Margin of safety
by Seth A. Klarman · first published 1991
80% recommend13% neutral7% critical
Why HN recommends it
Covers value investing by buying assets well below estimated worth and building in a margin of safety. It is a practical follow-on to Graham's The Intelligent Investor, aimed at risk-focused investors.
Summarised by Claude from recommending comments
The disciplined pursuit of bargains makes value investing very much a risk-averse approach. The greatest challenge for value investors is maintaining the required discipline. Being a value investor usually means standing apart from the crowd, challenging conventional wisdom, and opposing the prevailing investment winds. It can be a very lonely undertaking. A value investor may experience poor, even horrendous, performance compared with that of other investors or the market as a whole during prolonged periods of market overvaluation. Yet over the long run the value approach works so successfull
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Mentions per year
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…best approach for generating consistently high returns over time and very easy to learn). Here is what I point new investors to: - Buffett: The Making of an American Capitalist, by Roger Lowenstein. - Margin of Safety, by Seth Klarman - The Little Book That Still Beats the Market, by Joel Greenblatt - Common Stocks and Uncommon Profits, by Philip Fisher - Business Adventures: Twelve Classic Tales from the World…
on “Coinbase valued above $100B, ahead of direct listing” ↗For a good summary of the value investing philosophy checkout these books: Intelligent Investor by Benjamin Graham Margin of Safety by Seth Klarman If you want to know this group of high performing value investors, c2 is referring to Buffet's article called "The Superinvestors of Graham-and-Doddsville". It's a pretty fascinating…
on “Why I don't trade stocks and (probably) neither should you” ↗Margin of Safety: Risk-averse Value Investing Strategies for the Thoughtful Investor by Seth Klarman https://en.m.wikipedia.org/wiki/Margin_of_Safety_(book) https://www.amazon.com/Margin-Safety-Risk-Averse-Strategies-...
on “Ask HN: Introductory Books on the Stock Market?” ↗…concept of value as it pertains to investing. Business Adventures: Twelve Classic Tales from the World of Wall Street, by John Brooks. The Little Book That Still Beats the Market, by Joel Greenblatt. Margin of Safety, by Seth Klarman. This book is excellent, however it has been out of print for some time. You may be able to find a copy of it somewhere though (there have often been PDFs of it floating around). Common…
on “Ask HN: What are your instruments for investment?” ↗…Perler, Jeremy, Engelhart, Yoni, McGraw-Hill Education) * Absolute classic (but needs to be updated): The Intelligent Investor: The Definitive Book on Value Investing. (Graham) * On investing in general: Margin of Safety (Seth Klarman) * Great intro to valuation, with the caveat that modern finance and concepts like WACC may not necessarily be useful to your investing strategy: Valuation: Measuring and Managing the Value…
on “Annual Letter to Berkshire Shareholders (2019) [pdf]” ↗As someone who followed Intelligent Investor (and Klarman's Margin of Safety concepts) as an amateur who made good annualized returns, my partner and I stayed away from the modern tech stocks. We basically agreed with what you say about the risk on the performance of a company…
on “The Superinvestors of Graham-and-Doddsville (1984)” ↗…Portfolio,’ but I've decided to implement Chris Cole's ‘Dragon Portfolio’ (search for ‘The Allegory of the Hawk and the Serpent’) with a tactical overlay taken from Seth Klarman's out-of-print investing book, 'Margin of Safety' which I highly recommend.
on “Fed to buy junk bonds, lend to states in fresh virus support” ↗…addition to Buffett, Graham, Fisher, and Munger, are Martin Whitman, Seth Klarman, and Christopher Browne. Browne's letters and studies are available for free on the Tweedy, Browne website, Klarman's book (Margin of Safety) can be found as a pirated PDF, and Whitman's books are relatively inexpensive (and his letters to shareholders are free). Also, in addition to reading shareholder letters by Buffett and Munger, be sure…
on “Ask HN: Models for investing in the stock market...” ↗Check out the comments on this thread: http://news.ycombinator.com/item?id=1241165 I would start by reading The Intelligent Investor by Ben Graham. If you like it, then move on to Margin of Safety by Seth Klarman. (I have a value investing bias.)
on “Ask HN: Good resources for learning+getting into Finance / Trading?” ↗…valuation information check out the mergers & acquisition literature (Finance, Accounting, Business textbooks), and the "value investing" literature (Ben Graham's Intelligent Investor, Seth Klarman's Margin of Safety, etc). I think the article missed the point though -- net worth isn't about liquidation price so much as the cost of getting to your position at a given moment... which forbes seems to have done a decent…
on “Wizards of bullshit: How Forbes turned $6.5 million into $20 billion” ↗Read Warren Buffets shareholder letters Howard Marks letters at Oaktree Jeremy Granthams Letters at GMO Seth Klarman's Margin of Safety Investor letters of good hedge fund managers (einhorn, dalio, singer, etc)
on “Ask HN: How did you learn about stocks and the market?” ↗…Light, by Jonnes. Titan, by Chernow. The Wright Brothers, by McCullough. His Excellency, by Ellis. The Wizard of Menlo Park, by Stross. I Invented the Modern Age, by Snow. Dealers of Lightning, by Hiltzik. Margin of Safety, by Klarman. Masters of Doom, by Kushner. Andrew Carnegie, by Nasaw. Infidel, by Hirsi Ali. Buffett, by Lowenstein. Where Wizards Stay Up Late, by Hafner. Shoe Dog, by Knight. The Making of the Atomic…
on “Ask HN: What are your favorite non-fiction books of all time?” ↗I personally want to be a stock investor. I read a lot of investing books such as Margin of Safety - Risk-Averse Value Investing Strategies for the Thoughtful Investor by Seth A. Klarman, memos and books from Howard Marks, other books about Buffett. Investing help me to minimize risks for my startup.…
on “Tell HN: A disabled 40-year-old person founded a startup and makes a living” ↗Seth Klarman, in Margin of Safety, is refreshingly clear on this. The aim is always to buy something worth a dollar, for less than a dollar. You, not the market, must determine what the asset is worth. That generally requires a significant…
on “Crystal Ball Trading Game” ↗…extreme, if everyone practiced index investing, stock prices would actually never change relative to each other since everyone would be "all in" [I've loosely paraphrased Seth Klarman's arguments from Margin of Safety but for a much more exhaustive treatise please dive into the novel] I think a golden rule of investing is you should reject any absolute assessment of a investment vehicles ("gold always goes up", "invest…
on “Why I don't trade stocks and (probably) neither should you” ↗