Seth Klarman

“Margin of safety is simply the idea that you want room to be wrong.”

“I don’t think there’ll ever be another Buffett, partly for the longevity, but partly because many people could never sustain that kind of return without blowing up.”

“People think they’re hiring a manager to make them money. But probably, they’re hiring a manager to keep them out of trouble and maybe fight their own instincts sometimes.”

“The ability to not be getting margin calls, not be having redemptions, not be scared out of your mind when something’s gone against you is probably the most enhancing thing to long term returns.”

“The challenge is whether you can invest in things that won’t be too bad on the day when the market turns.”

“Holding cash in the absence of opportunity makes sense.”

“Unprecedented events occur with some regularity, so be prepared.”

“Consistency and patience are crucial. Most investors are their own worst enemies. Endurance enables compounding.”

“I think there’s a tendency in the modern world of people wanting their money to be working hard, and I joke that our money is like a couch potato by comparison.”

“In my opinion, the market tells you when to buy things. And when things are really cheap, on a Graham and Dodd valuation basis, you should like them more. And when they’re really expensive, you should like them less.”

“Investors who find an overly narrow niche to inhabit, prosper for a time but then usually stagnate. Those who move on when the world changes at least have the chance to adapt successfully.”

“Investors need to pick their poison: Either make more money when times are good and have a really ugly year every so often, or protect on the downside and don’t be at the party so long when things are good.”

“If you think of the stock market as a cauldron of minestrone soup that occasionally somebody sticks a ladle in and stirs up, it takes a while before all the vegetables float back to the level that they were at before.”

“Avoiding round trips and short-term devastation enables you to be around for the long term.”

“The prevailing view has been that the market will earn a high rate of return if the holding period is long enough, but entry point is what really matters.”

“I am much more inclined to buy a stock that has been kicked out of an index because then it may have value characteristics — it has underperformed.”

“The line I draw in the sand is that if an asset has cash flow or the likelihood of cash flow in the near term and is not purely dependent on what a future buyer might pay, then it’s an investment. If an asset’s value is totally dependent on the amount a future buyer might pay, then its purchase is speculation.”

“We try to protect against tail risk: the risk of unlikely but possible events that could be catastrophic.”

“A cheap stock can stay cheap forever, but if you own a bankrupt bond, the process of emerging from bankruptcy and distributing new securities offers a practical catalyst to realize the value.”

“All investors need to learn how to be at peace with their decisions.”

“When the markets are fairly ebullient, investors tend to hold the least objectionable securities rather than the truly significant bargains.”

“Investing is buying a fractional interest in a business and buying debt claims on a business.”

“The laws of probabilities tell us that almost anyone can achieve phenomenal success over any given measurement period. It is the task of those evaluating a money manager to ascertain how much of past success is due to luck and how much to skill.”

“The question we ask ourselves is, ”What would we be willing to pay to own a security forever?” Then we determine whether we can buy it at a discount from that figure.”

“We try to buy dollars for 50 cents, and to realize the dollar before too much time passes.”

“Human nature being what it is, small loopholes are likely to be exploited until they become big ones, and big ones until they turn into financial disasters.”

“If the stock market has a period of outperformance of its long-term return, it is inevitably followed by some period of underperformance. But people being optimistic and greedy by nature take the recent short-term outperformance of stocks as a sign of good things to come, rather than a warning of bad things to come.”

“In my experience, large increases in assets under management adversely affect returns.”

“People always want to believe that this time is different, that there’s something new under the sun, and that through their own ingenuity they can wish away risk.”

“The whole reason that our capitalist system works the way it does is because there are cycles, and the cycles self-correct.”

“People who chase growth, who chase highfliers, inevitably lose because they paid a premium price. They lose to the people who have more patience and more discipline.”

“It turns out that value investing is something that is in your blood. There are people who just don’t have the patience and discipline to do it, and there are people who do. So it leads me to think it’s genetic.”

“One of the illusions that people on Wall Street have is that they can have perfect information on a stock.”

“I think it would be an interesting change for integrity if managers of funds were required to have more of their own money in them.”

“One of the nice things about investing is there are many different disciplines that work. You should find one that you’re comfortable with.”

“Risk is how much can you lose and what are the chances of losing it.”

“Volatility is not risk. And historic volatility does not necessarily project future volatility.”

“My experience is that when people want to give something away at a ridiculous price because they have to, not because they want to, that’s a good time to buy.”

“The way I would think about risk aversion is most people would not want to toss a coin for their entire net worth.”

“Your own psychology can be your worst enemy as an investor.”

“The way to maximize outcome is to concentrate on process.”

“Value investing is, at its core, the marriage of a contrarian streak and a calculator.”

“It would be silly to expect every bear market to turn into the Great Depression. It would be equally wrong to expect that a fall from overvalued, to more fairly valued, couldn’t badly overshoot on the downside.”

“Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred.”

“Market inefficiencies, like tax selling and window dressing, also create mindless selling, as can the deletion of a stock from an index. These causes of mispricing are deep-rooted in human behavior and market structure, unlikely to be extinguished anytime soon.”

“It is crucial to have a strategy in place before problems hit, precisely because no one can accurately predict the future direction of the stock market or economy.”

“The best investors do not target return; they focus first on risk, and only then decide whether the projected return justifies taking each particular risk.”

“The daily blips of the market are, in fact, noise — noise that is very difficult for most investors to tune out.”

“New financial products are typically created for sunny days and are almost never stress-tested for stormy weather.”

“Risk is not inherent in an investment; it is always relative to the price paid.”

“Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return.”

“You must always be prepared for the unexpected, including sudden, sharp downward swings in markets and the economy. Whatever adverse scenario you can contemplate, reality can be far worse.”

“Money flows, in effect, can render fundamental analysis futile in the short run, even while creating a compelling longer-term opportunity.”

“The point of investing, after all, is not to have a great story to tell; the point of investing is to make money with limited risk.”

“The tendency of investors to follow the market’s momentum and bet on whatever has worked recently is accompanied by antipathy to whatever hasn’t.”

“Being extremely early is tantamount to being wrong, so contrarians are well advised to develop an understanding of the psychology of the sellers.”

“Investors must never mistake an investment that is down in price for one that is bargain-priced; undervaluation is determined only by a security’s price compared to its underlying value.”

“We consider for each of our investments not only whether a security is undervalued but why it is undervalued. If the reason is that there are uninformed or emotional sellers, we become more comfortable.”

“At the root of all financial bubbles is a good idea carried to excess.”

“It is always easiest to run with the herd; at times, it can take a deep reservoir of courage and conviction to stand apart from it. Yet distancing yourself from the crowd is an essential component of long-term investment success.”

“As an investor you never have perfect information, and the biggest profits are always available when competition and information are scarce.”

“The payoff to fundamental analysis rises proportionately with the difficulty of performing it.”

“In investing, nothing is certain. The best investments we have ever made, that in retrospect seem like free money, seemed not at all that way when we made them.”

“It is not really within human nature to comprehend that you may not know everything you think you know, and, further, that what you believe in could change on a dime.”

“Rather than own a little bit of everything, we have always tended to place our eggs in a few dozen baskets and watch them closely.”

“It is only in a bear market that the value investing discipline becomes especially important because value investing, virtually alone among strategies, gives you exposure to the upside with limited downside risk.”

“The main underlying principle of value investing is that you should invest in undervalued securities because they alone offer a margin of safety.”

“The true investment challenge is to perform well in difficult times.”

“Any contrarian knows that just as a grim present is usually precursor to a better future, a rosy present may be precursor to a bleaker tomorrow.”

“People do not consciously choose to invest according to their emotions — they simply cannot help it.”

“There is no salve for the hungry investor like the immediate positive reinforcement that comes from making money instantaneously.”

“Value investors thrive not by incurring high risk (as financial theory would suggest), but by deliberately avoiding or hedging the risks they identify.”

“Stock market efficiency is an elegant hypothesis that bears quite limited resemblance to the real world.”

“Higher risk investments often erode one’s capital and produce lower returns — the worst of all investment worlds. Higher-returns-for-higher-risks only applies on average and over time.”

“There is always a tension in the financial markets between greed and fear.”

“I think investors always learn the lessons of the recent past. And that is the lesson.”

“Everybody can talk about the problems, but very few investors act on them.”

“In my view, predicting future private market value is like predicting future Dow Jones levels: It doesn’t make any sense at all.”

“Value to some extent is in the eye of the beholder. It is very hard to pin down what the value of a future set of cash flows from a business, be it cable TV or biotechnology, is going to be.”

“When the next fear-inspired panic occurs, investors’ finger-pointing will almost certainly be aimed outward, while a good part of the blame should instead be directed inward.”

“People seeking answers to why the market plunged usually emphasize the immediate events that precipitated a selling panic, when in fact these events are but minor symptoms of much more severe underlying problems.”

“Being very early and being wrong look exactly the same 99% of the time.”

“Mutual fund managers, desperate to put cash to work don’t buy what is cheap but what is working since what is cheap by definition hasn’t been working.”

“We would rather underperform in a huge bull market than get clobbered in a really bad bear market.”

“Short sellers are the market’s police officers. If short selling were to go away, the market would levitate even more than it currently does.”

“Price is the essential determinant in every investment equation. At some price, every company is a buy; at some price, every company is a hold; and at a still higher price, every company is a sell. We do not really recognize the concept of a value company.”

“When stocks are rising for no better reason than that they have risen, the greater fool is at work.”

“Anybody that says that they see five and ten standard deviation events every couple of years is obviously not thinking correctly about probabilities.”

“The first and foremost responsibility of every investor is preservation of capital.”