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Seth Klarman: What I've learned from Warren Buffett


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Thanks for posting the PDF.  I'm not really sure what to say about this.  It appears as if Klarman took Buffett's most popular quotes and reworded them.

 

I like Klarman, he's obviously very successful and has earned the status of 'guru'.  But I haven't gathered a lot of great insight from him.  Margin of Safety was good, but not ground breaking.

 

To me Klarman is a gifted executor.  He can execute exceptionally well, but he's not an innovator.  An analogy would be like an athlete who is one of the best using a traditional approach verses Buffett who became successful by innovating and creating a new approach.  Not that one is better than the other, just different.

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Thanks for posting the PDF.  I'm not really sure what to say about this.  It appears as if Klarman took Buffett's most popular quotes and reworded them.

 

I like Klarman, he's obviously very successful and has earned the status of 'guru'.  But I haven't gathered a lot of great insight from him.  Margin of Safety was good, but not ground breaking.

 

To me Klarman is a gifted executor.  He can execute exceptionally well, but he's not an innovator.  An analogy would be like an athlete who is one of the best using a traditional approach verses Buffett who became successful by innovating and creating a new approach.  Not that one is better than the other, just different.

 

I seem to be butting heads against you today. First on the Berkowitz thread and again here. :)

 

I'd ask the question of whether being an innovator is a necessarily a goal worth having. I mean, if you can follow the Buffett playbook to a tee and be very successful, is there something inherently wrong with that?

 

I'm thinking back to something Pabrai mentioned years ago about people having some intrinsic bias against copying other people's innovations -- as if that was something bad or to be looked down upon. (I think it came with a story about competing gas station attendants.) Alternatively, I rather enjoyed the story about how Burger King didn't have a real estate division -- it just built next to McDonalds. :P

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Thanks for posting the PDF.  I'm not really sure what to say about this.  It appears as if Klarman took Buffett's most popular quotes and reworded them.

 

I like Klarman, he's obviously very successful and has earned the status of 'guru'.  But I haven't gathered a lot of great insight from him.  Margin of Safety was good, but not ground breaking.

 

To me Klarman is a gifted executor.  He can execute exceptionally well, but he's not an innovator.  An analogy would be like an athlete who is one of the best using a traditional approach verses Buffett who became successful by innovating and creating a new approach.  Not that one is better than the other, just different.

 

He does totally different things (not necessarily that they are high return) than almost all other mgrs mentioned this board. He was buying CRE and a quarry at one point. He holds more cash than any other mgr that i know of. He goes where ever he sees a bargain.

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He does totally different things (not necessarily that they are high return) than almost all other mgrs mentioned this board. He was buying CRE and a quarry at one point. He holds more cash than any other mgr that i know of. He goes where ever he sees a bargain.

 

I was about to say the same.  I think Klarman doesn't say anything revolutionary at all, and I think that is Nate's point.  You read his book, and here his interviews, it's all basic stuff.... good but basic, for sure.

 

But I'd argue that he is probably the most inventive manager I'm aware of.  Foreign stuff, Russian stuff, direct ownership, private equity, joint ventures, credit default swaps, gold options, interest rate hedges and spread bets, on and on.

 

And that's just the stuff we know of!

 

I also respect him because he seems to be the most nervous / paranoid investor, as said above, with tons of cash, but he still finds enough stuff to make his returns good.  I mean he's done this for 30 years, never down more than 5% in a year I think.  His 1990 letters are amazing in how wrong / conservative he was and how much opportunity lost he had... yet still, the results were good over time (10+ years) beating any relative benchmark you want to use.

 

But agree, what he says is simple, "obvious" stuff.

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He does totally different things (not necessarily that they are high return) than almost all other mgrs mentioned this board. He was buying CRE and a quarry at one point. He holds more cash than any other mgr that i know of. He goes where ever he sees a bargain.

 

I was about to say the same.  I think Klarman doesn't say anything revolutionary at all, and I think that is Nate's point.  You read his book, and here his interviews, it's all basic stuff.... good but basic, for sure.

 

But I'd argue that he is probably the most inventive manager I'm aware of.  Foreign stuff, Russian stuff, direct ownership, private equity, joint ventures, credit default swaps, gold options, interest rate hedges and spread bets, on and on.

 

And that's just the stuff we know of!

 

I also respect him because he seems to be the most nervous / paranoid investor, as said above, with tons of cash, but he still finds enough stuff to make his returns good.  I mean he's done this for 30 years, never down more than 5% in a year I think.  His 1990 letters are amazing in how wrong / conservative he was and how much opportunity lost he had... yet still, the results were good over time (10+ years) beating any relative benchmark you want to use.

 

But agree, what he says is simple, "obvious" stuff.

 

I agree that his ability to produce results with extreme conservatism and macro gloom is unparalleled. One item to note is Baupost actually drastically underperformed the S&P from 1990-2001 - more than 10 years! He didn't waver one bit and obviously blew past it later, which is all the more remarkable, but his mindset definitely can lead to prolonged periods of relative underperformance.

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Thanks for posting the PDF.  I'm not really sure what to say about this.  It appears as if Klarman took Buffett's most popular quotes and reworded them.

 

I like Klarman, he's obviously very successful and has earned the status of 'guru'.  But I haven't gathered a lot of great insight from him.  Margin of Safety was good, but not ground breaking.

 

To me Klarman is a gifted executor.  He can execute exceptionally well, but he's not an innovator.  An analogy would be like an athlete who is one of the best using a traditional approach verses Buffett who became successful by innovating and creating a new approach.  Not that one is better than the other, just different.

 

I seem to be butting heads against you today. First on the Berkowitz thread and again here. :)

 

I'd ask the question of whether being an innovator is a necessarily a goal worth having. I mean, if you can follow the Buffett playbook to a tee and be very successful, is there something inherently wrong with that?

 

I'm thinking back to something Pabrai mentioned years ago about people having some intrinsic bias against copying other people's innovations -- as if that was something bad or to be looked down upon. (I think it came with a story about competing gas station attendants.) Alternatively, I rather enjoyed the story about how Burger King didn't have a real estate division -- it just built next to McDonalds. :P

 

Not sure we're butting heads.  I think in many ways it's harder to be an executor.  Everyone wants to innovate, few are willing to execute and do it repeatedly and reliably.

 

I put Walter Schloss in the executor camp as well.  There is something to be said about an investor who can work the same system for decades through all sorts of market conditions.  Both Klarman and Schloss' results speak for themselves.  Consistency is key.

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To expand on my thoughts.  An innovator might be Greenblatt.  He was doing special situations, then he's doing the Magic Formula stuff, and now it's the value indexing.  Great things that investors are learning from.  An investor can jump into any stage in his career and learn something.

 

In many ways Klarman is an executive who happens to run a hedge fund.  I've run into a number of successful businessmen locally who operate similar to him.  They see a bargain and go for it.  One year it might be owning office buildings, then an opportunity opens up in warehouses, they jump on it.  These are guys who 'get' business, not one niche, but business.

 

Maybe a related thought can clarify.  I met a guy last night who has an organization that helps to start drug recovery shelters.  He has this system that he's been working with that can start dozens of this successfully per year.  They've been doing it for years and changing a lot of lives.  The key he said is a repeatable system that they just implement over and over.  He didn't invent the system, he copied it, but he's a master at creating processes and implementing systems and it shows by the impact he's having.  This is the Klarman for me, not better, not worse, just a different role.

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You can tell from my user ID that I'm a fan of Klarman, but he certainly doesn't share his investment strategies and techniques as openly as some other gurus. In any case, here's a similar but more comprehensive article about Buffett's strategies that you guys might like:

http://www.businessdictionary.com/article/896/investing-lessons-of-warren-buffett/

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Good discussion on innovators vs executors (that sounds ominous).

 

Obviously, innovators are more interesting to learn about because they have an arc and through our education/progression, we often kind of follow a similar arc (hopefully compressed, since we're learning from someone else's experience and mistakes).

 

People who execute really well can also be good role models, but they tend to not really have an arc since they started out with someone else's model that they just then implemented. There's inherently less of a story, there.

 

Another innovator, IMO, would be Ackman. He's clearly following what others have done, but he's putting enough of his own twist on things. Some might see his approach as good or bad, but it's definitely not just someone else's model.

 

While I like Klarman, I, too, can't say that I feel like his writings have influenced the way that I invest (other than as a reminder of the Buffett/Graham way). He's one of those really good guys that is almost impossible to really copy, like (in totally another area) George Soros.

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I think Klarmans book doesn't add much to other texts on value investing, but IMO it is the best single book to read as an introduction to value philosophy. It manages to cover the core concepts as well as anyone, and also adds in tidbits on why institutional investors are likely to underperform and some examples of where one might find interesting opportunities. It also touches a bit on trading and portfolio management as well as the concept of reflexivity in stock prices, all of which I've never heard another value investor discuss.

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  • 2 weeks later...

To expand on my thoughts.  An innovator might be Greenblatt.  He was doing special situations, then he's doing the Magic Formula stuff, and now it's the value indexing.  Great things that investors are learning from.  An investor can jump into any stage in his career and learn something.

 

In many ways Klarman is an executive who happens to run a hedge fund.  I've run into a number of successful businessmen locally who operate similar to him.  They see a bargain and go for it.  One year it might be owning office buildings, then an opportunity opens up in warehouses, they jump on it.  These are guys who 'get' business, not one niche, but business.

 

Maybe a related thought can clarify.  I met a guy last night who has an organization that helps to start drug recovery shelters.  He has this system that he's been working with that can start dozens of this successfully per year.  They've been doing it for years and changing a lot of lives.  The key he said is a repeatable system that they just implement over and over.  He didn't invent the system, he copied it, but he's a master at creating processes and implementing systems and it shows by the impact he's having.  This is the Klarman for me, not better, not worse, just a different role.

 

Because noone's ever invested in special situations before, nor value indexing  ::)

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The quotes provided in the above links are great.

 

eg

 

“Our determination to prioritize capital preservation, while seeking strong, risk-adjusted returns when measured over the fullness of time, drives us to do many things unconventionally. In a business plagued by group think and conventional wisdom, we try to avoid consensus thinking. We don’t mind being out of sync with the herd, and we don’t let that get to us. While we enjoy the challenge of analytically complex situations, we begin by looking for low-hanging fruit while eschewing the ‘high-hanging’ kind. We prefer ‘no-brainers’ to ‘brainers,’ and we are willing to work diligently and patiently to find them. When opportunity is scarce and markets expensive, it is dangerous to force money into new investments. We are disciplined at all times, and when we can’t find bargains, we choose to hold cash–sometimes large amounts– as a residual of our bottom-up investment process. This is something few on Wall Street appear able or willing to do.”

 

http://www.valuewalk.com/2015/02/baupost-group-q4-14-letter/

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