Seth Klarman


…When men live by trade–with reason not force, as their final arbiter–it is the best product that wins, the best performance, the man of best judgment and high ability and the degree of a man’s productiveness is the degree of his reward.   (Atlas Shrugged)

Seth Klarman

Below are links to Seth Klarman’s investor letters and appearances.  I would try to study his philosophy, attitude, and approach to investing–see if you can integrate some of his approach to YOUR OWN methods.

New material from a reader (generous!) KLARMAN Response to Lowensteins Rational Investors found here:Graham Dodd Revisted by Lowenstein







Klarman 2013 Letter Excerpts



Yamana Valuation

Upon returning from vacation, I have put off updating my valuation of Yamana. When there are fish, you must fish.   I promise to have it posted by this weekend.   I do recommend anyone who wants to hear a good management team explain their strategy for managing assets to listen to Yamana’s second quarter’s conference call:

Yamana Gold Inc_ Q2 2014 MDA Final (SEDAR)_v001_t1ii3h

Yamana Gold Inc_Q2 2014

PresentationQ2 2014 – Conference Call Final

Asking a girl for her phone number

11 responses to “Seth Klarman

  1. This page will be updated from timte-to-time as new Klarman material becomes available.

  2. If you come across new material can you do a new post as well with it. I’d never notice if you randomly added something to this page

    Thanks for the collection


    • OK Marc:

      You have a point.

      Another idea is to periodically use the search box for subjects of interest. There are close to 1000 posts with a lot of material.

  3. John I noticed you took down the 2011 letter is there a chance you could email me a copy?


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  6. The problem with a lot of these articles is that they’re too vague to learn from.

    OK. So Buffett bought Washington Post when it was trading at half intrinsic value. Fine. How did he know what its intrinsic value was? How do you know you aren’t buying into a value trap?

    He bought into Tesco, and look what a disaster that turned out to be. Surely Tesco is one of the easiest businesses to understand, yet Buffett effectively admitted he got the valuation wrong. Analysts specialise in certain sectors, and they get even the most supposedly predictable sectors like utilties hopelessly wrong. So, I ask you, to what extent does anyone really “know” anything?

    I haven’t read Tobias Carlisle’s Deep Value book, but I’ve seen his vid, and I think I get the gist of what he’s saying.A lot what you know, or think you know, actually gets in the way. Greenblatt said pretty much the same when he said that even he couldn’t predict the Magic Formula stocks that would outperform.

    I find Aswath Damodaran a very intelligent speaker about the investment process. He actually explains how he arrives at his conclusions. With Buffett, we are awed, but not necessarily wiser. We just think we are.

    What I find intriguing as well is that Damodaran doesn’t shirk issues about the complexity of valuation. He likes companies that are difficult to value, not easy. Why? Precisely because they are difficult. In well-functioning markets, companies that are easy to value will normally trade at around fair value. For companies that are difficult to value, the aim is not to get the “right” value, but to get the value that is less insane than the market.

    This reminds me a lot of Nassim Taleb. What you “know” is largely illusory, but what you look for is asymmetric “optionality”. I believe that’s how Carlisle’s Deep Value works. And it’s how Graham’s net-net approach works, too.

    So much in investing is counter-intuitive and slef-contradictory. No wonder people like me struggle.

    • Great contribution! Your thoughts/comments highlight the struggle we face as investors. First, price paid or offered is a function of subject valuation (Mises). So ultimately valuation is subject to a range of uncertainty. Some investors say valuation is more an art than a science. I will address this later on in the course.

      “So Buffett bought Washington Post when it was trading at half intrinsic value. Fine. How did he know what its intrinsic value was? How do you know you aren’t buying into a value trap?”

      OK, I agree that most articles are too vague to really understand what actually happened or why the decision was made. Your next step is to dig deeper. Have you read why Buffett bought the Washington Post. Did he mention any valuation metrics in Snowball? (Book)

      Did you go back to the financials of Washington Post when he made the purchase. What price would you pay–given the marketplace (Interest rates, etc.) at that time? Can you piece together with financial forensics what he did through further research? If you want help perhaps we can work together with others to pull the information together.

      Ditto for Tesco. What caused the value destruction? I think consumer behavior changed with the advent of more efficient food delivery? Just my two cents. Can we learn from this by digging deeper? Perhaps it doesn’t matter if one or a few of our investments crater, if we play the percentages. How comfortable can we be with uncertainty vs. risk. Can we determine what we know vs. don’t know

      Aswath Damodaran He is the professor from STERN NYU who is considered an expert on valuation. Can you point me (and the other readers) to any examples of his work that you admire?

      I will be certain to post/share with the readers.

      Thanks again. Investing is simple but not easy–it’s hard even without the debate on simple. We have met the enemy and he/she is ourselves!

  7. “Ditto for Tesco. What caused the value destruction?”

    I think there are so many responses that I could make to that question, but I’ll try to keep it somewhat brief.

    Perhaps the best answer is the one given by Terry Smith. I dare say Terry Smith isn’t known much outside the UK, but he runs the Fundsmith Equity Fund. He’s very outspoken and occasionally abrasive, but I’m increasingly growing to admire him. As an aside, he’s possibly more Buffett than Buffett. His portfolio probably has the lowest portfolio turnover of any fund (I dare say including Buffett himself). He identified the Tesco’s problem: its ROCE wasn’t particularly good.

    So I think it’s important to ditinguish between ROCE and ROE. ROCE shows you how good a company is operationally. ROE includes a financial engineering component; no perjorative intended.

    Buffett seems to look at ROE rather than ROCE. If he had been paying attention to ROCE, he may have spotted the problem.

    I think, perhaps, another little tipoff is the operating margins, I think. TSCO (Tesco) has margins over the last decade averaging 5.5%. Compare that with some rivals: SBRY (Sainsbury) 3.45% and MRW (Morrisons) 4.75%.

    All three are big supermarket chains, so the question is: how comes TSCO superior margins? The obvious answer is that it is run more efficiently, or has a better “moat”. But remember, these supermarkets are oligopolies, catering pretty much to the same demographics, so it is unlikely that TSCO has a competitive advantage over the others.

    In light of recent accounting scandals, which has caused a big furore, we now the real answer: the margins were better, because the company was cooking the books.

    So it seems Buffett made missed a few tricks on that trade.

    “I think consumer behavior changed with the advent of more efficient food delivery?”

    Ah, now, that is an interesting question.

    TSCO’s trouble has partly been blamed on the German grocers: Aldi and Lidl. These are new entrants to the UK market, and seem to have been causing considerable disruption.

    These didn’t seem to be a serious threat in 2012, but it’s becoming increasing to the forefront.

    We must answer the question: is the threat real, imagined, temporary, or permanent?

    The honest answer is: I don’t know. BUT, they may pose more of a problem than you think. I’m given to understand that margins in the UK tend to be higher than elsewhere.

    Oligopoly positions of the incumbents would suggest that all entrants must ultimately fail. But there’s a twist. Aldi and Lidl are not small outfits. They are big in Germany, and well-capitalised. They may eye the UK’s superior market, and use their asset backing to enter the markets. Obviously, one would expect margins to for all market participants to decline. But Aldi and Lidl may be perfectly happy with this arrangement. If they can increase their returns on capital as a result, then they may not be able to be squeezed out of the market as readily as the incumbents hoped. They may have to accept the fact that lower margins will be the new normal.

    “Perhaps it doesn’t matter if one or a few of our investments crater, if we play the percentages.”

    Ah, yet another interesting observation.

    I’m going to offer a viewpoint in which I could argue that Tesco, and by implication, trying to implement a Buffett-eque strategy, is a bad idea.Here’s the argument …

    Companies like TSCO are somewhat mundane in their operations. Nobody thinks they’re going to make their first million investing in Tesco, right? They are, in a sense, “easy to value” (if you don’t believe me, then try valuing Twitter instead). Everyone is using the same inputs, and everyone is making the same assumptions about earnings level and growth. So everyone is going to come up with similar valuations. But there’s one thing that people leave out: black swan events. Absolutely nobody saw Aldi and Lidl as a threat at the time. So, if valuations are generally fair but don’t factor in black swan events, then there’s always a bias to the downside.

    So the point is not that you “should” have predicted new entrants, meteor impacts, Ebola, or anything else, but that there was actually more downside than upside.

    ” Can you point me (and the other readers) to any examples of his [Damodaran’s] work that you admire?”

    Another time. I’m sure I’ll have plenty of opportunity to discuss his work in other posts. Until then, take care John, and all.

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