 Good day fellow investors! One of my favorite investors is Seth Klarman and as we have finished with the summary of the Intelligent Investor you can find the playlist in the link below if you wish to watch that. I thought that in this market something very very valuable to you all would be to make a summary of the margin of safety from Seth Klarman because that's the core book of value investing and I think that value investing is the way to go now in this let's expensive or fully priced markets. So in this video we'll give an overview about who Seth Klarman is we'll discuss a little bit about his track record, his cash exposure, his portfolio and to give a general overview of who he is and then in the next videos we will start with chapter by chapter topic by topic summary of the margin of safety where I'll explain what's going on put everything more into a contemporary time because the book was written in 1991. So let's start with Seth Klarman and his investing style. His investing style is really simple and he explains it like this. Our strategy is to hunt for bargains and we typically find more when the market is weak and fewer when it is strong so logical value investing. Here is his elaboration on what those bargains consist of at Baupost we follow a value approach that seeks out undervalued investments with catalysts for value realization. We differ from other funds as a result of our steadfastly long-term risk averse orientation we'll talk more about that later very limited exposure to short selling involvement in both public and private markets willingness to hold cash in the absence of immediate opportunity and 34 year record of strong performance. We refuse to enter Wall Street's ubiquitous short-term performance Derby. So as a value investor Klarman focuses on risk first that's so first focus on risk what can go wrong and then from that risk you look at the upside. Secondly Klarman has a bottom up perspective in place of 99% of Wall Street that have a top-down perspective. Wall Street looks at what will the results of G20 be what will Trump say etc what will the trade war end up and Klarman really looks at the businesses at the value at the margin of safety and from there from the business bottom up he finds best investments. He has been very very successful at what he does and therefore we're going to discuss what he did over the last 40 years and his book on this channel. Now his book margin of safety is selling on Amazon last I saw it which was $1250 a year ago when I checked it was 800 so someone made the 50% return there because it was printed I believe only in 1000 or 5000 copies so it's much of a collector's item now. It's better to invest that money into stocks instead of buying a book so as an investor as a value investor I hope to give you value by summarizing this book but what's more important it's said Klarman's track record. The ball post group is very secretive he manages about 40 billion 30 billion of money so he doesn't need any new investors he is one of the few investors that even with the fund gave cash back to investors because he didn't find that many investing ideas over the last few years plus he usually holds about 50% in cash when the markets are expensive nevertheless from the data points that I have found out from 1983 till 2015 said Klarman delivered a 16.4 return per year 16.4 return per year the SAP 500 in that period delivered about 9.4 percent so he had returns over 30 years 50 60 percent above the SAP 500 which puts Klarman into the basket of the best investors of all time he hasn't been outperforming the SAP 500 over the last three years and that's logical because he is a value investor focused on risk and very very conservative as we'll see later he owns he has 50% of his portfolio usually in cash so he is waiting for opportunities and that leads unfortunately to underperformance even if he is very very happy with a single digit return in this market and I believe that the investors that have 40 billion with his fund are extremely happy with single digit risk averse return because when you measure performance you should first measure risk and then performance if you look at said Klarman's performance this is something extremely stunning look at this performance from 1990 till 2001 so over 10 years or 11 years 50 000 investors in the boutpost group would end up being 131 000 however 50 000 invested in the SAP 500 would end up being 247 000 so almost 100 percent more than what Klarman did over 10 years so looking at this there you get the stories value investing is dead value investing is for old people crazy low returns there avoid value investing focus on growth stocks of course over 30 years and since then Klarman has significantly outperformed the SAP 500 but as a value investor Klarman has suffered 10 years of underperformance of course the important thing is what he did in 2001 2002 2003 and 2009 because that is what risk management is and that is what leads to long-term sustainable returns why did Klarman underperform in the 10 years because he's a risk averse conservative investor look at his april 40 2001 portfolio location cash 48.6 percent us public equity is only 18 percent western europe 4 percent etc etc and then performing and non-performing that so really into that investing 23 percent where he finds value when there is minimal risk even in liquidation but significant upside so that he also owned securities in liquidation over the long term he delivered 16 percent so that's something amazing and just think about holding 48.6 percent of your assets in cash of your stock market portfolio however it's all about character to hold 48 percent in cash you need to have a strong character as we discussed or as Buffett discussed in his 1985 interview that you can watch on the card above on youtube so Buffett says how it's all about character and holding a lot of cash if we look at Berkshire's current balance sheet they have 114 billion in cash on 200 billion in stocks so what is that 30 45 40 percent of the stock market portfolio is available in cash deduct the 20 billion they need for insurance and 94 billion dollars is ready to be used applied when opportunities arise and Buffett has been having this huge pile of cash doing nothing or sitting in short-term treasuries at 2 percent for a long long time and this is what we hope to get by summarizing the margin of safety the character that will allow us to invest sustainably risk averse focused on risk bottom up over the long term because you see all these people making money yes in a bull market then losing everything in a bear market i see now some dividend yield investors investing on margin etc because high yield is i don't know eight percent you can get a margin for six percent so such crazy investments are certainly not what is sustainable over the long term and that's why we are summarizing this book and that's why we want to work on character on the mindset because that is what has delivered and i think it will deliver the results you expect over the very very long term so just to look at said klarman's latest top portfolio holdings so 21st century fox chenyer allergan via sat p g and e corporation corvo and then 21st century again but we have to really check these positions we'll put these positions and compare it to what he is saying in the book so it will be an interesting period when we analyze what said klarman is doing why is he owning what is he owning and how to apply that within a value investment risk averse perspective so thank you for watching looking forward to a comments the next video will be about the first chapter of the book margin of safety so please subscribe if you haven't clicked that notification bell to get notified when a new video is coming up to see what's going on thank you and i'll see you in the next video