Seth Klarman On The Arrogance Of Value Investing – Barron’s 1999

Seth Klarman On The Arrogance Of Value Investing – Barron’s 1999
Seth Klarman

Seth Klarman in Barron’s 1999 article on Warren Buffett

H/T Brattle Street

At the root of value investing is the belief, first espoused by Benjamin Graham, that the market is a voting machine and not a weighing machine. Thus an in-vestor must have more confidence in his or her own opinion than in the combined weight of all other opinions. This borders on arrogance, the necessary arrogance that is required to make investment de-cisions. This arrogance must be tem-pered with extreme caution, giving due respect to the opinions of others, many of whom are very intelligent and hard working. Their sale of shares to you at a seeming bargain price may be the result of ignorance. emotion or various institu-tional constraints, or it may be that the apparent bargain is in fact flawed, that it is actually fairly priced or even overval-ued and that the sellers know more than you do.

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This Is a serious risk, but one that can be mitigated first by extensive fundamental analysis and second by knowing not only that something is bar-gain-priced but, as best you can, also why it is so. (You never know for certain why sellers are getting out but you may be able to reasonably sur