Little-Known Billionaire's Book is the Holy Grail for Investors

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Daniel Acker/Bloomberg via Getty ImagesBillionaire Seth Klarman.
Among the tattered cookbooks and celebrity biographies at thrift stores and yard sales, you might find financial books whose advice on investing once seemed relevant but now just seems silly.

However, the next time you find yourself in this situation, take a closer look, because you might also find the Holy Grail of investment books.

Boom and bust cycles in the economy and the stock market often give rise to short-sighted investing theories which financial writers try to exploit. Perhaps the best example is "Dow 36,000," written by Harvard-educated journalist James K. Glassman in 1999 at the height of the dot-com bubble, which predicted a 300 percent rise in the market within 10 years.

We're still waiting, James.

'Margin of Safety'

It is very rare to find an investing book that stands the test of time, and perhaps the rarest of the rare in that category is "Margin of Safety," written in 1991 by billionaire investor Seth Klarman. Long out of print, less than 5,000 copies of this hardback book exist, and used copies regularly go for $2,500 or more online.

The book is divided into three sections: "Where Investors Stumble," "Value Investing Philosophy" and "The Value-Investment Process." He explains his motivation in the introduction:

Investors adopt many different approaches that offer little or no real prospect of long-term success and considerable chance of substantial economic loss. Many are not coherent investment programs at all but instead resemble speculation or outright gambling. Investors are frequently lured by the prospect of quick and easy gain and fall victim to the many fads of Wall Street.

My goals in writing this book are twofold. In the first section I identify many of the pitfalls that face investors. By highlighting where so many go wrong, I hope to help investors learn to avoid these losing strategies. For the remainder of the book I recommend one particular path for investors to follow -- a value-investment philosophy.

Warren Buffett Is a Fan

If you think that some of this sounds familiar, you might be right. Klarman, 56, is often called the "Warren Buffett of his generation," and Buffett is said to have a copy of "Margin of Safety" on his desk.

But the connection between Klarman and Buffett doesn't stop there. Both run multibillion-dollar funds; both use the concepts pioneered by legendary value investor Benjamin Graham when evaluating their investment portfolios; and Klarman's name has long been floated by Berkshire Hathaway shareholders as a potential successor to the Oracle of Omaha.

Klarman has had an impressive financial career which, unlike Buffett's, has largely gone unnoticed by the public and financial media. A product of Cornell and Harvard, where future CEOs, GE's (GE) Jeff Immelt and Jamie Dimon of JPMorgan Chase (JPM), were among his classmates, Klarman initially worked for Franklin Templeton Funds before starting Baupost Group in 1982.

Baupost manages more than $25 billion in client funds and has an astounding performance record, averaging 20 percent annual returns since its inception. Numbers like that consistently rank Klarman in the top 25 highest-earning fund managers by Forbes, with his total compensation for 2013 coming in at $350 million and net worth estimated to be $1.3 billion.

How much of that net worth is comprised of unsold copies of "Margin of Safety" is unknown, but fortunately, you don't have to have big bucks in order to read it, as it's available online in PDF version for free.

No man is an island, or even a peninsula, so I encourage your feedback in the comments below. And don't forget to pick up my book, "Trading: The Best of the Best -- Top Trading Tips for Our Time."

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11 Comments

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Yiwen Nni

Hi Brian.

Thanks for the article. But unfortunately the link to the PDF doesn't work. Can you please update it?

September 07 2014 at 1:18 PM Report abuse rate up rate down Reply
weilunion

Billoanires buy the NBA stock. Billionaires buy America. Billionaires get tax breaks. Billionaires pay no taxes. Billionaires own the WORLD.

And you really think I, as a person, should ally my interests with criminal billioanaires and phony philanthro-pirates?

People cannot even feed their families. Why would they allign themselves with sthe plutocrats who have destroyed America?

April 16 2014 at 8:28 PM Report abuse -1 rate up rate down Reply
kluj1

Madoff bosted of the same returns for the same number of years. How do we know this guy isn't a fraud too?

If he is that good why does he need other people's money?

Warren buffet isn't that good either.....he just has enough of everyone else's money to hold his losers long enough till they turn around.....he went long silver and had to hold that bad trade for twenty something years before he could get everyone's money back.....the majority of us would have had to fold.

Warren will probably wish he retired a year or two early once the bear market comes back

April 16 2014 at 6:03 PM Report abuse +1 rate up rate down Reply
1 reply to kluj1's comment
weilunion

Of courese it is fraud. 'Billionaires' is the key term. How do you think they got billions? Working at Wal Mart?

April 16 2014 at 8:29 PM Report abuse -1 rate up rate down Reply
alfredschrader

There are secrets to the stock market, but it's still a risk. And even if you make billions you could still fail in life - Steve Jobs and Gordon Ghetty as examples.
And there are many wealthy unhappy people. Just having wealth is not the road to a good life.
There's a lot more to it especially when it comes to wisdom. To atleast approach a good full happy life, you'll have to listen to God and do what he says. He has a better book, the Holy Bible.
Read that, and do what it says. Be prepared to see some miracles in your life when you do.

Get bored and don't understand it ? You will, keep reading, especially "Proverbs".

April 16 2014 at 1:55 PM Report abuse -1 rate up rate down Reply
2 replies to alfredschrader's comment
weilunion

How about Michael Milken? He is a felon and is also a billionaire without shame, remorse or any other sentient sentiment

April 16 2014 at 8:29 PM Report abuse -1 rate up rate down Reply
ga7smi

wall street is a casino

April 17 2014 at 12:50 AM Report abuse -2 rate up rate down Reply
boyadj45

what is the poin of a book that the average american cannot afford? Those who buy it are already billionaires.

April 16 2014 at 11:32 AM Report abuse rate up rate down Reply
1 reply to boyadj45's comment
analyst0042

First stepping stone in becoming a billionaire is the ability to read and comprehend. The article was very clear in stating that the book is available on line for FREE.

April 16 2014 at 12:24 PM Report abuse +7 rate up rate down Reply
2 replies to analyst0042's comment
weilunion

Yes, to become a billionaire one must be literate. Financially that is. Now how to carnsival bark and game people. Are you a troll for this site?

April 16 2014 at 8:30 PM Report abuse -2 rate up rate down
ga7smi

tanstaafl - the internet is not free fool

April 17 2014 at 12:51 AM Report abuse -1 rate up rate down