Margin of Safety - Seth Klarman

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QuantJock_MBA

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I just finished this book. I found it interesting, however the ending was a bit of a let down. He suggests that the typical retail investor keep an active approach to managing their portfolio. To those whom do not work in financial services, this does not seem like sound advice.
In my opinion, best practice for those not in the business would be to keep your day job, and pay the ~75 bps for someone reputable to manage your retirement account. Economies of scale so to speak.
 
Did you read the last chapter? You sound like Madoff’s salesperson.
 
cfafrank Wrote:
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> Did you read the last chapter? You sound like
> Madoff’s salesperson.
I did read the last chapter. Madoff’s salesperson?
He does suggest an either/or approach with doing it yourself or hiring a helping hand. Though the bias seemed to be on simply doing it yourself, wouldn’t you agree?
Overall the book was very good, I’m not sure why it is selling for ~$700 though.
 
It sells for that much because it has been out of print for so long and there aren’t that many copies available. Supply/demand in action.
 
CanadianAccountant Wrote:
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> Or you could just torrent a .doc of it for free
thief.
 
QuantJock_MBA Wrote:
——————————————————-
> I just finished this book. I found it
> interesting, however the ending was a bit of a let
> down. He suggests that the typical retail
> investor keep an active approach to managing their
> portfolio. To those whom do not work in financial
> services, this does not seem like sound advice.
>
> In my opinion, best practice for those not in the
> business would be to keep your day job, and pay
> the ~75 bps for someone reputable to manage your
> retirement account. Economies of scale so to
> speak.
Like edward Jones financial advisors?
 
I think suggesting a retail investor manage their own portfolio is the worst advice ever. How can someone who spends at most 5-10 hours a week possibly compete with people who spend 12-15 hours a day at this, six days a week? The notion is absurd. Even most “professionals” get killed, so how does Joe Sixpack stand a chance? Stick to real estate or pay someone the bps to manage your money, it’s that simple.
 
I thought index funds outperformed 80% of money managers so why can’t a private investor just buy index funds and outperform?
 
A retail investor may not be able to outperform (outperform the market, at least), but she can very likely do well and avoid regret by sticking with index funds and/or ETFs.
Somebody is selling that book on Amazon for $2,475.99 + $3.99 shipping; I find that amusing.
 
KJH Wrote:
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> I thought index funds outperformed 80% of money
> managers so why can’t a private investor just buy
> index funds and outperform?
They could, but then they would also feel the wrath of 2008. I can’t imagine what happened to people trying to retire late in 2007.
 
QuantJock_MBA Wrote:
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> KJH Wrote:
> ————————————————–
> —–
> > I thought index funds outperformed 80% of money
> > managers so why can’t a private investor just
> buy
> > index funds and outperform?
>
>
> They could, but then they would also feel the
> wrath of 2008. I can’t imagine what happened to
> people trying to retire late in 2007.
Are you suggesting that active managers did not feel the wrath of 2008? Some of the most famous investors got crushed, most notably Bill Miller.
 
I don’t understand how Bill Miller could even consider himself a value investor. How do you value financial institutions that have extremely limited transparency on their financial statements? Is it a value if the valuation is low relative to its historical valuation? I hope his analysis was more sophisticated than that, but I don’t see how it could have been. It seems like guessing to me and he obviously guessed wrong.
I agree with the index funds strategy, to clarify my earlier post. I always recommend that over stock picking when retail investors I know ask me what to buy. Picking individual stocks as a retail investor seems like madness though.
 
kaklan Wrote:
> >
> > They could, but then they would also feel the
> > wrath of 2008. I can’t imagine what happened
> to
> > people trying to retire late in 2007.
>
> Are you suggesting that active managers did not
> feel the wrath of 2008? Some of the most famous
> investors got crushed, most notably Bill Miller.
The index fund buy hold autopilot did not work for those in 2008. I’m not too familiar with active/passive management, but one should have an advocate advising them on funds for retirement given they do not work in the industry.
100% agree on funds vs individual stocks for the typical person though.
I get (free) advice on my Roth decisions still from those I respect. The optimal allocation mix is a very tough medium to find.
 
I think the notion that a strategy of using index funds to assemble a diversified portfolio (or almost any other strategy for that matter) is not effective because it “did not work in 2008” is fudamentally deeply confused.
 
KJH Wrote:
——————————————————-
> I thought index funds outperformed 80% of money
> managers so why can’t a private investor just buy
> index funds and outperform?
True. However, they need someone to tell them to index, and they need someone to tell them to allocate their wealth.
 
Captain Windjammer Wrote:
——————————————————-
> I think the notion that a strategy of using index
> funds to assemble a diversified portfolio (or
> almost any other strategy for that matter) is not
> effective because it “did not work in 2008” is
> fudamentally deeply confused.
After thinking about this, I agree.
I guess what I’m getting at is maybe that buy&hold autopilot pitched to us by various publications is not as sound as it seems. Sure it would work if we all had 100 years available, but most of us don’t.
 
I hear what you’re saying but in my view, to paraphrase Winston Churchill, indexing is the worst form of investing except all the others that have been tried. Unless you are an exceptionally talented investor with extraordinary insight who has excellent resources and dedicates herself to investing full-time perhaps. Just to be clear that would rule out about (very roughly) 99.9% of CFA charterholders and 99.9999999% of all folks in the investment industry in my view.
Of course, if everyone weren’t trying to beat the beat the market indexing would be impossible.
 
Attention retail investors. Don’t pay someone to look after your money. Read the book ‘Where are the customer’s yachts?’. Alternatively, look around any finance office and focus your concentration on thos who use company cash excessively. There are many. Sales offsites, management lunches etc etc That is where the bps go.
Instead:
1. Decide how much you want to keep in cash and how much you want to invest as a % of your assets.
2. Buy ETFs
3. Diversify your ETFs across asset classes / geographies / market spaces
4. Dollar cost average
Maybe I should just flesh that out into a 500 page book and earn some $$$ for those insights.
 
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