I had the opportunity recently to attend a panel discussion that included the prominent investment manager Seth Klarman (Trades, Portfolio).
Not familiar with Klarman? The simplistic version of his biography has him as a hedge fund billionaire. While that’s true, it doesn’t do him justice. Klarman is more like a cult hero, at least in the investment world. Some call him the “Oracle of Boston.”
Google his name, and you’ll see him described as “the next Warren Buffett (Trades, Portfolio).” Search YouTube, and you’ll find a grainy, 10-year-old interview with thousands of views. And if you look up Klarman on Amazon, you’ll find used copies of his nearly 30-year-old, out-of-print book selling for $1,000 or more. In short, Klarman is full of wisdom and commonsense advice that, I think, could benefit any investor. Here are four observations he shared:
1. When building a portfolio, you have to “pick your poison.”
In today’s world, with the availability of index funds, it’s not difficult to build a portfolio. The question is, what kind of portfolio do you want to build? Or, to put it another way, what are you trying to accomplish? Here’s how Klarman summed it up: “Do you want to trail the market when it’s going up or when it’s going down?”
In other words, you can structure your portfolio to be more aggressive than the overall stock market. That will help you when the market is going up, but hurt you in down markets. Alternatively, you can structure things to be more conservative than the market, in which case you’ll trail in up markets but lose less when the market is going down. But you can’t have it both ways.
Read the rest of the article at its original publication here.
