With the possible exception of Warren Buffett, no investor today commands more respect than Baupost Group’s Seth Klarman.
Since founding his investment partnership in 1983, Klarman has not only produced unrivaled returns (in excess of 20% per year), but he has also from time to time offered wise and timeless commentary on markets and the craft of investing.
He is the author of Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor, which became a value investing classic ever since it was first published in 1991.
Here is an excerpt from Klarman’s letter to his shareholders in February 2009, which contains some timeless ideas on investing – including the power that smart investors can derive from uncertainty.
In this letter, titled “The Value of Not Being Sure”, Klarman describes the biggest challenge in investing today, how he’s responding to the market’s turmoil and why he considers fear of the unknown such a great motivator.
Here is an amazing piece from this letter…
Time horizons have shortened even more than usual, to the point where the market’s 4:00 p.m. close seems to many like a long-term commitment. To maintain a truly long-term view, investors must be willing to experience significant short-term losses; without the possibility of near-term pain, there can be no long term gain.
In defense of ‘uncertainty’, Klarman writes…
Uncertainty breeds doubt, which can be paralyzing. But uncertainty also motivates diligence, as one pursues the unattainable goal of eliminating all doubt. Unlike premature or false certainty, which induces flawed analysis and failed judgments, a healthy uncertainty drives the quest for justifiable conviction.
Click here to download this 2-page letter, and read it from start to end.
I’m sure you’ll find the reading worth your time, given the priceless investing wisdom you will receive here.
Over the years, I’ve come to believe the relevance of the word “value” in value investing – because we are always trying to learn valuable lessons that traders and speculators never consider.