MARGIN OF SAFETY SUMMARY (BY SETH KLARMAN)
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- Опубликовано: 15 май 2024
- Seth Klarman is a legendary value investor with some $25B in assets under management at his Baupost Group. In 1991 he released a book called “Margin of Safety - Risk Averse Value Investing Strategies for the Thoughtful Investor” which has become something of a must-read among sophisticated investors. Unfortunately, it is out of print, and a physical copy cost $2,000 to get from Amazon. One can only speculate of WHY Mr. Klarman decided not to make a second edition, there’s clearly demand for it these days. Is it because he’s already wealthy enough so he just doesn’t care? Is it because he offended some group of people that doesn’t like being offended? Or is it because he thought that maybe he revealed a little too much of his investing secrets? I don’t know. But I had to get a copy myself, in order to bring you guys this top 5 takeaways summary. Let’s dive in!
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My main tool for fundamental screening and analysis of stocks: tikr.com/tsi
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Timestamps for Margin of Safety:
00:00 Intro
01:08 What’s the Difference Between a Value Investor & a Speculator?
04:00 Investment Risk - A Terribly Misunderstood Concept
06:48 Three Methods of Valuing a Stock
10:15 To Hold, or Not to Hold … Cash
13:01 Apply the 80/20 Approach
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My goal with this channel is to help you make more money and improve your personal finances. How to become a millionaire? There are many ways to get there - investing in the stock market, becoming a stock trader, doing real estate investing, or why not becoming an entrepreneur? But whether you are interested in how to invest in stocks or investing strategies for creating passive income with rental properties - I hope to be able to provide you with a solution (or at least an idea) here. Warren Buffett - the greatest investor of our time - says that you should fill your mind with competing ideas and then see what makes sense to you. This channel is about filling your mind with those ideas. And in the process - upgrading your money-making toolbox.
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I like Drunkenmiller's approach. He is pretty quick to pull the trigger when something looks obvious, then he and his team double-check the investment afterwards.
That makes sense, the cost of making a change after a short time is very small.
You only have to start thinking of tax drag after meaningful appreciation.
Peter Lynch does something similar
Thank you Swedish Investor for great book reviews and content as always!!
Glad you like them!
This channel is a true gem 🙏🏻
I always wondered how this guy consistently finds new books to read
Factoid: In March of 2020 one of Seth Klarman’s Baupost’s stocks was Veritiv (VRTV) which was ≈ $7.50. In 2022, Veritiv rose to ≈ $160.00. Recently, it’s around $135.00. Great video, I’m glad you bought the book. UPDATE: In August 2023, Veritiv agreed to be bought out for $170.00 per share
It is out of print because it is offered for free online for a long time now.
Thank you! Always wanted to read it but its price was always an issue.
Fantastic summary Erik. Bra jobbat.
Great summary - love Seth Klarman! DCF is a great way to value a stock and the reverse is a great way to try to understand what is prices in.
To me the time aspect of the book is another very important lesson - it is more of a marathon than a sprint.
Overall though I do find it a bit too theoretical.
FINALLY! I am waiting for this in Ages bro, thank you 🔥 I love Seth Klarman.
Thank you!!!!
Youre the goat for sharing with the masses like this, I could never afford this in the immediate future. Thank you
glad to see this summary, was looking if you had it just a few weeks ago!
Love you swedish. I follow you from argentina, can't wait to see the next one
What do you use to create videos like this regarding the visuals? I thought PowerPoint could be used but some effects seem too hard to replicate in PowerPoint
Love your content! Which platform you use to create your videos? I would like to learn how to use it!
Great summary again, and an interesting video
Tanks for everything we appreciate
Thanks for the overview of the book. Time to get a copy, somehow, somewhere....
0:00: 📚 Seth Klarman's book 'Margin of Safety' is a must-read for value investors, but it is out of print and expensive to buy.
3:01: 📉 Investing in assets that do not produce cash and rely on speculation is not considered an investment but pure speculation.
6:22: 💰 Valuing stocks: liquidation value, stock market value, and discounted cashflow analysis.
9:40: 💰 The importance of having a margin of safety and considering opportunity costs in investing.
12:45: 💰 Apply the 80/20 approach to investing in the stock market by focusing on cashflows, valuing stocks using different methods, and spending time exploring many ideas.
Recap by Tammy AI
You just saved me $2000. Thank you! I really appreciated the distilled wisdom this channel provides. It's been a huge help to me.
The point I got from the book is “and”.
Klarman wrote about many bank investors looking at the default rate, but not asking “and?”
If the default rate is suppressed because the detonations “quantity of underlying loans” has grown faster than the numerator “defaults” could keep up. The ratio will be misleading.
This questioning - and? - has much wider application. It was a key point to margin of safety.
Thanks!
Nice. Great insights.
Nice Video!
I was juggling number 4 back on the earlier parts of the year because it was assumed the market would be very unstable for 2023. I didn't want to put all my eggs into that kinda basket where "cash is king", even if I got burned during the 2021-2022 markets where I went in when it was high and it dropped heavily. So since I was sitting on more cash than I probably would've liked, instead of just simply waiting for a crash, I should just slowly invest it back in regardless of there is a crash. And I feel much more comfortable now than I was basically denying that I was timing the market.
Swedish, this is perfect timing. You are the best! Seth is one of my favorite investors. You made my day Swedish. Thankyou!!
Happy to hear that!
Excellent stuff buddy 🎉. ❤swedish investor
thank you! 👏👏👏
Welcome back!!
Thank you for sharing this with us Swedish investor. I wonder, what software do you use to create these nice animations of yours?
00:00 Introduction and Background of Seth Clorman
00:59 Difference between a Value Investor and a Speculator
04:00 Understanding Investment Risk
06:49 Methods of Valuing a Stock
09:30 The Importance of a Margin of Safety
12:53 Applying the 80 20 approach to investing
13:55 Focus on cash flows rather than resale price
I noticed a monitoring screen on my watchlist. Now when i find a company that i like and want to invest in. I add it to my watchlist, and write in the price i would by it at. I also set an alert when the price drops below that price. It is nice getting a text from fidelity telling me there is a deal waiting for me should i want it.
6:02 there are formulars of It that are More accurate and include More factors, such as the 5 Factor model.
That Formula is quite a Bit outdated.
Thanks mate
Hey, a big thanks from India, the work you're doing is a great service to investors around the world. Could you please summarise the book, 'What I learned from Darvin about Investing' from Pulak Prasad? I'm sure you'll find it quite insightful..
Great review.
Drukenmiller worked with Quantum Soros and used the aphorism - “Invest then investigate.” 👍🏼👍🏼👍🏼👍🏼👍🏼 I like this myself.
What app was used to make this hand doodle videos?
nice
Hello sir, will you ever share your portfolio with us, your followers and supporters? Your content is life changing for many of us and so I was wondering if you could do that. Many thanks 🙏
How bout book on 4 figure trick by david meckin... It be a great video...
Appreciate your review @TheSwedishInvestor. I re-read my copy after some years and note that Klarman, like David Swensen (Yale former endowment manager, RIP) says that the deck is stacked against the individual investor. How can an individual get involved in liquidation or merger-arbitrage opportunities? If you have any thoughts, please share them. And thanks again -- love your channel.
Please make a book review on Where are the customer's yatch- fred shrwed
The book also includes a lengthy and detailed examination of the way the financial services industry takes advantage of gullible investors. I imagine Klarman stepped on some toes when he exposed their methods. It's definitely worth a read if you can get hold of a copy.
Good stuff Swedish...may you please make a video about stock investment and hyper inflation 🫠
That's great Eric! haha what about speculating on rare books? I think I looked at Margin of Safety a year ago and it was $800
Haha, that's quite meta if you do it in Margin of Safety
I've found it in at the library, so anyone interested in reading it could try the same.
You would enjoy reading the book. What I learnt about investing from Darvin. By Pulak Prasad.
I hope the TSMC mention was just an example to spend more time researching a business as I have invested in it and you got me worried for a bit :D
I invested in it a long while back. Great business. I sold after making some profit. The risk is political in nature. TSMC has proven to be highly profitable in Taiwan, however Taiwan is in a risky position with China. As far as TSMC trying to branch off, it being profitable in Taiwan won’t necessarily make it profitable outside of Taiwan. Look at the TSMC situation in Arizona, they are trying to bring Taiwanese workers over to work in Arizona. Why? Because they know they will be more productive for less pay. There’s a lot of risk factors to consider with TSMC hence why Warren Buffet sold. He doesn’t want a company with uncertainty in its future. That being said every investment is based on your own risk tolerance. Definitely be weary of going all in. Good luck.
@@saneb5955 Maybe you're right, but Apple, NVIDIA, AMD and others keep ordering from TSMC for their next chips. So short-term maybe there is no danger, not sure about long-term. China has wanted to retake Taiwan for decades and they didn't succeed until now, but, of course, the future is still uncertain.
I like company which has little debt, constant devident, low pe and low pb
6:00 I think the CAPM is genious when you understand why it was invented. In my opinion it's market makers who are promoting this because their goal is for people to trade so they can make commissions. It's genious that one can come up with some "sophisticated" formula that justifies blindly buying stocks.
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I sell replica of Margin of Safety book for $100.
Printed on premium paper with hard cover.
Thanks, saved me a couple of grand lol
What does “garbage in garbage” to refer to?
"Garbage in, garbage out" means that if you put inaccurate figures into an equation (garbage in), you are going to get an inaccurate answer (garbage out).
Thanks for the video. You can also check your public library. I was able to find a copy at mine. Cheers.
Like a lot this video... But you may some interesting comments from the fama French fun boys.. 😅
🏴☠️ everything is for "free" on the Internet..I just buy more when the price is low and dollar cost averaging and reinvest dividends...hope this works 😱🤔🤷♂️
You can find the PDF for this book free, not hard if you search for it. Hope you wanted the physical copy for the sake of having it.
11:28 Tbh that is a sort of toxic positivity mindset to have. A 10% Dividend pay out, regular or not, is a lot better on a 10k amount than 200.
RIP Charlie
To be quiet honest, whoever watched few or your vids or read few real investment books (eg inteligent investor) are gonna be familiar with this. Like when you said he differentiates between investors and speculators or about the valuing strategies i thought to myself "ive heard that one quite a lot before lmao". So, at least we dont have to spend loads money on stuff we've probably already heard.
Hey alexpot5! Indeed. That's a tough one about the books actually. I usually want the 5 takeaways to be a fair representation of what's in the book, but I also don't want to present the same stuff all the time. I felt like takeaways 1-2 may have been mostly repetition while 3-5, especially 4, was new stuff to the channel.
@@TheSwedishInvestor hey, thanks for your answer. Yes i agree number 4 was rather a bit different concept then most value investors would tell you. But yeah its always easy for you to convert these books into vids. Thanks for the video anyways and keep up the good work!
2:30 what movie?
I haven't watched this yet. But didn't you do a summary of this book before?
Hey a-sf8hi ! No, this is the first time I have done this one. I've done a video sort of profiling Seth Klarman though, maybe you are thinking about that one?
that is correct... it was seth klarman the 30b value investor
@@TheSwedishInvestor yeah, I looked back at your past videos and got them mixed up. 😳 thanks for replying😊
@@cool2b88 thank you🙂
Out of print huh ? ... Google search has entered the chat ...
That book is what I call an Investment...
Actually, the book is pure speculation. It doesn't have any cash flows and you will need greater fool to buy it from you. Seth Klarman doesn't make reissue or new edition, because he 's having good laugh, watching "value investors" buying few pieces of paper for $2000. And he even said in some interview, that price was crazy and everybody can download it on internet for free.
@@wilfriedvomacka1783 I oroginally intended It to mean that people using this to educate themselves was an Investment Into themselves.
It was meant to be a Bit ironic, as That's a very steep price Tag for a book. But I didn't know that the book can be found online for free, but on the Other Hand It does make a Lot of Sense.
7:17
Just like GEO GROUP... That is extremely undervalued stock with a massive amount of cash certainty into the future...
6:20 If you believe markets are efficient, all risk assets have to have very similar risk adjusted returns. This must be true. But that does not mean similar returns. And volatility is not the sole determinate of risk, but it plays a part. Riskier assets (such as small caps) have higher EXPECTED returns precisely because the returns are NOT GIVEN. Risk does not erode returns from losses, because those risks are priced in. Investors command a margin of safety in the form of an applied discount rate, leading to lower valuations for riskier assets which in turn yield higher expected returns.
Does anyone still believe markets are efficient? They clearly aren’t.
@@kazaroth Many people do and many people don't. That's why it's called a hypothesis.
"no one has a clear definition of how to perfectly define or precisely measure this thing called market efficiency"
I disagree with the "80/20 Approach". We should understand our investment deeply.
lol did you buy it off amazon?
No, actually not. It just made the point better, imo!
@@TheSwedishInvestorThe perceived value is now $2000 + hours of time saved. Good job on the sell.
First!
ATAI is going to be the biggest psychedelic company in the world
I hope so
I found this book such a dry read lol
Maybe he didn't decide to publish a second edition because he realised that his book was just a reiteration of some of the ideas from The Intelligent Investor? 🤣
BENJAMIN GRAY-HAM
Not gonna lie book sounds boring as hell
Seth is a mediocre investor
Margin of Safety is not a good book. I read 60% of the book before I came across a valuable chapter. There are entire sections used as fillers and waist of my time. I would not pay $10 for it let alone thousands. More importantly, Seth is not a good investor. In the past 10 year his return has be 44% and his 5YR performance was negative 21%. In contrast, Ackman did 242% for the 10 YR and 5YR is at 70%. My past 3.5 years is almost 1000% (with savings) turning 30k to 300k. I find useless things like this amusing tbh. Read Intelligent Investor instead.
@The Swedish Investor please don't sweat missing META, I'm sure you picked up other great deals. Throughout the crash I flipped through the "Track Investing Gurus" section of TIKR and I didn't see anyone in there with a large position in META. It's still reasonably priced right now for a starter position, it's not unreasonable yet. Thanks as always for the videos 😀
There is one aspect of the "margin of safety" concept in investing that I do not understand. Let's say you have identified a stock for which you believe the intrinsic value is $25 per share. Mr. Market calls you and says "The price is $25, do you want the money or the shares?" You insist on a 20% margin of safety, so you are not willing to pay more than $20. You say "I'll keep the money." Every day he quotes a price and asks "Money or shares?" One day his quote is $20, and you still believe the intrinsic value is $25, so you buy the shares for $20. Two months later, his quote is back up to $25, which you still believe is the intrinsic value. What do you do? Warren Buffett would keep the shares (forever, unless they become wildly overvalued or you realized your analysis of the business was wrong). However, and this is critical, the decision of money or shares SHOULD NOT depend on whether you already own the shares. At $25 per share, which would you rather have, money or shares?
If you insist on a 20% margin of safety, you no longer have it and should sell at $25. If you now are willing to own the shares at $25 (the intrinsic value) you should have taken the shares when Mr. Market first offered them at $25. Whether or not you already have a $5 profit in the shares should be irrelevant. That's already your money, not "house money" and if the price goes back to $20 you will have lost the $5. What happened to rule #1? Thinking it's only a loss if you "take it" is a fallacy. Your account is down by $5 per share and that is a loss.
If your decision is dependent on whether you already own the shares, that is a psychological issue, not a financial one (ignoring potential taxes on capital gains or losses, which I don't think Mr. Buffett has ever mentioned when considering whether to hold or sell a position).
I truly do not understand why an investor will happily hold a $25 stock he or she thinks is worth $25, but won't buy a $25 stock he or she thinks is worth $25. As Mr. Spock would say, "That is illogical."
Hey christopherstewart9874! That's a great question. It all boils down to opportunity costs. So, if you have a stock you've bought with a 40% margin of safety, but price increases have made it so that the margin is now only 10%, then you'll replace it with something else with a better margin. You can use the margin of safety as a sort of a "filter" for looking for new opportunities. If the worst position in your portfolio has a 30% margin of safety, you do not have to spend much time with something that you think has only a 10%. In fact, you'd probably want some "margin" there as well, so you'd only replace the 30% one with a 40% or better one, due to taxes and commissions. Hope this makes sense.
I hope you get multiples of $2,000 for sharing this invaluable investment wi$dom with us! Thank you 🙏
Thanks!