Wednesday, March 17, 2010

Seth Klarman: Lessons from 2008

Widely followed value investor and (Baupost Group) hedge fund manager, Seth Klarman shares his lessons from the recent financial crisis (Hat tip to Derek Hernquist for recently highlighting this piece).

Here's an excerpt from Klarman's, "Forgotten Lessons of 2008":

"One might have expected that the near-death experience of most investors in 2008 would generate valuable lessons for the future. We all know about the “depression mentality” of our parents and grandparents who lived through the Great Depression.

Memories of tough times colored their behavior for more than a generation, leading to limited risk taking and a sustainable base for healthy growth. Yet one year after the 2008 collapse, investors have returned to shockingly speculative behavior...Below, we highlight the lessons that we believe could and should have been learned from the turmoil of 2008. Some of them are unique to the 2008 melt- down; others, which could have been drawn from general market observation over the past several decades, were certainly reinforced last year.

Shockingly, virtually all of these lessons were either never learned or else were immediately forgotten by most market participants..."

As you'll read, Klarman not only goes over the (largely forgotten or overlooked) "20 investment lessons" of 2008, he also reviews many of the "false lessons" that have been learned by investors and speculators during the 2009 recovery period.

There are some very worthwhile points to absorb from Seth's piece, so you might want to bookmark his essay for future reference. You can also find a scan of Klarman's essay here.

Related articles and posts:

Seth Klarman: Margin of Safety - Finance Trends

2. Thomas Woods interview: Meltdown - Finance Trends. 

3. Lessons from Charlie Munger - Finance Trends.

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