A EXTRAORDINARILY RARE interview with one of the greatest investors ever, Seth Klarman. Big H/T to Value Investing World

Here are some notes:

Starts talking about philinatrophy.

Talks about his organization which trains teachers about how to communicate with children better.

Seth Klarman thinks that history is very important for children to learn.

Talks about potential for understanding history in new emerging democracies in Arab world, Eastern Europe and Africa. Although he is pessimistic about it happening in the Arab world. Although Klarman says he will give it his best.

Students in America find history very dry. Seth Klarman happens to be a fan of history.

Talks about Warren Buffett and the success of philanthropy.

Way harder to give away money than to make it.

Seth Klarman’s mentor for investing was his uncle, who was on the board of Mutual Shares. Michael Price, his first boss was also a mentor.

Seth says idea of Margin of Safety came from a publisher who asked him to write a book. The book was not advertised well, and only sold about 5,000 copies.

If he thinks he can sell some money for charity he will re-publish the book.

Charlie Rose says that the book is on Warren Buffett’s desk.

Seth tried to write it to make it understandable to most people. It is meant to be an intellectual successor to The Intelligent Investor.

Talks about the preface to Security Analysis, which Seth wrote.

Seth wishes he met Benjamin Graham.

Quotes Buffett that value investing is an innoculation. Its something of a genetic thing. Everyone gets scared when stocks go down.

Its natural for value investors but not for most people.

You cannot look at a stock as a piece of paper.

Seth tells students that investing is a mixture of investing and psychology. The psychological aspect is harder, it takes the psychological make-up and experience.

Patience is important but not being greedy is important.

You need to balance arrogance and humility. You have to think you are smarter than the market on a specific stocks, but also recognize that you might be wrong.

Seth says that Warren Buffett went from:

1. Cigar butts and getting the last few puffs

2. Buying great businesses and good prices

3. Buying and holding great businesses at ‘so-so’ prices.

4. Buying weird securities at below market prices, like BAC warrants.

Seth says that he is still at stage one of the process of buying cigar butts.

Seth thinks Warren is a better investor and has a better business. He can find great business, Klarman is not able to identify them.

Klarman says that he does not have a Bloomberg on his desk. His desk is full of a pile of paper.

Klarman quotes a story from Chris Browne of Tweedy Browne: Someone who visited the firm stated ‘at most places you can tell if the market is up or down. At Tweedy Browne you can’t even tell if it is open!’

Its like that at Baupost, they have a 3-5 year time horizon.

Looks for places where liquidity is forcing people to sell securities.

Talks about little guys and how they underperform the market due to bad timing.

He wrote the book to educate the average person.

Buying is easier than selling. You have no idea when they will want to buy it from you. You can lose your confidence if Greece fails and now the dollar is not worth a dollar anymore.

Making sure that the dollar will still be worth a dollar in the future is critical.

Mistakes include under-estimating leverage. Investments with bad people.

A lot of stocks of cheap for a reason, a lot of times the value investor will discover the stocks. But bad management can destroy cheap stocks.

Graham did not put enough emphasis on good management.

After graduating business school, Klarman met some of the founders of Baupost. The day it started, Klarman owned none of it. He eventually controlled it, and is thankful to his friends for allowing that.

He puts his clients’ interest first.

Institutional investors focus too much on relative performance and short term thinking. The pressures are too short term.

The financial industry as a whole provides zero value. Complex securities, and products that have no value have no purpose. The financial institutions should be lending money to small institutions.

The big problems are the banks that own the sovereign debt.

The Government should create the rules and then get out of the way.

The Government was right in bailing out AIG but the subordinated bond holders should have gotten a haircut, instead of receiving par.

Equity should have also turned to zero.

Bill Ackman also made this point.

You could have done the same thing with Citigroup.

In Europe the problem is that the Governments created such a mess. The lesson of history is to do the right thing even if you lose the election.

Seth Klarman gives Chris Christie as an example.

Talks about Israel. Israel can be more user friendly, but if you look at history of anti-semitism, hatred of Jews has shifted to hatred of the Jewish state.

When you look at Israel singled out at the UN like no other nations are over decades of resolutions, you understand.

In Germany it was also a small march with the Nazis. There is a slow march of people who would love to dismantle Israel. But no one talks about dismantling Syria.

Israel is not perfect like any country. Klarman prays for peace but doesn’t see another partner.

An Interview with Seth Klarman and Charlie Rose from Facing History and Ourselves on Vimeo.