Risk in an investment

The risk of an investment is described by both the probability and the potential amount of loss. The risk of an investment-the probability of an adverse outcome-is partly inherent in its very nature. A dollar spent on biotechnology research is a riskier investment than a dollar used to purchase utility equipment. The former has both a greater probability of loss and a greater percentage of the investment at stake.

- Seth Klarman

Fully invested at all times theory

When the markets are fairly ebullient, investors tend to hold the least objectionable securities rather than the truly significant bargains. But the inability to hold cash and the pressure to be fully invested at all times meant that when the plug was pulled out of the tub, all boats dropped as the water rushed down the drain.

- Seth Klarman

Public vs Private Investments

At equal returns, public investments are generally superior to private investments not only because they are more liquid but also because amidst distress, public markets are more likely than private ones to offer attractive opportunities to average down.

- Seth Klarman

Buy on the way down

You must buy on the way down. There is far more volume on the way down than on the way back up, and far less competition among buyers. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy.

- Seth Klarman

Never risk short-term cash

Do not accept principal risk while investing short-term cash: the greedy effort to earn a few extra basis points of yields inevitably leads to the incurrence of greater risk, which increases the likelihood of losses and severe illiquidity at precisely the moment when cash is needed to cover expenses, to meet commitments, or to make compelling long-term investments.

- Seth Klarman

Risk: definition

Risk is not inherent in an investment; it is always relative to the price paid. Uncertainty is not the same as risk. Indeed, when great uncertainty - such as the fall of 2008 - drives securities prices to especially low leveles, they often become less risky investments.

- Seth Klarman

Never ending cycles

The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.

- Seth Klarman

Futile near term predictions

Attempting to outperform the market in the short-run is futile since near-term stock and bond price fluctuations are random and because an extraordinary amount of energy and talent is already being applied to that objective. The effort only distracts the money manager from finding and acting on sound long-term opportunities.

- Seth Klarman

Know where others go wrong

Avoiding where others go wrong is an important step in achieving investment success. In fact, it almost ensures it.

- Seth Klarman

Not to panic is still a decision

You can wait for opportunities that fit your criteria and if you don’t find them, patiently wait. Deciding not to panic is still a decision.

- Seth Klarman

Why value investing will remain

The foibles of human nature that result in the mass pursuit of instant wealth and effortless gain seem certain to be with us forever. So long as people succumb to this aspect of their natures, value investing will remain, as it has been for 75 years, a sound and low risk approach to successful long term investing.

- Seth Klarman