Every person has someone or the other he looks up to in life. More often than not the person comes from the same field his follower is from. Thus, when it comes to value investing, majority of us see Warren Buffett as our favourite investor.
However, have you ever wondered who Warren Buffett's favourite investor is? Almost all of us would say Benjamin Graham in unison. And yes, Graham is Buffett's favourite investor and also his mentor. But when it comes to current generation investors, Warren Buffett reckons a certain Seth Klarman as amongst his favourite investors.
Now, Seth may not be all that well known in India. But he is indeed a big name in the US asset management industry and his long term track record is nothing short of spectacular. Thus, when the man a stature of Seth speaks, listening to him would certainly pay off in the long term.
Klarman is of the opinion that price is perhaps the single most important criterion in sound investment decision making. He believes that every security or asset is a 'buy' at certain price, a 'hold' at a higher price and a 'sell' at some still higher price. Yet, he adds that most investors prefer what is performing well to what has recently lagged, often regardless of price. And this, he believes virtually guarantees an inferior performance.
Unlike Buffett, Klarman does not consider gold as a relic but views it as an important hedge against macroeconomic uncertainty. He argues that usually, bottom up value investors do not consider macroeconomic analysis as something that is very useful. However, he cautions doing so at one's own peril. Klarman is of the view that the greatest risks today are of currency debasement and runaway inflation. And hence, protection against a currency collapse - such as exposure to gold - looks like a necessary hedge to him.
Other such investment nuggets abound in the letter. However, if one were to sum up the core of the letter, it will read no different from what Buffett has said time and again. Try to form an independent opinion and be fearless when others are greedy and greedy when others are fearful.