Money and Finance
- Seth Klarman On Business Valuation
From Margin of Safety:Business valuation is a complex process yielding imprecise and uncertain results. Many businesses are so diverse or difficult to understand that they simply cannot be valued. Some investors willingly voyage into the unknown and buy...
- Seth Klarman On Margin Of Safety And Intangible Assets...
From Seth Klarman, via Margin of Safety:Even among value investors there is ongoing disagreement concerning the appropriate margin of safety. Some highly successful investors, including Buffett, have come increasingly to recognize the value of intangible...
- Seth Klarman Quote
From Margin of Safety(Source): Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgment to know when it is time to swing. ...
- 6 Signs Of A Good Investment Process
In my baseball-playing days, I was on the mound in a big playoff game, and at a key moment in the game I threw what seemed to be a good pitch, only to watch as the ball sailed over the fence for a home run. It might still be traveling somewhere over North...
- Making Each Investment Count
My apologies for the radio silence in recent weeks. I've been working on a number of side projects that have limited my time for posting. I plan to pick up the pace again in a few weeks' time, so thank you very much for your patience and continued...
Money and Finance
Waiting for the Right Pitch
From Seth Klarman via Margin of Safety:
Waiting for the Right Pitch
Warren Buffett uses a baseball analogy to articulate the discipline of value investors. A long-term-oriented value investor is a batter in a game where no balls or strikes are called, allowing dozens, even hundreds, of pitches to go by, including many at which other batters would swing. Value investors are students of the game; they learn from every pitch, those at which they swing and those they let pass by. They are not influenced by the way others are performing; they are motivated only by their own results. They have infinite patience and are willing to wait until they are thrown a pitch they can handle – an undervalued investment opportunity.
Value investors will not invest in businesses that they cannot readily understand or ones they find excessively risky. Hence few value investors will own the shares of technology companies. Many also shun commercial banks, which they consider to have unanalyzable assets, as well as property and casualty insurance companies, which have both unanalyzable assets and liabilities.
Most institutional investors, unlike value investors, feel compelled to be fully invested at all times. They act as if an umpire were calling balls and strikes – mostly strikes – thereby forcing them to swing at almost every pitch and forego batting selectivity for frequency. Many individual investors, like amateur ballplayers, simply can’t distinguish a good pitch from a wild one. Both undiscriminating individuals and constrained institutional investors can take solace from knowing that most market participants feel compelled to swing just as frequently as they do.
For a value investor a pitch must not only be in the strike zone, it must be in his “sweet spot”. Results will be best when the investor is not pressured to invest prematurely. There may be times when the investor does not lift the bat from his shoulder; the cheapest security in an overvalued market may still be overvalued. You wouldn’t want to settle for an investment offering a safe 10% return if you thought it very likely that another offering an equally safe 15% return would soon materialize.
An investment mustbe purchased at a discount from underlying worth. This makes it a good absolute value. Being a good absolute value alone, however, is not sufficient for investors must choose only the best absolute values among those that are currently available. A stock trading at one-half of its underlying value may be attractive, but another trading at one-fourth of its worth is the better bargain. This dual discipline compounds the difficulty of the investment task for value investors compared with most others.
Value investors continually compare potential new investments with their current holdings in order to ensure that they own only the most undervalued opportunities available. Investors should never be afraid to reexamine current holdings as new opportunities appear, even if that means realizing losses on the sale of current holdings. In other words, no investment should be considered sacred when a better one comes along.
Sometimes dozens of good pitches are thrown consecutively to a value investor. In panicky markets, for example, the number of undervalued securities increases and the degree of undervaluation also grows. In buoyant markets, by contrast, both the number of undervalued securities and their degree of undervaluation declines. When attractive opportunities are plentiful. value investors are able to sift carefully through all the bargains for the ones they find most attractive. When attractive opportunities are scarce, however, investors must exhibit great self-discipline in order to maintain the integrity of the valuation process and limit the price paid. Above all. investors must always avoid swinging at bad pitches.
- Seth Klarman On Business Valuation
From Margin of Safety:Business valuation is a complex process yielding imprecise and uncertain results. Many businesses are so diverse or difficult to understand that they simply cannot be valued. Some investors willingly voyage into the unknown and buy...
- Seth Klarman On Margin Of Safety And Intangible Assets...
From Seth Klarman, via Margin of Safety:Even among value investors there is ongoing disagreement concerning the appropriate margin of safety. Some highly successful investors, including Buffett, have come increasingly to recognize the value of intangible...
- Seth Klarman Quote
From Margin of Safety(Source): Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgment to know when it is time to swing. ...
- 6 Signs Of A Good Investment Process
In my baseball-playing days, I was on the mound in a big playoff game, and at a key moment in the game I threw what seemed to be a good pitch, only to watch as the ball sailed over the fence for a home run. It might still be traveling somewhere over North...
- Making Each Investment Count
My apologies for the radio silence in recent weeks. I've been working on a number of side projects that have limited my time for posting. I plan to pick up the pace again in a few weeks' time, so thank you very much for your patience and continued...