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Clujso (David)
@d
My current book obsession is “Margin of Safety” by Seth Klarman. I’ll share some notes along. - Definition: ”A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility. The margin of safety is always dependent on the price paid. For any asset, it will be large at one price, small at some higher price, and non-existent at some still higher price” - The key is to pair the margin of safety with the “why” question. It’s critical to know this, and sell when the reason for owning does not apply anymore, or when the asset is priced closer to it’s underlying value. - In simple terms: Assets that trade at low earnings or cashflow multiples, even below cash - The margin of safety is dependent on market conditions. There are moments when even the cheapest asset is overvalued, and does not have a margin of safety. So the best is to be uninvested at those times.
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Drew Volpe
@drew
I remember enjoying this but have come to question it (and this style of value investing) at a fundamental level. It just seems to be broken. Seth's fund has returned 4% annualized over the last decade.
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Clujso (David)
@d
I do think Seth’s era has faded, but there much to learn from the best. I also think that this margin of safety might apply to other metrics that are non financial and more tech driven like users, retention, engagement, etc
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Drew Volpe
@drew
A lot of great ideas in there.
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