Entrepreneur & Investor.
Entrepreneur & Investor.
seth klarman on timeless value investing

Issue #65: Seth Klarman On Timeless Value Investing

NOTE: this was a past issue of my weekly newsletter, Timeless Gems. Join my free mailing list so you don’t miss out on future issues.

Today’s gem is this podcast episode featuring Seth Klarman called Timeless Value Investing. Considering I’m a connoisseur of all things timeless and all things value investing, this podcast episode was truly a gem for me.

Seth mentions that value investing is something not everybody is comfortable with. It’s like an inoculation. When you get introduced to the approach, it either makes sense, or it doesn’t.

So, I thought I’d share my experience on this.

In my final year of university, I decided to take an investing 101 course as a filler course. Up until that point in my life, I had never even heard of value investing and had near zero interest in investing whatsoever. My professor was a typical Buffett-obsessed value investor. When I say obsessed, I mean it – whenever he wrote Buffett’s name on the whiteboard, he always reminded everyone that it’s spelled with 2 Ts, and to never spell it incorrectly. He was a funny and quirky character, to say the least.

His favourite stock was Microsoft, which he purchased after the dotcom crash. He explained the large moats the business had, how the stock was mispriced, and how it represented a fantastic value investment. He also complained non-stop about how he’d held it for nearly a decade at the time, and the stock had been flat the entire time, despite improving fundamentals. I pray for both his sanity and his wallet that he held on to MSFT until the present day (~0% return between 2000 and 2012, but ~1200% return from 2012 to present).

Anyway, what’s important is that my professor taught me about the principles of value investing like market inefficiencies, margin or safety, intrinsic value vs price, long-term performance, etc. It instantly clicked for me and overnight I went from having zero interest in investing to becoming a devout value investor. Not to mention, it kicked off a 10+ year investing career which continues until this day. I’ve had the privilege of compounding capital by sticking to the same investing principles the entire time.

Over the years, I’ve observed and studied many other styles of investing (momentum, technical, macro, etc.), and none of them have ever made sense to me. And I am confident that this will never change.

Value investing principles are timeless

This is the main takeaway from the podcast. The reason why the principles of value investing remain timeless is that they’re rooted in human psychology. Humans are emotional, fearful, greedy, arbitrary, and irrational. All of this manifests itself as market inefficiencies. The exact mediums in which the inefficiencies appear may change over time, but they will always exist for shrewd value investors to profit from.

Seth covers a wide range of topics, and I particularly enjoyed his discussions around private market investing vs public market investing (his company, Baupost, does both). Worth listening to the full podcast episode!

I couldn’t appreciate it at the time, but that professor has made such a profound impact on my life & career. I am forever grateful to have taken his course and learned about the principles of value investing as early as I did. Great teachers are truly the foundation of our society.