Source: Kigaku Club
Introduction:
Seth Klarman (Seth Klarman) is the president of Baupost Funds and one of the most respected figures in the market by investors. His masterpiece “Margin of Safety” (Margin of Safety) has become an important investment classic. Since establishing the investment partnership in 1983, Karaman has not only generated returns of more than 20% per year, but from time to time he also offers unique insights on the market and investments.
1. Karaman's investment philosophy has three pillars
1. Pursue absolute returns, ignore relative performance, find your own advantage, and make the most of it
Karaman believes that the “sorrow” of the current fund industry is that too much attention is paid to relative performance; everyone feels that as long as losses are smaller than others, even success. Too much focus on relative performance makes institutions neither want to be too backward nor too “aggressive,” so moderation is the best strategy. However, wealthy customers should focus on absolute returns.
2. Promote bottom-up stock selection
Because it's so difficult from top to bottom, it's impossible for anyone to keep up with the macroeconomic rhythm every time. Therefore, Karaman has always adopted a bottom-up stock selection method, focusing on each company's business fundamentals, and conducting sensitivity analyses or “stress tests” on each company in various situations.
3. Focus on risk first, then return
Risk is not equivalent to BETA. BETA value is an academic issue. It has no meaning for investment. Market fluctuations do not mean anything else; sometimes, on the contrary, it means an investment opportunity. Karaman's focus on risk made the value investment method consider losses in different scenarios, thus obtaining a stock price range.
“In the end, nothing is more important than getting investors to sleep well at night,” he said.
II. The difference between successful investors and unsuccessful investors
Having lived in the investment industry for so many years, Karaman has seen too many ups and downs. Some have failed and left, and some have done better. There will always be an essential difference between successful investors and failed investors.
According to Karaman, successful investors are always unemotional and can use the greed and fear of others to serve themselves. Because they are confident in their analysis, the reaction to market forces is not a blind impulse, but an appropriate sense of sanity. The way investors view the market and price fluctuations is a key factor in determining the success or failure of their ultimate investment.
However, failed investors are easily controlled by emotions, and their reaction to market fluctuations is not sanity and calm, but greed and fear. Failed investors will use the stock market as a machine to earn money without effort. Greed makes many investors succeed by looking for shortcuts.
Ultimately, greed will shift investors' focus from achieving long-term investment goals to short-term speculation. Speculators, on the other hand, always mistakenly use the market as their investment guide. When they saw that the market raised prices, they increasingly believed his analytical clues and followed suit at higher prices. As a result, emotional investors inevitably suffer huge losses along with speculators.
Higher stock prices tend to reinforce the positive effects of investors' analysis and judgment, while falling stock prices often provide negative strengthening effects. Karaman said that the rise in a stock does not necessarily mean that the company is working well, nor does it mean that the price increase is due to a corresponding increase in intrinsic value. Similarly, falling stock prices do not necessarily reflect a reversal in enterprise development or a decline in its intrinsic value.
Editor/jayden