Seth Klarman: How To Achieve A 20% Return Per Year (10 Investing Rules)

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Seath Klarman is one of the most

underrated investors of all time in over

the past 30 years with his investing

fund he has achieved an average return

of 20% some people think he's a younger

Warren Buffett's and he's actually

ridden one of the most famous investing

books of all time a book called margin

of safety which sells for $3,000 a pop

on Amazon now the question then becomes

how does this great investor achieve

such a high return for such a long

period of time how did he grow his

investing fund 227 billion dollars and

dominate the investing game well

essentially that's what we're gonna

answer in this video I'm gonna go over

10 very important rules used by Seth

Klarman to achieve such a high return


okay this is a mistake that a lot of

investors make especially beginner

investors and those are working on Wall

Street you see in a way there are two

types of investors out there you have

those that look at a stock and think of

it as a ticker symbol on the stock

market sometimes going up and sometimes

going down and then you have those who

view a stock as a business the group on

the left are always worried about the

day to day prices of a stock and they're

very emotional when a stock goes up and

when a stock goes down the group on the

right know that they own a business and

if their business does well it does not

really matter too much what the price of

the stock is as long as the fundamentals

look good at the end of the day when you

buy a stock you own a business this is

why it's so important to determine is

this actually a good business that you

want to own in the long term are they

gonna keep generating money and grow

into the future looking at stocks as

businesses instead of ticker symbols is

one principle that has ensured a great

return for Seth Klarman

moving on though


so I just wanted to take you to this

graph over here which essentially shows

you how fees destroy your long term

returns even menial amounts or fees that

you pay can really eat into the amounts

of money you can expect to make in the

stock market okay so essentially you

have three lines here all three lines

achieve the same return which is a 5%

annual return and all three lines start

off with an initial investments of

100,000 euros the blue line represents a

fee of 1.5% the red dotted line

represents a fee of 3 percent and

finally the green dotted line has a fee

of 5% so fast forward 20 years and the

blue line has grown to almost double at

196 thousand euros the red line has a

returned that is almost half of the blue

line at 145 thousand euros and the fees

for the green line are so high that is

that it has actually ensured it has

gotten a negative return now worth less

than the initial 100,000 pounds so rule

2 is that fees can destroy your long

term returns so keep them as low as

possible and this is one reason why

picking individual stocks is so good

because you don't have to pay an annual

fee to own them all you have to pay is a

brokerage fee to buy them and a

brokerage feed to sell them rule to

avoid paying fees


so this is sift climene's opinion and he

believes that value investing is the

best form of investing I'm gonna use an

example of Seth Klarman talking about

the goat investor Warren Buffett and

when he bought Washington Post Klarman

says this he said it is helpful to note

their Buffett did not consider whether

Washington Post was a components of a

stock market and it indexed or about to

be editor one he did not weigh the

market capitalization of the company or

its daily trading volume in his purchase

decision he didn't worry about whether

the stock was about two splits or pay or

omits a dividend he most certainly did

not evaluate the stocks bata or use the

capital asset pricing model or consider

whether its purchase would move his

portfolio to the efficient frontier

he simply valued the business and bought

a piece of it at a sizable discounts a

lot of people overcomplicate investing

but if you can find a good business and

pay a reasonable price compared to the

value of it you can't really go wrong

and this is why in most of my stocks I

go over the expected return in the

intrinsic value of a stock before buying

which obviously I teach in my fall

investing course and the link to that is

in the description


and the thing about buying a stock and

this is an obvious thing about buying a

stock yet so little people behave this

way is try to buy the stock at a bargain

price you see okay what most investors

do when they see the stock's price going

down getting cheaper is they look to

sell the stock because they panic and

they realize they don't know the true

value of the stock and because most

investors panic and sell this normally

drags the stock's price down even

further what you really should be doing

is buying more of a stock when it gets


generally speaking especially if the

fundamentals of the business haven't

changed and it's just short term news

and emotions of 15 the stock's price

safe Clemmons fourth rule to investing

is buy a stock at a bargain price and

basically what you do is buy stocks with

a price below their intrinsic value and

have high expected returns all of this

is obviously taught in the course


at the moments warren buffett's has a

lot of cash in his portfolio and he's

not buying that many stocks he's only

bought five stocks this year but

everyday you know he's still going into

his office he's still skipping to work

as he says and looking for opportunities

out there in the stock market but he's

biding his time because he's only gonna

buy a stock when he can find it at a

bargain price

so he's been patience and at the end of

the day opportunity comes to those who

wait and also have the right mentality

there buy low sell high mentality


so I don't know if you guys have ever

heard of this theory but some professors

at university had this theory that the

market was efficient and a lot of people

buy into this basically what this theory

means was there every stock's price

represented the true value of that stock

because all of the information is out on

a stock in that it is impossible to beat

the stock markets I'll give you a recent

example in these many examples out there

which prove the stock market is not

efficient and let's just look at the

price of Facebook over the past year so

it started midway through 2018 with a

price of about 215 dollars then people

started getting worried about privacy

issues and users leaving Facebook and

what do most investors do they react

with their emotions the price of the

stock fell almost 50% in less than half

a year and do you really think the

actual value of the business can fall

there quickly by 50% of course not and

this was around the period you know

where I was saying there's a lot of

opportunity with Facebook stock and you

know there are a plenty of examples like

this which prove the stock market is not

efficient Facebook was just the first

one that came to mind and because of

this people like Warren Buffett's can

beat the stock market over the long term

you know Warren Buffett he's beat the

stock market over the long term by 11%

which really adds up


it was about 11 years ago when the stock

market crashed it was late 2007 to early

March when the stock market crashed over

50 percent during that crash and the

periods after that crash was the best

time to buy into the stock markets I

mean obviously speaking you want to buy

things as low as possible and sell as

high as possible but in order to buy as

low as possible you need something

called liquidity something called cash

or cash equivalents which you can use to

buy stocks when they are cheap this is

why it's always important to have a

certain percentage of your portfolio

allocated towards cash equivalents so

that you can snap up opportunities when

they come let's look at that stock

market crash one more time see the thing

about this period here is no one exactly

knows we're the bottom errs people will

always get at it but no one knows for

sure which is why you focus on what you

can control and that is average down on

your positions keep buying stocks when

they get cheaper you know even if you

average down around here you would have

still gotten a hundred percent return on

your total investments over just ten

years remember that cheaper the stocks

are the better


a good investor should always be

prepared for all market conditions they

should look at having portfolio hedges

like gold or cash diversified through

sectors and even countries but often if

one position is doing really well it can

put your portfolio out of balance and

this is why it's always important to

look at a portfolio and try rebalance it

maybe every couple of months investing

is a skill it's a process that takes

time to learn at the end of the day

generally speaking those that know more

have a clear strategy and stick to that

strategy will win the investing game in

the long run and that is why it's so

important to keep watching youtube

videos that teach you about investing

that teach you about different stocks

there keep looking at what the experts

like Warren Buffett are doing I mean it

doesn't have to be YouTube it can be

reading them vesting books or articles

or watching TV or CNBC or listening to

podcasts but try to learn as much as you

can about investing because the more you

know the more your investments will grow