Book Review: Margin of Safety
This book review is different. I liked this book a lot, but I don’t want you to buy it. Why? I’m a value investor, that’s why. More on that in a moment.
What commends this book to our attention? It is a well-written book on value investing by one of its leading practicioners, Seth Klarman. I love reading books on value investing written by the experts who have done it so well. It is useful to get their differential insights. It sharpens you.
What I found in Margin of Safety was a very good basic book on value investing. It contains the usual warnings against speculation, which most retail investors do, and how Wall Street frequently overcharges and misleads retail investors. Even institutional investors get cheated by focusing on relative performance, rather than absolute performance, according to Mr. Klarman. As an absolute value investor, he wants to make money all the time, not just beat the market. (A word here, if stocks beat safe bond investments on average, then there may be some validity to relative value investing.)
The book was written in 1991, after the junk bond market collapse, and contains a decent amount of criticism of the era. Buying high yields is not enough, those yields be realizable from companies that can produce cash flows to support the price of the bonds.
The book also reflects the author’s early career in the investment shop founded by Max Heine, and run by Michael Price, until it was sold to Franklin Resources. The Mutual Series Funds did ordinary value investing, but they also bought special situations, did deal arbitrage, bought distressed debt, and more.
The eponymous and key idea of the book is Ben Graham’s concept of a margin of safety. Invest in assets where your likelihood and severity of loss is low, given your purchase price. Don’t take risks unless you are handsomely paid to take them. If you buy enough of them cheap enough, you will do well in the long run.
All in all, a very good book on value investing. Why not buy it? Too expensive. The book is good, but very basic. You can do better for free with:
So how much would it cost to buy a copy? $900-$2000. You can see the results at Ebay and Amazon. Put on your cost-sensitive sunglasses before viewing.
It’s a very good book, but relative to what is available for free or at nominal (<$30) cost, it doesn’t make sense to buy it, aside from bragging rights.
So, how did I end up with a copy? I don’t have a copy. I borrowed it via Interlibrary loan and quickly read it, sending it back to the nice library in Florida that lent it to my library. I recommend that you do that as well, if you want to read the book. If you are game, I also ask that you write Seth Klarman at:
THE BAUPOST GROUP
10 St. James Avenue – Suite 1700
Boston, MA 02116
617.210.8300
Write a nice letter, asking him to do a second edition of the paperback version for a new generation of young value investors. At least a reprint…
For those just wanting to know what he holds for clients, the 13F is available here.
PS — No link to buy it here, but remember, I do book reviews of all sorts of books, not just new ones. Often the old stuff is better, like today’s book. If you enter Amazon through any link on my site and buy anything there, I get a small commission. It is my version of the tip jar, and the best thing is, it comes out of Amazon’s pocket, and not that of my readers.
January 22nd, 20094:18 am at
Great book. Klarman puts forth one of the best arguments for absolute returns that I have seen. It is a smart book and one worth reading even if you aren’t a strict value investor.
January 22nd, 20097:55 am at
There are PDF copies of Margin of Safety floating around on the internet (I’ve seen at least one). It’s a great (albeit very basic) introduction to Fundamentals-based Value Investing.
As for the 13-F, I don’t believe it shows non-equity securities like Credit Default Swaps. I believe Baupost took some fairly sizable long positions in those on some housing stocks a couple of years back. They paid off pretty well. Klarman and his crew are definitely a bunch of smart cookies.
January 22nd, 20091:45 pm at
It’s true, it is basic. However one tip buried inside saved me a lot of money. Do not buy financials and retail in a period of excesses. They usually do not have good economics and tend to get overextended.
January 22nd, 20095:38 pm at
I’ll mention without naming locations that there is a scanned version of this book on various bittorrent sites.
January 26th, 20096:33 am at
I had a copy I bought used for two bucks that had been sitting on my shelf for years. When I saw an article about the author that noted they were selling for high prices I thought “OMG I’ve got one of those!” Percentage wise, it’s my best investment to date, but I sold it too cheap, “only” $450. It’s good, but not *that* good.
January 26th, 200910:55 pm at
Try this from google search:
http://toddsullivan.duedee.com/2008/9/1/Seth-Klarmans-%22Margin-of-Safety%22/39067/
(Please delete if inappropriate. Tx)