The Value of Not Being Sure: Seth Klarman


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Below is a neat Feb 23 article published in Value Investor Insight written by Seth Klarman.

The document is a bit hard to read but valuable lessons in value investing. Maybe it’s called “value” investing because we are always trying to learn valuable lessons that traders and speculators never consider.

Seth Klarman wrote this early 2009, just before the start of the current great bull market.

You’ll notice how familiar things felt back then to the current jitters the market is experiencing. Here are my highlights.

The greatest challenge of investing in this environment is neither the punishing price declines nor the extraordinary volatility. Rather, it is the sharply declining economy, which makes analysis of company fundamentals extremely difficult. When securities decline, it is crucial to distinguish, as possible causes, legitimate reaction to fundamental developments from extreme overreaction.

Buying early on the way down looks a great deal like being wrong, but it isn’t. It turns out you won’t be able to accurately tell who’s been swimming naked until after the tide comes back in.

If you look to “Mr. Market” for advice, or if you imbue him with wisdom, you are destined to fail. But if you look to Mr.Market for opportunity, if you attempt to take advantage of the emotional extremes, then you are very likely to succeed over time.

Controlling your process is absolutely crucial to long-term investment success in any market environment.

Successful investing requires resolve. When taking a contrary approach, one has to be able to stand one’s ground, be unwavering when others vacillate, and take advantage of others’ fear and panic to pick up bargains. But successful investing also requires flexibility and open-mindedness. Investments are typically a buy at one price, a hold at a higher price, and a sale at a still higher price.

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