Klarman tells us (Wharton MBA students) that although much has changed since Graham's time, the good news is that the value investing discipline has remained, and indeed, "it does work." However good that news may seem, "discipline" and "work" are perhaps the key words here. Klarman emphasizes that value investing is as much an art as it is a science, and reiterates what Graham identified last century - psychology is every bit as important in investing as economics is.
On the one hand, psychology and the irrationality it creates, is what makes value investing possible. As Klarman puts it, "The Baupost Group seeks situations triggered by urgent, panicked, or mindless selling." Yet on the other hand, one's own psychology is what can make or break one as an investor. Klarman highlights two requirements for successful investors that wisely articulate this point: one, "the intelligence and honesty to admit one's mistakes," and two, "the confidence to hold cash until bargains exist." In fact, all of this might lead one to ask if perhaps we should call it Existentialist Investing.
http://www.whartonjournal.com/media/paper201/news/2005/12/05/News/Seth-Klarmans.Guide.To.Finding.Value-1120327.shtml?norewrite&sourcedomain=www.whartonjournal.com
On the one hand, psychology and the irrationality it creates, is what makes value investing possible. As Klarman puts it, "The Baupost Group seeks situations triggered by urgent, panicked, or mindless selling." Yet on the other hand, one's own psychology is what can make or break one as an investor. Klarman highlights two requirements for successful investors that wisely articulate this point: one, "the intelligence and honesty to admit one's mistakes," and two, "the confidence to hold cash until bargains exist." In fact, all of this might lead one to ask if perhaps we should call it Existentialist Investing.
http://www.whartonjournal.com/media/paper201/news/2005/12/05/News/Seth-Klarmans.Guide.To.Finding.Value-1120327.shtml?norewrite&sourcedomain=www.whartonjournal.com
