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Robert Stephens, CFA
Robert Stephens, CFA
Articles (371) 

Seth Klarman on Managing Your Time Efficiently

A focused investment strategy could enhance your returns

July 02, 2020

Managing your time effectively could improve your portfolios performance. For instance, it may allow you to analyze a larger number of businesses to find the best investing opportunities. Likewise, you may be able to spend more time considering how to manage your existing holdings.

In my view, Baupost Group founderSeth Klarman (Trades, Portfolio) has an efficient investing strategy. His ability to ignore market fluctuations and instead focus on implementing his strategy may be key reasons for his long-term outperformance of the stock market.

Ignoring short-term price movements

It is tempting for investors to spend time trying to predict how a specific stock, or the wider market, will perform in the future. For instance, they may extrapolate recent economic data and industry trends into the future when deciding how to apportion their capital.

However, this may not always be a productive use of your time. It is impossible to accurately forecast the future, especially during volatile periods. The first half of 2020 is a perfect example of how the stock market can produce wildly unpredictable movements.

As Klarman once said, Investors will frequently not know why security prices fluctuate.

Overcoming your emotions

No investor can expect to turn off their emotions. You are very likely to feel more upbeat when stock prices rise. Likewise, you may naturally become more cautious when the stock market falls.

However, allowing emotions to dominate your thoughts may reduce your capacity to efficiently allocate capital. For example, you may currently be spending time worrying about how the economy will perform in the future when unemployment has risen and consumer confidence has weakened since the start of the year.

A better strategy may be to refocus on your long-term investment goals and reaffirm your strategy. This may provide you with greater scope to unearth the best value investing opportunities that can make a positive impact on your portfolios performance.

As Klarman once said, Successful investors tend to be unemotional, allowing the greed and fear of others to play into their hands. By having confidence in their own analysis and judgement, they respond to market forces not with blind emotion but with calculated reason.

Allocating your time efficiently

Some investors may view current market valuations as attractive. Therefore, they may spend a large proportion of their time trying to find the most appealing investing opportunities for the long term.

However, it is equally important to consider the prospects for your current holdings. The economys outlook has materially changed over the past few months, and new trends may emerge that impact on the trading conditions of your current holdings.

Therefore, analyzing your portfolios current positions could be a means of efficiently allocating your capital. It may help you to identify opportunities to sell existing holdings to raise capital for new purchases that could improve your portfolios long-term growth prospects. Likewise, it may lead you to purchase additional shares in an existing holding due to it now offering a wider margin of safety.

Klarman has previously highlighted that investors should seek to split their time between analyzing their current holdings and scouring the market for potential purchases, saying, An investors time is required both to monitor current holdings and to investigate potential new investments.

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