6 Quotes from Seth Klarman's Preface to the Sixth Edition of Security Analysis

At 700 pages, the 6th edition of Security Analysis is a beast. For years, I have thought about tackling it but several friends who have read The Intelligent Investor convinced me that the outdated examples and the length of the book wasn't worth the time. In addition, I had read several reviews online in which they complain about Ben Graham's style of writing. But as a value investor, I still could not resist the urge to purchase it. After all, what do I have to lose? The book is easily affordable on Amazon and it has an all-star lineup of value investors that only the 1970-1976 Cincinnati Reds could match. At worse, I lose a couple of dollars (Ok maybe more) and I have read what many consider the bible of value investing. Now, that;s what I call a Margin of Safety. So, like many others, I bought the book and it sat in my shelf collecting dust. Fast forward to this summer and I have a bit of free time but the book continues to collect dust. So I decide to team up with a friend of mine to read Security Analysis and share each others notes. Now, I have only read the foreward by Warren Buffett and the preface by Seth Klarman and that in itself might be worth the price of the book if you truly appreciate and implement what they have to say.

For example, Seth Klarman's preface, which is about 30 pages long, has some nuggets of information which could make or break an investors career if not applied properly. For example, some of the following quotes caught my attention and I am positive Gurufocus readers could benefit from them.

• "Investing in bargain-priced securities provides a "margin of safety"-room for error, imprecision, bad luck, or the vicissitudes of the economy and stock market." pg. xiii (emphasis on vicissitudes of the economy due to the economic environment we are and have been in the past 2 years)
• "Speculative approaches-which pay little or no attention to downside risk- are especially popular in rising markets." pg. xiv
  
  

In which Seth Klarman continues with "It is easy to confuse genius with a bull market." Classic in my opinion ,considering how many analysts and institutional investors appeared on CNBC, Bloomberg, etc. right before the market crash thinking the market and their portfolios would continue to rise. Continuing with the quotes:

• "While it might seem that anyone can be a value investor, the essential characteristics of this type of investor-patience, discipline, and risk aversion-may well be genetically determined." pg. xvi
• "I know of no long-time practitioner who regrets adhering to a value philosophy; few investors who embrace the fundamental principles ever abandon this investment approach for another" pg. xvii
• " While formulas such as the classic "net working capital" test are necessary to support an investment analysis, value investing is not a paint-by-numbers exercise. Skepticism and judgment are always required." pg. xviii
• "Valuation is an art, not a science. Because the value of a business depends on numerous variables, it can typically be assessed only within a range." pg. xviii

As you can see, the book is full of valuable information. The above quotes only come from the first 20 or so pages from Seth Klarman's preface. Maybe it's time for those who have Security Analysis to pick it up and actually read it.