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.
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.