On Value Investing

Warren Buffett is likely the best-known of the “value” investors. There are others who use the approach, too. The principle is clear enough. Find situations where you can buy dollars for seventy-five cents.

Among the ones who have not come into the spotlight as Buffett has, is Boston-based Seth Klarman. He is the founder of Baupost Group.

His 1991 Book, Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor, is well-respected. It’s been out of print for a long time. You can pick up a used one at Amazon for a little over $3,000.

He has many thoughts on investing that are simple and often obvious, even if not previously familiar. Here are a few.


  • People don’t consciously choose to invest with emotion– they simply can’t help it.
  • All an investor can do is follow a consistently disciplined and rigorous approach. Over time, the returns will come.
  • We don’t buy ‘the market.’ We invest in discrete situations, each individually compelling.
  • Many investors find it difficult to fight the crowd.
  • The cheapest security in an overvalued market may still be overvalued.
  • You can make some investment mistakes and still thrive.

What it means to be an investor

  • Here’s how to know if you have the makeup to be an investor. How would you handle the following situation? Let’s say you own a Procter & Gamble in your portfolio and the stock price goes down by half. Do you like it better? If it falls in half, do you reinvest dividends? Do you take cash out of savings to buy more? If you have the confidence to do that, then you’re an investor. If you don’t, you’re not an investor, you’re a speculator, and you shouldn’t be in the stock market in the first place.

The efficient market hypothesis

  • Buffett’s argument has never, to my knowledge, been addressed by the efficient-market theorists; they evidently prefer to continue to prove in theory what has been refuted in practice.
  • The irony of efficient market theory is the more people believe in it, the more inefficient the market is likely to become.

Investing well is not impossible.

Suppose your directionally accurate thought becomes, “I want to live well at retirement and sleep well in the meantime.”

Would that change your approach?

I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

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