Last week we wrote about a book purchase that Warren Buffett labeled the best investment he ever made in Berkshire Hathaway's most recent annual letter: Benjamin Graham's "The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel."
This got us to thinking about another book on the subject that you likely have not heard of but that may be equally notable, not only for its valuable content but for its exorbitant cost, and whose author is an outspoken critic of U.S. monetary policy who recently made some dire comments on the state of financial markets.
One of the acolytes of the value investing strategy that Benjamin Graham and Warren Buffett pioneered, hedge fund manager Seth Klarman of the Baupost Group not only served as a contributor to a recent edition of Graham's other classic book on investing, "Security Analysis," but also authored his own book (the one in question) on value investing, which is perhaps the most expensive such title in the world.
The book, published in 1991, is titled "Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor."
Long ago out of print, likely due to its limited availability and Klarman's incredible success--Klarman rose from a fresh out of Harvard business school graduate helping manage $27 million to the manager of a now-$27 billion hedge fund--you can find the book, originally listed for $25, on Amazon for prices ranging from $1,600.00 to $3,575.96.
"Margin of Safety" is a comprehensive yet concise book consisting of three parts: (i) where most investors make mistakes, (ii) the philosophy of value investing and (iii) how to apply the value investing philosophy successfully. It is a readily accessible introduction to investing, not only for those interested in financial markets but anyone evaluating any kind of investment opportunity--at least if you can find it at a library or afford to fork over in excess of $1,600.00 for it.
Klarman, known for his contrarian and often bearish views on financial markets, and willingness to hold a significant percentage of cash in his fund's portfolio when he deems investing conditions unfavorable (unlike most fund managers who remain heavily invested in markets at all times in the hopes of reaping greater returns) wrote in a recent investor letter that:
"A skeptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla. The overall picture is one of growing risk and inadequate potential return almost everywhere one looks."
He also referred to the stock market as being a "Truman Show" market, referring to the 1998 movie:
Ben Bernanke and Mario Draghi, as in the movie, are the “creators” who have manufactured a similarly idyllic, if artificial, environment for today’s investors. They were the executive producers of “The Truman Show” of 2013. A global audience sat in rapt attention before this wildly popular production. Given the U.S. stock market’s continuing upsurge, Bernanke is almost certain to snag yet another People’s Choice Award for this psychological “thriller.” Even in “The Truman Show,” life was not as good as this for investors.
But there is one fly in the ointment: in Bernanke’s production, all the Trumans – the economists, fund managers, traders, market pundits – know at some level that the environment in which they operate is not what it seems on the surface.