C&B Notes

Klarman on Buffett

Seth Klarman, who is always worth reading, recently reminisced about what he has learned from Warren Buffett, and the result was a useful series of reminders about the right way to think about investing.

1)      Value investing works. Buy bargains.

2)      Quality matters, in businesses and in people.  Better-quality businesses are more likely to grow and compound cash flow; low-quality businesses often erode and even superior managers, who are difficult to identify, attract, and retain, may not be enough to save them.  Always partner with highly capable managers whose interests are aligned with yours.

3)      There is no need to overly diversify.  Invest like you have a single, lifetime “punch card” with only 20 punches, so make each one count.  Look broadly for opportunity, which can be found globally and in unexpected industries and structures.

4)      Consistency and patience are crucial.  Most investors are their own worst enemies.  Endurance enables compounding.

5)      Risk is not the same as volatility; risk results from overpaying or overestimating a company’s prospects.  Prices fluctuate more than value; price volatility can drive opportunity.  Sacrifice some upside as necessary to protect on the downside.

6)      Unprecedented events occur with some regularity, so be prepared.

7)      You can make some investment mistakes and still thrive.

8)      Holding cash in the absence of opportunity makes sense.

9)      Favor substance over form.  It doesn’t matter if an investment is public or private, fractional or full ownership, or in debt, preferred shares, or common equity.

10)   Candor is essential.  It’s important to acknowledge mistakes, act decisively, and learn from them.  Good writing clarifies your own thinking and that of your fellow shareholders.

11)   To the extent possible, find and retain like-minded shareholders (and for investment managers, investors) to liberate yourself from short-term performance pressures.