Book Review: Margin of Safety
Finally, I think I’ve had this book in my sidebar for almost 6 months now. It’s difficult finding time to read these days, but I’m doing my best to read a bit each day on my commute to work and when I find off hours on the weekends. I must apologize to my readers who grew accustomed to my every other day posting schedule, but I do hope to regain some balance in my life as I get more and more used to working full time.
Anyways, on with the show. Margin of Safety by Seth Klarman is one of those mythical investing books that investing enthusiasts from retail to professional wish to get their hands on. Seth Klarman wrote the book in the mid-1990s and inexplicably (or rather shrewdly) decided to stop printing it. These days used copies sell for $600 and new copies can run as much as $2000. Rich hedge fund managers go as far as to steal copies fom public libraries. But, if you’re lucky, you’ll manage to find a copy with some creative internet searching – either through legal, semi-legal, or outright illegal means.
Who is Seth Klarman? Seth Klarman runs the Baupost Group and has returned nearly 20% a year since 1982. Klarman is a true value investor who is as disciplined as any out there and has been known to hold upwards of 50% of his portfolio in cash and shun any sort of leverage. He’s a master of distressed buying and, like Warren Buffett, is willing to purchase securities throughout the capital structure – not just stocks.
Klarman’s book, Margin of Safety, is one of the most well-written and interesting investment books I’ve ever read. The book’s subtitle is “Risk-Averse Value Investing Strategies for the Thoughtful Investor” and it delivers in every facet. Klarman discusses the principles and philosophy of value investing while sprinkling in anecdotes and analysis of various market events in the 1980s and 1990s ranging from the savings and loans crisis to his own personal investments in spin-offs, mergers, and distressed debt.
The book is highly informative for beginning investor and professional investor alike as Klarman, more than anyone else that purports to be a “value investor” these days, truly understands the essence of value investing and provides a truly articulate and well-thought out exposition on its merits and how anyone can become a disciple of value investing.
For all that the book does offer in breadth and insight, it is lacking somewhat in actual tutorials. For a new investor, Klarman’s cursory discussion on how to value securities and where to hunt for bargains is not likely to be enough to get one started in implementing a value investing strategy. In fact, I found myself looking to other resources after reading this book to get a clearer view of certain topics.
I definitely do recommend Margin of Safety if you can get you hands on it. It’s a great read and definitely somethng fun to mention to your other investing buddies. But, do you need to shell out $600+ for this book to be a good investor? Probably not. In fact, after reading this book, I almost immediately felt that you could very closely approximate the book’s contents with two other books I’ve reviewed on this site – Bruce Greenwald’s Value Investing and Joel Greenblatt’s You Can Be A Stock Market Genius. These two books cover, in even more detail than Klarman’s book alone, value investing philosophy and technique as well as searching for stock picks through special situations investing.
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