TIP149: BILLIONAIRE SETH KLARMAN’S

MARGIN OF SAFETY

30 July 2017

For many people that struggle to read the Intelligent Investor by Benjamin Graham, there’s good news, Billionaire Seth Klarman has written a book that does a better job of outlining the value investing approach.  The only problem is Klarman’s book typically costs around $700 to purchase.

In this episode, Preston and Stig read Klarman’s book and discuss the important attributes of what they learn. So who’s Seth Klarman and why’s his book so expensive?  Born in 1957, in New York City, Klarman’s father was an economist at Johns Hopkins University and his mother taught English.  At an early age, Klarman was fascinated with business and making money.  By the age of ten he was already investing in the stock market and by his college years, he got into Cornell to study economics.  During Klarman’s time in the investing world, he’s been able to compound capital at a 20% annual return and he’s managed to build a $31 billion dollar fund.  In 1991 Klarman wrote his book, Margin of Safety, and ever since the first publication, there have only been 5,000 copies printed.  As a result of such a small supply and enormous demand, Klarman’s book is very expensive.

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IN THIS EPISODE, YOU’LL LEARN:

  • The different methods for stock investing valuations
  • The difference between investors and speculators
  • When you should hold short term and long term bonds
  • How to counteract risk in your portfolio

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Preston Pysh  0:02  

Hey, how’s everyone doing out there? Today we’re going to be covering an interesting billionaire that’s been referred to as the most successful and influential investor you’ve probably never heard of. In fact, investing legend Warren Buffett evidently keeps a copy of this person’s book in his office at work. 

So, the name of the book is, “Margin of Safety,” and the investor is Seth Klarman. Klarman’s personal net worth is about $1.5 billion. And he’s a hardcore value investor that bases his investing approach around Benjamin Graham and the principles that have precipitated out of Graham’s approach.

Stig Brodersen  0:36  

“Margin of Safety” is really an iconic book within the value investing community. Not only because it’s a great book, but also because he only chose to put 5,000 copies into existence. In a research for this episode, we even found out that university libraries have named this as one of the most waitlisted titles, and even more impressively, or perhaps discouraging is actually that the book is most often claimed as lost. 

Preston Pysh  1:02  

So that’s right, Stig, and because Klarman’s book is so rare and highly sought after, the book retails from anywhere between $700 and $3,000 for a single copy. Luckily, we were able to get our hands on this very valuable book and pick apart some of the more interesting parts to highlight in this episode. So, without further delay, let’s hop to it.

Intro  1:25  

You are listening to The Investor’s Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

Preston Pysh  1:45  

Alright, so like we said in the introduction, we’re going to be covering billionaire Seth Klarman’s book today. And the title of this book is, “Margin of Safety”. This was a great read. I was thoroughly impressed. You know for how expensive the book was, I was kind of expecting it to put some gold bars in my pocket while I was reading it, but that obviously didn’t happen. But I will say, this was a fantastic read if the book was $5 or $3 or something like you know, was given to you for free, I would still say this was a fantastic read. I’m kind of curious the way Stig sees it.

Stig Brodersen  2:20  

Yeah, I have the similar impression as you, Preston. It was a great book, and it’s definitely one of the better value investing books. The book is almost legendary among many investors. It’s kind of one of those must-read things if you’re super geeky like you and me, Preston, I guess.

Preston Pysh  2:36  

Yeah. You know why I liked it, and why I’m saying I think it’s so good is, it’s easy to read. For me, this was 1,000 times better than the “Intelligent Investor”. I think anybody who would read this would find this much easier to understand than the “Intelligent Investor”, and I think it actually goes into a lot more depth than the “Intelligent Investor”.

Stig Brodersen  2:54  

Yeah, and the books are very, very similar. Just one way to look at that is the amount of times that he mentions Benjamin Graham and Warren Buffett in the book, in many ways is sort of like an updated version of the “Intelligent Investor”/ “Security Analysis”, I guess. Really good content that’s really easy to read.

Preston Pysh  3:12  

Yeah, much easier to read than Benjamin Graham’s writing style. 

Okay, so what we’re going to do is we’re going to hit some of the great discussions that we had found. Stig took his notes when he read it. I have my notes of what I wanted to discuss going through this. So one of the first things that I want to talk about is very early in the book, Klarman models a lot of the book around the “Intelligent Investor.” 

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