Value-Stock-Plus

Source: NYT

In late October 2007, as the financial markets were starting to come unglued, a Goldman Sachs trader, Jonathan M. Egol, received very good news. At 37, he was named a managing director at the firm.

Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.

Goldman’s own clients who bought them, however, were less fortunate.

Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.

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Since September 30, 2009, the Sensex has lost -0.05%. If you add back the benefits of dividends, then the BSE 30 Total Return Index has gained +0.11%. The NSE 50 has hardly been nifty. It has been boring and dull. The NSE 50 gained +0.77% since September 30, 2009, on a total return basis. Not that the world markets have done much better: the MSCI All Country World Index has gained +0.10%. There is inaction in all this action. All this lack of action is particularly disturbing to two sets of people:

Those who watch stock market TV channels and trade on every sound-byte they hear; and Those who have to fill up all that empty space with words that don't seem to have any impact on the stock markets.

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Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor (Hardcover) by Seth Klarman – 1991

• Amazon Link – Pl note: the book is out of print
• Amazon Used Book Link – Have a look
• Scanned copy (Full Copy – 249 pages) RE-UPLOADED
• Notes from rbcpa.com
• Notes from Fool.com
• Notes from SBS
• This Book Will Make You Rich (Boston – April 2008)
• More on Seth Klarman

Following Insights I found from a comment by Moathunter on Gurufocus:

1. It is perfectly acceptable to hold cash when no bargains can be found. Not to think of cash as a failing by the investor, but as a sign of good discipline in not finding cheapness within your sphere of understanding.
2. Investing is a very risky activity and that risk should be examined first and foremost, prior to even considering returns. Risk erodes returns, so to assume greater returns involve greater risk is illogical, and
3. Avoid over-researching a company- seeking perfect information is both futile and harmful to returns for a number of reasons.

More on Klarman

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How would you estimate the impact of a seemingly catastrophic event on the stock market? As a major negative of course, as most people in their right senses should. But markets have time and again demonstrated that, when it comes to reacting to news, it pretty much has a mind of its own, i.e. it often shrugs off bad news and moves on higher or ignores apparently good news and reacts negatively.

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Old School Value by Jae Jun has a very good article on the Formula used by Mr. Graham.

Please go here for the article.