Why is it Safety margin such a hot product in the first place? The answer seems directly tied to Seth Klarman himself – and his status as a legendary yet stealthy investment genius.
Who is Seth Klarman?
The author of Safety margin is well known in investment circles for, among other things, not being particularly well known to the masses. He is obviously nowhere near as famous as billionaire investor and philanthropist Warren Buffett, the so-called “Oracle of Omaha”. But from 2012, the Economist called Seth Klarman the “Oracle of Boston” (where Klarman’s Baupost group is based), noting both his investment prowess and his ability to fly under the radar.
“Klarman keeps a low profile and rarely speaks at industry meetings,” the Economist reported. “He is possibly the most successful long-term player in the hedge fund industry who has managed to stay out of the spotlight.”
Likewise, the New York Times wrote in 2017 that while “Klarman has long kept a low public profile, he is considered a giant in investment circles.”
The Times then turned to what Klarman, a registered independent, thought about what the newly inaugurated President Donald would mean for investors and for the US and world economies in general. Klarman feared that the Trump administration’s tax cuts would increase the deficit and that Trump’s protectionist policies would make American businesses globally uncompetitive, even if they save jobs in the short term.
“The big picture for investors is this: Trump is high volatility, and investors generally hate volatility and shy away from uncertainty,” Klarman wrote in a note to his investors in early 2017. “Not only Trump is incredibly unpredictable, but he apparently is on purpose; he says it’s part of his plan.
Klarman, on the other hand, is highly regarded for its stable, investment and business-based approach. He obtained his MBA in 1982 from Harvard Business School (where a building bears his name, thanks to a generous donation), and joined the Baupost Group when it was founded soon after. He’s been working there ever since.
A value investing approach
Klarman is a proponent of value investing, a strategy that may seem simple at first glance – buying stocks of undervalued companies – but requires great discipline and a long-term view.
Most people say that the term (and concept) of “value investing” was coined by Benjamin Graham, who was a professor at Columbia Business School nearly a century ago, and authored The Smart Investor: The Definitive Book on Value Investing – which Money readers have called one of the best investing books of all time.
Some industry watchers say Klarman’s Safety margin ranks right away with Graham’s writings on value investing. “Graham was an amateur playwright and someone who took great pains and took pride in his style of prose, but there is a bit of a mystery surrounding his investment track record. Not Seth’s. Seth is a more accomplished investor, Graham a more accomplished columnist – but Safety margin rises very well ”, James Grant, editor of the industry newspaper Grant Interest Rate Observer, Recount Director of Investments in 2015.
The approach to value investing is “simple enough that anyone can follow it,” Klarman said. It is “logical, common sense and has a proven track record.”
That doesn’t mean it’s easy. As Klarman wrote in Safety margin: “Investing in value requires a lot of hard work, unusually strict discipline and a long-term investment horizon. Few are willing and able to devote enough time and effort to become value investors, and only a fraction of them have the right mindset for success.
Maybe what people find so valuable about Safety margin is that the book explains the nuances of value investing so that everyday readers – as opposed to die-hard investing professionals – can understand. “I tried to write it down so that it would be accessible to the layman or to a professional entering the field,” Klarman told Charlie Rose in the 2011 interview. “I tried to use language layman and make it accessible. “
The high market price for Safety margin is probably also the result of a simple supply and demand. “Maybe if people can’t get something, they want it more,” Klarman said in this 2011 interview.
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