The most expensive book

The most expensive book I know is …“Margin of Safety” written by Seth Klarman. Well, that is of course if you only consider the price of it. I just checked and it retails new for about USD 3,000 or used for about USD 870. However, similar to a company’s share price the height of which does not tell you much, this price tag is a little meaningless. Share prices are typically put into relation to their fundamental metrics like dividend yield, free cash flow yield, price-earnings-ratio etc etc. After all if a company like Apple only had one share outstanding it would cost you about USD 585.8 billion to buy it as of today. Apple just so happened to have cut the proverbial cake into lots and lots of shares such that the price of one share, one piece of cake, equals USD 110. The size of the cake did of course not change based on the number of pieces you cut it in. If you do manage to increase the size of the cake after you cut it into a lot of pieces you have to tell me how you did that such that I can use that trick for the next children’s birthday party. But while you can cut cake, it is difficult to cut a book into pieces. It is also difficult to put a book in relation to something such that you can arrive at its valuation. So what drives the price of this book to such heights in the first place? Does it contain the key to become rich via investing? I think the answer is much simpler. I once heard the story that the author, said Seth Klarman, was a little disappointed with the initial sales of the book and then decided to buy the entire print that was available at the time. He essentially not only created his own demand but at the same time dramatically reduced supply. So, shifting both curves appropriately drives up the price to the levels I mentioned above. Subsequently, he did not allow his publisher to print more editions of the book. While this story sounds plausible to me, I cannot tell you whether it is right or wrong. I do know that Seth Klarman is one of the better investors this world knows. He runs an investment firm called Baupost based in Boston Massachusetts. Baupost manages the assets of a number of wealthy families. They do so in a very risk averse style with very good results. Coming back to the book, “Margin of Safety” is a great read.

margin-of-safety

I cannot recommend it enough. It has great examples of how the world of investing works and how one can cope in such a world. However, if you cannot obtain a copy of the book at your local library or elsewhere, you might want to have a look if you can find a copy of Seth’s annual letters to shareholders. Those letters also contain great examples of how Baupost invests or how one should think about long term investing. I remember one story from the 2015 annual letter in which Seth explains how one of his friends asked him for advice on value investing. Seth subsequently gave him a lot of books to read and told him personally what to look for in an investment and so on. Then, after six months that friend comes back to Seth and says something like “I stopped it, value investing does not work” to which one could obviously reply that this is not the right mindset to start with. I would totally agree with that. To be successful in investing you have to think long term. See companies and their shares for what they really are instead of share prices jumping up and down. After all by owning a share, you own a part of the business and the fundamentals of that business will ultimately determine the return that you will achieve. Another one of my investing hero’s, Mr Warren B. refers to short term trading as “thrashing about”. Similar to these two investors and I believe a lot of you as well, I rather hold on to my positions, monitor how they develop and enjoy the periodic check in the mail they send us simply for being owners of a small part of that business. Long live dividends.

Which books on investing have you read lately and which ones do you prefer? Would you buy a book that costs as much as “Margin of Safety”?

 

 

Disclaimer: None of the content of this site is to be considered investment advice. Every reader has to form their own opinion about which investments are right for them and take full responsibility for their own actions.

3 thoughts on “The most expensive book

  1. Hi DIB,

    I wouldn’t personally spend that much money on a book. I doubt I would even search for it in the public library to be honest. I tend to think that if there is any special method for picking stocks and reliably outperforming the market, then that advantage is now known to the investing community and has become irrelevant.

    There are rebuttals to some of the author’s claims that you might be interested in reading; for example this one by Larry Swedroe: http://www.etf.com/sections/index-investor-corner/swedroe-market-efficiency-isnt-myth?nopaging=1

    Interestingly, Larry mentions the Sequoia Fund as still having beaten the market in the above 2015 article. I suspect the results might be different now in 2016 after the Valeant fiasco. In fairness, I don’t know if the Sequoia Fund invests in any strategy proposed by Seth Klarman’s book, but it shows the problems that active fund managers have in sustaining performance over the long-term.

    Best wishes,
    -DL

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    • Hi DL, thank you very much for your comment. The book is not so much about which stock to buy or what to look for in a stock. It is much more about mindset and in that regard I cannot recommend it enough. However there are plenty of ways of getting it ‘for free’ and renting it at your local library is only one. I think even if Seth Klarman’s returns were to fade very rapidly, I would still like to read what he writes.
      Personally, I think that markets are sometimes efficient and sometimes they are not. In 2007 they were not and in 2009 they were not either and I am aware that I can say this with the perfect vision of hindsight Other inefficiency examples were the unpeg of the CHF vs EUR some time in 2015 and the UK referendum in 2016. I both instances it took the market quite a few days to figure out what the effect of the currency changes were on the underlying company’s revenue, cost base as well as their debt positions which can of course also be in multiple currencies.
      Furthermore, I also don’t like the whole distinction of investing into value or growth. In the end everybody only buys stocks that he or she thinks will deliver a positive return.
      Either way, I would very much prefer giving my capital to Warren or Seth than to an academic who has analyzed factors and concluded that it is all statistics and very easy to do. After all, the difference between practice and theory is that it should work in theory but in practice it does not.

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      • Hi DIB,
        Thanks for the reply. The investor vs academic debate is certainly quite interesting, and I admit that most of it goes over my head. I think they’re up to Four Factors now having recently ‘discovered’ momentum. I suppose the DFA people would argue there’s something to all that math, but I’m happy to accept the market average via Total Stock in my 401k.

        My local library doesn’t have the book (apparently it’s the most stolen library book) but I should probably try to read Graham first anyway. I personally lean towards a boglehead view of the investing world and I don’t worry about my individual stock purchases that much, since they’re a small percentage of purchases. The higher dividend yielding companies that I buy tend to fall into the value group though.

        I’d expect it’s impossible for anyone to reduce future performance of the market or an individual stock into a formula or method, like trying to model the weather. All you can do is find a way to minimize risk. For which my general solution is to invest as much money as I can.
        Best wishes,
        -DL

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