Seth Klarman: A Winner On Wall Street

**⭐ analyst75** · June 3, 2015

INSIGHTS INTO THE MINDSET OF SUPER TRADERS – Part 6

“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.”

Name: Seth Klarman

Date of Birth: May 21, 1957

Nationality: American

Profession: Value investor, funds manager, financier and philanthropist

Career

Belonging to the Jewish ethnicity, Seth was born and raised in the US. He’d worked for Max Heine and Michael Price, which is now part of Franklin Templeton Investments. In 1982, he founded Baupost Group and the firm grew and grew. Recently, it was estimated that the firm was managing more than $22 billion US dollars. He also authored a book titled: “Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.” That book – now out of print – is seen as a value investing classic.

In the year 2013, he earned an income of $350 million US dollars and subsequently, he was named among the highest earning funds manager. As of the year 2014, he was worth $1.3 billion US dollars. Sometimes they call him the Warren Buffett of his generation.

Seth is involved in philanthropy and politics, heavily donating to the causes he believes in. He lives in Brookline, Massachusetts, and he’s married to Beth Klarman.

Insights:

Seth makes great returns on his investments despite his unconventional investment methods. Sometimes, he makes up to 50 per cent per annum, by investing in unpopular instruments and looking for undervalued markets. You don’t need to do what most others are doing before you can make money in the markets. No matter how odd your strategies are, they’re OK as long as you make consistent gains. Let people criticize you. Let them say your trading style is weird; you’re fine as long as it works for you.

You don’t need to be a star or a celebrity before you can make money as a trader. There are many people who make money in their private living rooms without the public knowing. In certain cases, most of the so-called professionals who speak at seminars, trading shows, public events, and on radio/television programs aren’t successful traders. Some of the loudest mouths are flops in the markets. As for Seth, he doesn’t always speak in public and doesn’t usually grant interviews, He keeps a low profile, despite being a market wizard.

The public don’t know when the markets are overbought or oversold and that’s why their timing tends to be wrong. For those who know how to play the markets, outperformance is possible.

According to Seth, successful investors tend to be unemotional, allowing the greed and fear of others to play into their hands. By having confidence in their own analysis and judgment, they respond to market forces not with blind emotion but with calculated reason. Successful investors, for example, demonstrate caution in frothy markets and steadfast conviction in panicky ones. Indeed, the very way an investor views the market and its price fluctuations is a key factor in his or her ultimate investment success or failure.

Some investors think of buying alone, though at times, it’s better to bet on long-term bearish trend with some success. When one pays too much attention to the possibility of stocks going up without thinking of the possibility the stocks going down, one may easily miss trading opportunities on the downside.

People invariably showcase their inability to profit from long-term investments based on real fundamental figures. Value investing is inherently long-term in nature.

Computer programs and mathematics can do little to help you in the markets. In the end, you’d need to use common sense when handling investments. Unlike many people, think about how you can lose and try to control that. Don’t think only of how much you can gain.

We like to look for simple solutions to intricate challenges: seeking success formulas. Searching for the Holy Grail is common, while that doesn’t exist.

Remember what happened to CHF Pairs on January 15, 2015. When analysts express too much confidence in certain markets, you need to be very careful.

The quote above is from Seth Klarman and the quote below is also from him. The quote ends this piece:

“Investors must try to understand the institutional investment mentality for two reasons. First institutions dominate financial market trading; investors who are ignorant of institutional behavior are likely to be periodically trampled. Second, ample investment opportunities may exist in the securities that are excluded from consideration by most institutional investors. Picking through the crumbs left by the investment elephants can be rewarding. Investing without understanding the behavior of institutional investors is like driving in a foreign land without a map. You may eventually get where you are going, but the trip will certainly take longer, and you risk getting lost along the way.”