determine.”

IfsGovernmentPainFormTermEconomyPlayerImpossibleRiskCostAdvantageUltimateFinancialDetermineEnormousSufficientGuaranteesExpensesInvestorsRescueInterventionShort TermTagFinancial MarketsPredictabilityPrice TagBailouts
Author:Seth Klarman
Create image

“Below, we itemize some of the quite different lessons investors seem to have learned as of late 2009 - false lessons, we believe. To not only learn but also effectively implement investment lessons requires a disciplined, often contrary, and long-term-oriented investment approach. It requires a resolute focus on risk aversion rather than maximizing immediate returns, as well as an understanding of history, a sense of financial market cycles, and, at times, extraordinary patience.”

BelieveWellsLongDifferentSeemsUnderstandingTermFocusRiskReturnLessonsLateApproachInvestmentExtraordinaryFinancialContraryLong TermCyclesInvestorsAversionResoluteFinancial MarketsMaximizingRisk Aversion
Author:Seth Klarman
Create image

“The government can always rescue the markets or interfere with contract law whenever it deems convenient with little or no apparent cost. (Investors believe this now and, worse still, the government believes it as well. We are probably doomed to a lasting legacy of government tampering with financial markets and the economy, which is likely to create the mother of all moral hazards. The government is blissfully unaware of the wisdom of Friedrich Hayek: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.")”

KnowsMenBelieveWellsLittlesStillsGovernmentLawMotherMoralEconomyImagineDesignCostEconomicsTasksFinancialCuriousLegacyLastingContractsInvestorsRescueInterfereDoomedConvenientHazardsFinancial MarketsHayekFriedrich HayekLasting LegacyMoral Hazard
Author:Seth Klarman
Create image

“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.”

NeedsLongPhilosophyMightValuesTermResultsPsychologyRiskLimitsToolsIntelligentFundamentalsInvestmentDepthInvestingCrowdsPursueAnalysisLong TermInvestorsComprehensiveBargainsIdentifying
Author:Seth Klarman
Create image

“Successful investors like stocks better when they’re going down. When you go to a department store or a supermarket, you like to buy merchandise on sale, but it doesn’t 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 shouldn’t panic, but it’s hard to control your emotions when you’re overextended, when you see your net worth drop in half and you worry that you won’t have enough money to pay for your kids’ college.”

PeopleWayShouldHardEnoughKidsPayEmotionHalfWorrySuccessfulCollegeStoresDepartmentInvestorsPanicSupermarketsMerchandiseNet WorthDepartment Stores
Author:Seth Klarman
Create image

“Here’s how to know if you have the makeup to be an investor. How would you handle the following situation? Let’s say you own a Procter & Gamble in your portfolio and the stock price goes down by half. Do you like it better? If it falls in half, do you reinvest dividends? Do you take cash out of savings to buy more? If you have the confidence to do that, then you’re an investor. If you don’t, you’re not an investor, you’re a speculator, and you shouldn’t be in the stock market in the first place.”

IfsKnowsFirstsFallHalfSituationFollowingHandleSavingMakeupInvestorsCashSavingsGambleYou Like ItDividendsPortfoliosSpeculatorsStock Price
Author:Seth Klarman
Create image

“Value investing is simple to understand but difficult to implement. Value investors are not supersophisticated analytical wizards who create and apply intricate computer models to find attractive opportunities or assess underlying value. The hard part is discipline, patience, and judgment. Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgment to know when it is time to swing.”

KnowsNeedsHardValuesOpportunityWaitingDifficultSimpleDisciplineJudgmentComputerModelsInvestingAttractiveThrownInvestorsSwingsWizardsIntricateUnattractive
Author:Seth Klarman
Create image