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.