Quote Unquote

From legendary investor Seth Klarman: “While others attempt to win every lap around the track, it is crucial to remember that to succeed at investing, you have to be around at the finish.”

To support this point, take a look at the returns Bear Stearns provided, right up until the firm blew up in March of 2008:

1991: 14.9%
1992: 28.1%
1993: 27.7%
1994: 22.3%
1995: 11.3%
1996: 21.2%
1997: 22.1%
1998: 19.2%
1999: 16.1%
2000: 15.9%
2001: 11.7%
2002: 15.7%
2003: 17.7%
2004: 17.0%
2005: 15.2%
2006: 18.3%
2007: 1.8%

It’s worth repeating.

“While others attempt to win every lap around the track, it is crucial to remember that to succeed at investing, you have to be around at the finish.”

Here’s another gem: “We prefer the risk of lost opportunity to that of lost capital, and agree wholeheartedly with the sentiment espoused by respected value investor Jean-Marie Eveillard, when he said, ‘I would rather lose half our shareholders…than lose half our shareholder’s money….'”

Yet another: “We continue to adhere to a common-sense view of risk – how much we can lose and the probability of losing it. While this perspective may seem over[ly] simplistic or even hopelessly outdated, we believe it provides a vital clarity about the true risks in investing.”

8 thoughts on “Quote Unquote

  1. Pingback: Does “Low Risk” Outperform? | Above the Market

  2. It isn’t necessarily if you play the game, its HOW you play the game in order to succeed and make it a succcessful finish.

  3. Gotta agree with you there, Robert.

    The problem is that often, it is optimal for fly-by-night managers (or more crucially, backstopped institutions) to pursue high return, high risk-of-ruin strategies. After all, their payoff profile is a massive call option on the assets’ returns: they profit directly on the upside but don’t necessarily suffer on the downside, and if catastrophe strikes, I’ll Be Gone, You’ll Be Gone. It’s not a particularly novel argument: authors like Sebastian Mallaby peg the failure of Stearns’ internal hedge funds squarely to the fact that they were propped up by the parent bank’s liquidity.

    Which is to say: be careful and be aware of the asymmetric payoff structures which managers face when managing your money, and make your investment choices accordingly. Choose those who think along the lines of this blog post.

    Nonetheless, it is worth noting that there appears to be a small subset of investors who are able to embrace and pursue strategies which seem to verge on reckless. Many of the (macro) legends come to mind: Soros, Tudor Jones, Bacon, Druckenmiller, Robertson. All suffered sharp, severe, double-digit percentage drawdowns during certain periods, then either took some time off or rebounded fairly quickly. Of course, for each one of these managers are ten who have imploded spectacularly…

    • The IBGYBG concept applies in at least two ways I think. It accounts for a fair amount of survivorship bias and for making so many hedge fund managers rich. Good point. Thanks for reading and commenting.

  4. Pingback: Does “Low Risk” Outperform? « Portfolio Investing Blog: Portfolioist

  5. Pingback: Does “Low Risk” Or “Low Volatility” Outperform? | | Retirement Investments -- MyPlanIQRetirement Investments — MyPlanIQ

  6. Pingback: Low Volatility *Markets* | Above the Market

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