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142 of 146 people found the following review helpful
Format:Hardcover
This book is one of the hardest finance books to track down today. Published in 1991, it is now out of print, and sells on Amazon and Ebay for over $1000. It is even one of the most-stolen library books, making it very difficult to find a copy to read.
Seth Klarman, the portfolio manager of The Baupost Group, is a very successful practitioner of the value investing strategy. In this book, he sets out to educate the reader on this concept, stressing the advantages of a risk-averse approach. In his introduction, Klarman states that even if this book, as a side effect of educating more people to invest in a more sophisticated manner, causes diminished returns to himself - he considers it well worth it for the public good. While I highly applaud this mentality, it begs the question: why was the book not published again? Considering what I mentioned in the first paragraph, clearly there is significant demand to read it. Anyway, on to the book itself...
"Margin of Safety" is divided into three portions. The first part discusses where most investors make mistakes and stumble - it covers investing vs. speculation, the nature of Wall Street, and how institutional investing results in a short-term performance derby (of which the client is ultimately the loser). It also encapsulates the presented information in a thoughful case study of junk bonds in the 1980s. The second portion of the book introduces the details of the value-investment philosophy, primarily focusing on risk and how it is crucial to invest with a margin of safety. The last part provides useful applicable advice on actually following the value-investment process: where to find investment opportunities, how to invest in these opportunities, and various aspects of overall portfolio management.
Simply put, the book is fantastic. Klarman writes in an amazingly clear manner. His language is neither too simplistic nor overly difficult - just right. I definitely experienced a "wow" feeling when I began reading, after the finance books I have read recently. In addition, Klarman provides a myriad of examples to illustrate the points he brings up, which is very helpful, because it puts a reality spin on his writings.
Don't, however, mistake "clear writing" for "easy content." While the book is clear, precise, and very straight-to-the-point (i.e. there is no useless fluff frequently found in books advocating certain investment approaches), Klarman's content is not trivial. The first and even the second portions of the book are relatively quick and simple - after all, the material presented (a discussion of various common investor mistakes, followed by the basic explanation of value investing) is not overly difficult. The third and last portion of the book, however, is very dense: a lot of information is presented quickly. I actually found myself having to re-read a few of the later chapters multiple times, making sure I understand what Klarman was trying to illustrate. I took notes while reading, so that helped absorb the material - but it still wasn't easy.
This brings me to the only personal gripe I had with the book. There were multiple instances in the later chapters where I wished that Klarman would elaborate more on some of his statements and examples (for instance, calculating NPV for certain businesses, more discussion on thrift institutions, etc.). The author certainly assumes some previous experience, as some of his non-basic explanations are clearly not geared for outright beginners. There was never a point, however, where I felt completely out of the loop. I had to read some portions over again and even look up additional information on the web, but in the end Klarman's words always made sense.
This book is absolutely the best overview of value investing I have ever read or heard. Klarman stresses the importance of carefully evaluating risk (as we often only focus on return) and investing with a margin of safety. He repeats this main point over and over again throughout the entire book. Amazingly, it doesn't feel overly repetitive - but instead, a constant timely reminder of the ideas behind the value investing process. A major theme in the book is that we can't predict the future, and hence we must always be ready for anything - and the only way to do this is to protect our investments with a sufficient margin of safety (essentially investing in a security at a significant discount to underlying value).
Aside from a clear explanation of his investing philosophy, Klarman provides tons and tons of useful practical advice, from how to valuate businesses (he makes sure to distinguish his preferred methods from other widespread strategies) to where to find excellent investment opportunities for value investors. He devotes multiple chapters to discussing the frequently neglected portions of the market where low-risk and potentially high-return investments can be made. In the last two chapters, Klarman takes a step back from discussing individual investments and focuses on overall portfolio management and various alternatives for the individual investor.
One may wonder how applicable some of the specific advice is today. Are thrift conversions really still good places to find hidden value? Maybe not. Is manually calculating the cash flow of a business through the faulty measure of EBITDA still a problem today? Not really, since cash flow statements are now part of the required financial statements for public companies. But a lot of Klarman's essential advice (do your analysis carefully - look behind the numbers) and much of his presented "fertile ground for opportunities" still applies and exists today. Furthermore, the wonderful thing about value investing is that it is contrarian in its nature - which essentially implies that, as investments in various portions of the market come in cycles, a value investor can patiently wait for a popular area to "overflow", collapse, and offer excellent opportunities to invest while the herds of investors shy away and sell out. So even if some of Klarman's hunting grounds may seem outdated right now, they will again be attractive in the future.
One thing to note is that each chapter contains a set of footnotes. I advise the reader not to ignore these - they sometimes contain interesting examples and valuable advice. Unfortunately, they are easy to skip, as they're not printed at the bottom of the page which references the footnote, but rather at the back of each chapter.
In conclusion, I highly recommend Klarman's book to... anyone, really! Seasoned veterans will undoubtedly find excellent insight into things that may have before seemed ordinary and trivial. Beginners will learn fantastic advice that may help steer them away from poor decisions made by many inexperienced investors today. I personally don't think it is worth paying the market price for the book today just to read it (although many may argue that even the going price is at a huge discount from the underlying value) - but I suggest trying to obtain the book through an Inter-Library Loan. It may take some time and effort to find a copy, but it's well worth it.
Pros:
+ clear and concise writing, no fluff
+ lots and lots of illustrative examples
+ very clear explanation of the basic concept of value investing and a margin of safety
+ useful methods for researching and valuating a business
+ tremendous amount of applicable advice on finding and analyzing investment opportunities
+ lots of other real-world advice on various topics from portfolio management to money manager selection
Cons:
- last portion of the book is dense, may require careful reading and re-reading
- a small portion of the material may be slightly out of date (don't let this deter you)
Seth Klarman, the portfolio manager of The Baupost Group, is a very successful practitioner of the value investing strategy. In this book, he sets out to educate the reader on this concept, stressing the advantages of a risk-averse approach. In his introduction, Klarman states that even if this book, as a side effect of educating more people to invest in a more sophisticated manner, causes diminished returns to himself - he considers it well worth it for the public good. While I highly applaud this mentality, it begs the question: why was the book not published again? Considering what I mentioned in the first paragraph, clearly there is significant demand to read it. Anyway, on to the book itself...
"Margin of Safety" is divided into three portions. The first part discusses where most investors make mistakes and stumble - it covers investing vs. speculation, the nature of Wall Street, and how institutional investing results in a short-term performance derby (of which the client is ultimately the loser). It also encapsulates the presented information in a thoughful case study of junk bonds in the 1980s. The second portion of the book introduces the details of the value-investment philosophy, primarily focusing on risk and how it is crucial to invest with a margin of safety. The last part provides useful applicable advice on actually following the value-investment process: where to find investment opportunities, how to invest in these opportunities, and various aspects of overall portfolio management.
Simply put, the book is fantastic. Klarman writes in an amazingly clear manner. His language is neither too simplistic nor overly difficult - just right. I definitely experienced a "wow" feeling when I began reading, after the finance books I have read recently. In addition, Klarman provides a myriad of examples to illustrate the points he brings up, which is very helpful, because it puts a reality spin on his writings.
Don't, however, mistake "clear writing" for "easy content." While the book is clear, precise, and very straight-to-the-point (i.e. there is no useless fluff frequently found in books advocating certain investment approaches), Klarman's content is not trivial. The first and even the second portions of the book are relatively quick and simple - after all, the material presented (a discussion of various common investor mistakes, followed by the basic explanation of value investing) is not overly difficult. The third and last portion of the book, however, is very dense: a lot of information is presented quickly. I actually found myself having to re-read a few of the later chapters multiple times, making sure I understand what Klarman was trying to illustrate. I took notes while reading, so that helped absorb the material - but it still wasn't easy.
This brings me to the only personal gripe I had with the book. There were multiple instances in the later chapters where I wished that Klarman would elaborate more on some of his statements and examples (for instance, calculating NPV for certain businesses, more discussion on thrift institutions, etc.). The author certainly assumes some previous experience, as some of his non-basic explanations are clearly not geared for outright beginners. There was never a point, however, where I felt completely out of the loop. I had to read some portions over again and even look up additional information on the web, but in the end Klarman's words always made sense.
This book is absolutely the best overview of value investing I have ever read or heard. Klarman stresses the importance of carefully evaluating risk (as we often only focus on return) and investing with a margin of safety. He repeats this main point over and over again throughout the entire book. Amazingly, it doesn't feel overly repetitive - but instead, a constant timely reminder of the ideas behind the value investing process. A major theme in the book is that we can't predict the future, and hence we must always be ready for anything - and the only way to do this is to protect our investments with a sufficient margin of safety (essentially investing in a security at a significant discount to underlying value).
Aside from a clear explanation of his investing philosophy, Klarman provides tons and tons of useful practical advice, from how to valuate businesses (he makes sure to distinguish his preferred methods from other widespread strategies) to where to find excellent investment opportunities for value investors. He devotes multiple chapters to discussing the frequently neglected portions of the market where low-risk and potentially high-return investments can be made. In the last two chapters, Klarman takes a step back from discussing individual investments and focuses on overall portfolio management and various alternatives for the individual investor.
One may wonder how applicable some of the specific advice is today. Are thrift conversions really still good places to find hidden value? Maybe not. Is manually calculating the cash flow of a business through the faulty measure of EBITDA still a problem today? Not really, since cash flow statements are now part of the required financial statements for public companies. But a lot of Klarman's essential advice (do your analysis carefully - look behind the numbers) and much of his presented "fertile ground for opportunities" still applies and exists today. Furthermore, the wonderful thing about value investing is that it is contrarian in its nature - which essentially implies that, as investments in various portions of the market come in cycles, a value investor can patiently wait for a popular area to "overflow", collapse, and offer excellent opportunities to invest while the herds of investors shy away and sell out. So even if some of Klarman's hunting grounds may seem outdated right now, they will again be attractive in the future.
One thing to note is that each chapter contains a set of footnotes. I advise the reader not to ignore these - they sometimes contain interesting examples and valuable advice. Unfortunately, they are easy to skip, as they're not printed at the bottom of the page which references the footnote, but rather at the back of each chapter.
In conclusion, I highly recommend Klarman's book to... anyone, really! Seasoned veterans will undoubtedly find excellent insight into things that may have before seemed ordinary and trivial. Beginners will learn fantastic advice that may help steer them away from poor decisions made by many inexperienced investors today. I personally don't think it is worth paying the market price for the book today just to read it (although many may argue that even the going price is at a huge discount from the underlying value) - but I suggest trying to obtain the book through an Inter-Library Loan. It may take some time and effort to find a copy, but it's well worth it.
Pros:
+ clear and concise writing, no fluff
+ lots and lots of illustrative examples
+ very clear explanation of the basic concept of value investing and a margin of safety
+ useful methods for researching and valuating a business
+ tremendous amount of applicable advice on finding and analyzing investment opportunities
+ lots of other real-world advice on various topics from portfolio management to money manager selection
Cons:
- last portion of the book is dense, may require careful reading and re-reading
- a small portion of the material may be slightly out of date (don't let this deter you)
30 of 30 people found the following review helpful
By David Merkel
Format:Hardcover
This book review is different. I liked this book a lot, but I don't want you to buy it. Why? I'm a value investor, that's why. More on that in a moment.
What commends this book to our attention? It is a well-written book on value investing by one of its leading practicioners, Seth Klarman. I love reading books on value investing written by the experts who have done it so well. It is useful to get their differential insights. It sharpens you.
What I found in Margin of Safety was a very good basic book on value investing. It contains the usual warnings against speculation, which most retail investors do, and how Wall Street frequently overcharges and misleads retail investors. Even institutional investors get cheated by focusing on relative performance, rather than absolute performance, according to Mr. Klarman. As an absolute value investor, he wants to make money all the time, not just beat the market. (A word here, if stocks beat safe bond investments on average, then there may be some validity to relative value investing.)
The book was written in 1991, after the junk bond market collapse, and contains a decent amount of criticism of the era. Buying high yields is not enough, those yields be realizable from companies that can produce cash flows to support the price of the bonds.
The book also reflects the author's early career in the investment shop founded by Max Heine, and run by Michael Price, until it was sold to Franklin Resources. The Mutual Series Funds did ordinary value investing, but they also bought special situations, did deal arbitrage, bought distressed debt, and more.
The eponymous and key idea of the book is Ben Graham's concept of a margin of safety. Invest in assets where your likelihood and severity of loss is low, given your purchase price. Don't take risks unless you are handsomely paid to take them. If you buy enough of them cheap enough, you will do well in the long run.
All in all, a very good book on value investing. Why not buy it? Too expensive. The book is good, but very basic. You can do better for free with:
* Warren Buffett's stockholder letters.
* Marty Whitman's shareholder letters.
* And others...
So how much would it cost to buy a copy? $900-$2000. You can see the results at Ebay and Amazon. Put on your cost-sensitive sunglasses before viewing.
It's a very good book, but relative to what is available for free or at nominal (<$30) cost, it doesn't make sense to buy it, aside from bragging rights.
So, how did I end up with a copy? I don't have a copy. I borrowed it via Interlibrary loan and quickly read it, sending it back to the nice library in Florida that lent it to my library. I recommend that you do that as well, if you want to read the book. If you are game, I also ask that you write Seth Klarman at:
THE BAUPOST GROUP
10 St. James Avenue - Suite 1700
Boston, MA 02116
617.210.8300
Write a nice letter, asking him to do a second edition of the paperback version for a new generation of young value investors.
What commends this book to our attention? It is a well-written book on value investing by one of its leading practicioners, Seth Klarman. I love reading books on value investing written by the experts who have done it so well. It is useful to get their differential insights. It sharpens you.
What I found in Margin of Safety was a very good basic book on value investing. It contains the usual warnings against speculation, which most retail investors do, and how Wall Street frequently overcharges and misleads retail investors. Even institutional investors get cheated by focusing on relative performance, rather than absolute performance, according to Mr. Klarman. As an absolute value investor, he wants to make money all the time, not just beat the market. (A word here, if stocks beat safe bond investments on average, then there may be some validity to relative value investing.)
The book was written in 1991, after the junk bond market collapse, and contains a decent amount of criticism of the era. Buying high yields is not enough, those yields be realizable from companies that can produce cash flows to support the price of the bonds.
The book also reflects the author's early career in the investment shop founded by Max Heine, and run by Michael Price, until it was sold to Franklin Resources. The Mutual Series Funds did ordinary value investing, but they also bought special situations, did deal arbitrage, bought distressed debt, and more.
The eponymous and key idea of the book is Ben Graham's concept of a margin of safety. Invest in assets where your likelihood and severity of loss is low, given your purchase price. Don't take risks unless you are handsomely paid to take them. If you buy enough of them cheap enough, you will do well in the long run.
All in all, a very good book on value investing. Why not buy it? Too expensive. The book is good, but very basic. You can do better for free with:
* Warren Buffett's stockholder letters.
* Marty Whitman's shareholder letters.
* And others...
So how much would it cost to buy a copy? $900-$2000. You can see the results at Ebay and Amazon. Put on your cost-sensitive sunglasses before viewing.
It's a very good book, but relative to what is available for free or at nominal (<$30) cost, it doesn't make sense to buy it, aside from bragging rights.
So, how did I end up with a copy? I don't have a copy. I borrowed it via Interlibrary loan and quickly read it, sending it back to the nice library in Florida that lent it to my library. I recommend that you do that as well, if you want to read the book. If you are game, I also ask that you write Seth Klarman at:
THE BAUPOST GROUP
10 St. James Avenue - Suite 1700
Boston, MA 02116
617.210.8300
Write a nice letter, asking him to do a second edition of the paperback version for a new generation of young value investors.
38 of 44 people found the following review helpful
By A Customer
Format:Hardcover
Few people outside the value investment arena know who the author is, but take my word for it: he's an investment superstar. Seth runs a private investment firm in Cambridge, MA called the Baupost Group, and isn't soliciting your money! Klarman is on par with Buffett, Ruane & Cuniff, et. al. His book is a MUST read for it's intelligent, frank discussion of intrinsic value investing. Don't look for this book if you're long E-Bay right now. You can probably find the book in a large library, I would look for it if you already found your way to this review!
Most Recent Customer Reviews
5.0 out of 5 stars
Read, reflect and read it again
Everybody knows about Warren Buffett, and Buffett is undoubtedly the most successful value investor of the last 50 years. Read more
Published 4 months ago by eqtbooks
1.0 out of 5 stars
Man canno live by Margin of Safety alone
MARGIN OF SAFETY BOOK REVIEW
Introduction:
Whilst the content of the book seems to have been written mainly at one time (possibly the first edition) the chapter... Read more
Introduction:
Whilst the content of the book seems to have been written mainly at one time (possibly the first edition) the chapter... Read more
Published 16 months ago by Colin Farrier
4.0 out of 5 stars
Boils value investing down into useful nuggets
Margin of Safety (1991) is expertly written, clearly communicating financial concepts without unnecessary jargon and tangential facts to cloud the point the author is trying to get... Read more
Published 20 months ago by Jeffrey Morris
2.0 out of 5 stars
Not sure why this book is so expensive or popular
I first heard about Seth Klarman through an interview in the book Value Investing from Graham to Buffett and beyond from Greenwald. Read more
Published 20 months ago by Straddle1985
3.0 out of 5 stars
Too general. Not enough details. Subpar overall.
Warren Buffett once said that value investing can't be taught. If the concept does not resonate with you the first time that you are exposed to it, it probably never will and you... Read more
Published on March 6, 2011 by Seba
5.0 out of 5 stars
Excellent book. Would Klarman buy at $1k+?
No doubt this book is a classic for value investors. The key (of course) is not necessarily Klarman's money making strategies but his strategies for not losing money. Read more
Published on January 31, 2011 by Adam Breit
2.0 out of 5 stars
Obsolete and Practically Irrrelevant
First, let me say this book is not worth the Market price as listed on Amazon. Paying the price listed on Amazon is exactly what the book advises AGAINST. Read more
Published on January 10, 2011 by Elmoore
4.0 out of 5 stars
Look for it on the internet
I just did an internet search for this book and I found a pdf copy within 5 minutes. I searched for this book because I own a hardback copy of Klarman's book and I have been... Read more
Published on June 15, 2010 by W. D. Gilliland
3.0 out of 5 stars
Margin of....What?! This book costs over $1000
Does this book give oral? Nope. So save yourself your hard-earned cash; and if you call yourself a value investor after buying this book, shame on you. Read more
Published on June 14, 2010 by bob
5.0 out of 5 stars
You can get this Free
This book is pretty good. However the prices here are crazy.
True value investors would do a quick search and find the free pdf version available online.
True value investors would do a quick search and find the free pdf version available online.
Published on June 2, 2010 by T. Griffiths
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