The Thoughtful Investor- The Intelligent Investor for the Modern Mind

  Benjamin Graham's modern equivalent is this guy: Seth Klarman. Some may think that Warren Buffet is living out Graham's principles, but more than anyone Klarman really mirrors Graham's thinking.* Like Graham, Klarman grew up Jewish and on the East Coast. They both did well in school and had plenty of opportunities in academia but decided to take to money management instead. Like Graham, Klarman's greatest claim to fame was a book he published: Margin of Safety- Risk Averse Strategies for the Thoughtful Investor bleck! what an unappealing mouthful of a name! I'll just call it the Thoughtful Investor.
     The weird thing about the Thoughtful Investor is that the book itself is kind of an object lesson in investing. If you look on Amazon right now its selling for about $2000 used! As happens with many stocks this thing is way over-valued and if you are a real value investor you wouldn't think of paying that much for a silly book. I think this also is telling of the kind of ridiculous thinking that goes on among the types of people have their head in finance.  People in these circles produce the outrageous thinking that paying that kind of money for something so simple could actually be worth it! If you want to read the book and are a normal human being that doesn't throw around $2000, just look for it online, there are PDF's of the text floating around out there or e-mail me and I'll send you a copy.
        So what does Klarman talk about that is so valuable? Really, its mostly a modern, version of The Intelligent Investor. The language is more polished, and the approaches are more up to date, but the principles are much the same.  Where Graham used Price/ Earning, Book Value and Dividends, Klarman uses Net Present Value, Liquidation Value and Stock market Value to gauge price. He defines Net Present Value as the discounted value of all future free cash flows a business is expected to generate. Klarman also mentions private market value as a rule of thumb which I completely agree with, to give an idea of a businesses value when the market's going nuts. One useful resource I've found for private company info http://www.privco.com/  Klarman also brought to my attention spin-offs as a re-occurring source of investing opportunities.
     Even though Klarman isn't as original as Graham, he makes some great points and brings a modern intellect to Grahams principles. He has greatly added to the value investing cannon by writing and  practicing value investing and is definitely a heavy hitter in the world of finance.

Klarman's Fund https://www.baupost.com/

*One difference I see between Buffet and Klarman is their holding time. Klarman thinks its necessary to "continually compare their current holdings in order to ensure they own only the most undervalued opportunities available." Buffet says "When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever." I think Buffet is a less likely to sell just because he sees something better out there, while Klarman might try a little too hard to demand the best bargain as did Graham.
     Klarman also says: "Few value investors own technology companies, banks or insurance companies because they have un-analyzable assets and liabilities." If he sticks to this, it would be a huge difference between him and Buffet, Buffet obviously has no problem investing in banks like Wells Fargo and his first and most successful investments were GEICO and Illinois National Bank and Trust.  
     And finally, Klarman also demands hard assets to provide safety while Buffet is more comfortable with a strong moat whether its tangible or not.

Other quotes that I found interesting, useful or just plain liked in his book:

 "Value, like beauty is often in the eye of the beholder."

Once you adopt a value-investment strategy, any other investment behavior starts to seem like gambling.

Some people act responsibly and deliberately most of the time but go berserk when investing money. It may take months or years of work and discipline to earn the money and only a few minutes to invest it. Some spend more time buying a stereo or camera than buying stocks. Many regard the stock market as a way to make money without working rather than a way to invest capital in order to earn a decent return.

Greedy short-term-oriented investors may lose sight of a sound mathematical reason for avoiding loss. It is very difficult to recover from even on large, loss, which could literally destroy all at once the beneficial effects of many years of investment success.  

Downfalls For Institutional Investors: Size, Self Imposed Constraints and Willful Ignorance of Fundamental Analysis.

I believe indexing will turn out to be just another Wall Street fad. (REALLY??!!)

Above all, investors must avoid swinging at bad pitches.

If the prevailing stock price is not warranted by the underlying value, it will eventually fall.

Value investors are not super sophisticated analytical wizards who create and apply intricate computer models to find attractive opportunities or assess underlying value. The hard part is discipline to avoid the many unattractive pitches, patience to wait for the right pitch and judgment to know when to swing.

There are only a few things investors can do about risk: diversify adequately, hedge when appropriate and invest with a margin of safety.

Many investors insist on affixing exact values to their investments, seeking precision in an imprecise world, but business value cannot be precisely determined.

How do value investors deal with the analytical necessity to predict the unpredictable? The only answer is conservatism.

 Investors relying on conservative historical standards of valuation in determining private-market value will benefit from a true margin of safety, while others’ margin of safety blows with the financial winds.

Like Einstein’s theory of relativity this (Soros's theory of reflexivity) may slightly affect calculations but only in rare or extreme circumstances, and for the most part fundamental analysis is still on largely right.

Spinoffs seem to frequently be undervalued and large emerging industries seem to be frequently overvalued like railroad companies were, air freight was, computer companies were.

...it is important to remember that numbers are not an end in themselves. Rather they are a means to understand what is really happening in a company.

Good investment ideas are rare and valuable things, which must be ferreted out assiduously.

Value investing by its very nature is contrarian. Value investing exists where the herd is selling, unaware or ignoring.

Information generally follows the 80/20 rule: the first 80 percent of the available information is gathered in the first 20 percent of the time spent. 

No one understands a business and its prospects better than the management.

Arbitrage is a riskless transaction that generates profits from temporary pricing inefficiencies between markets.

Although trading based on inside information is illegal, the term has never been clearly defined.

And my very favorite! "Value, like beauty is often in the eye of the beholder."