 Good day, fellow investors! These 20 lessons from Hedge Fund billionaire Seth Klarman, a person, a value investor that achieved 16% to 18% yearly annualized returns over 30 years from 1983. Yes, when value investing was proclaimed dead over and over and over again. So he destroyed the market and he shares 20 extremely valuable lessons in his 2009 annual letter that I came across and here are those letters, you can also find them online, but they are so important that I wanted to make a video so that we can listen to them constantly no matter where you are because if you listen to this you will be an investment success in your lifetime. Let's go! 1. Things that have never happened before are bound to occur with some regularity. You must always be prepared for the unexpected, including sudden, sharp downward swings in markets and the economy. Whatever adverse scenario you can contemplate, reality can be far worse. 2. When excesses such as lax lending, standards become widespread and persist for some time, people are ruled into a false sense of security, creating an even more dangerous situation. Nowhere does it say that investors should strive to make every last dollar of potential profit. Consideration of risk must never take a backseat to return. Conservative positioning entering a crisis is crucial. It enables one to maintain long-term oriented clear thinking and to focus on new opportunities while others are distracted or even forced to sell. Portfolio hedges must be in place before a crisis hits. One cannot reliably or affordably increase or replace hedges that are rolling off during a financial crisis. So it is okay to have cash and that is why I have about 70% cash at the moment in my model portfolio. So, conservative, first, don't lose money, protect your principle and the returns will come. Thank you, Seth. 4. Risk is not inherent in an investment. It is always relative to the price paid. Uncertainty is not the same as risk. Indeed, when great uncertainty such as in the fall of 2008 drives securities prices to especially low levels, they often become less risky investments. As always, buy low, sell high. When you buy low, you are at low risk. Low risk, high return. That's it. 5. Do not trust financial market risk models. Reality is always too complex to be accurately modeled. Attention to risk must be 24, 7, 365 days obsession, with people, not computers, assessing and reassessing the risk environment in real time. Despite the predilection of some analysts to model the financial markets using sophisticated mathematics, the markets are governed by behavioral science, not physical science. So run away from Greeks, run away from models and use common sense. 6. Do not accept principal risk while investing short-term cash. The greedy effort to earn a few extra basis points of yield inevitably leads to the occurrence of greater risk, which increases the likelihood of losses and severe illiquidity at precisely the moment when cash is needed to cover expenses, to meet commitments or to make compelling long-term investments. So be careful when chasing yields, be careful when chasing those dollar high yields if you are a European investor that you see now in treasuries. 7. The latest trade of a security creates a dangerous illusion that its market price approximate its true value. This mirage is especially dangerous during periods of market exuberance. 8. A broad and flexible investment approach is essential during a crisis. Opportunities can be vast, ephemeral and dispersed through various sectors and markets. Rigid silos can be an enormous disadvantage at such times. 9. You must buy on the way down. There is far more volume on the way down than on the way back up and far less competition among buyers. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy. So when you find quality, when you find great businesses, be ready to buy when it is at a fair value and an average down if you are blessed with lower prices. 10. Financial innovation can be highly dangerous, though almost no one will tell you this. New financial products are typically created for sunny days and are almost never stress tested for stormy weather. Be careful of new financial products, especially ETFs that haven't seen stormy weather yet. Ratings agencies are highly conflicted, unimaginative dupes. They are blissfully unaware of adverse selection and moral hazard. Investors should never trust them. 12. Be sure that you are well compensated for illiquidity, especially illiquidity without control, because it can create particularly high opportunity costs. Further, at equal returns, public investments are generally superior to private investments not only because they are more liquid, but also because amidst distress, public markets are more likely than private ones to offer attractive opportunities to average down, because the averaging down is the key to long-term successes. People forget that if a stock price goes down, then long-term returns are higher if you average down and you reinvest your money and dividends. 14. Beware leverage in all its forms. Borrowers, individual, corporate or government should always match fund their liabilities against the duration of their assets. Borrowers must always remember that the capital markets can be extremely fickle and that it is never safe to assume a maturing loan can be rolled over. Many LBO's leverage buyouts are man-made disasters. When the price paid is excessive, the equity portion of a leveraged buyout is really an out-of-the-money call option. Many fiduciaries placed large amounts of the capital under their stewardship into such options in 2006 and 2007. 16. Financial stocks are particularly risky. Banking in particular is a highly leveraged, extremely competitive and challenging business. Put it into the too hard pile to analyze. 17. Having clients with a long-term orientation is crucial. Nothing else is as important to the success of an investment firm. So, thank you all my clients for understanding my current 70% cash position in the model portfolio and your long-term orientation. We are building something great here, so thank you, thank you, thank you. 18. When a government official says a problem has been contained, pay no attention to that. 19. The government, the ultimate short-term oriented player, cannot withstand much pain in the economy or financial markets. Bailouts and rescues are likely to occur, though not with sufficient predictability for investors to comfortably take advantage. The government will take enormous risks in such interventions, especially if the expenses can be conveniently deferred to the future. Some of the price tag is in the form of backstops and guarantees whose cost is almost impossible to determine. What will be the cost of the current global deficits, budget deficits in the future for future generations? We will see. 20. Almost no one will accept responsibility for his or her role in precipitating a crisis. Not leveraged speculators, not willfully blind leaders of financial institutions, and certainly not regulators, government officials, rating agencies or politicians. So, 20 amazing lessons from Seth Klarman. Thank you, Seth, for sharing this with us. I firmly believe that if you follow these 20 rules, and I will try to incorporate these 20 rules into this channel for the long-term, for the long-term success of all of you that are subscribed here, and all of you that are working with me on the stock market platform to make amazing long-term returns, that will be amazing if we keep to these principles shared by Seth Klarman. Investing is easy in the long-term if you just adhere to simple long-term things that worked out in history, and stay away from the leveraged crazy investments that didn't work out in history, and will probably not work out in the future. Thank you for watching, looking forward to your comments, and I'll see you in the next video.