Would You Pay $1,000 for This Book?

This book review is different. I liked this book a lot, but I don’t want you to buy it. Why? I’m a value investor, that’s why. More on that in a moment.

What commends this book to our attention? It is a well-written book on value investing by one of its leading practitioners, Seth Klarman. I love reading books on value investing written by the experts who have done it so well. It is useful to get their differential insights. It sharpens you.

What I found in Margin of Safety was a very good basic book on value investing. It contains the usual warnings against speculation, which most retail investors do, and how Wall Street frequently overcharges and misleads retail investors. Even institutional investors get cheated by focusing on relative performance, rather than absolute performance, according to Mr. Klarman. As an absolute value investor, he wants to make money all the time, not just beat the market. (A word here: If stocks beat safe bond investments on average, then there may be some validity to relative value investing.)

The book was written in 1991, after the junk bond market collapse, and contains a decent amount of criticism of the era. Buying high yields is not enough, those yields should be realizable from companies that can produce cash flows to support the price of the bonds.

The book also reflects the author’s early career in the investment shop founded by Max Heine, and run by Michael Price, until it was sold to Franklin Resources. The Mutual Series Funds did ordinary value investing, but they also bought special situations, did deal arbitrage, bought distressed debt, and more.

The eponymous and key idea of the book is Ben Graham’s concept of a margin of safety. Invest in assets where your likelihood and severity of loss is low, given your purchase price. Don’t take risks unless you are handsomely paid to take them. If you buy enough of them cheap enough, you will do well in the long run.

All in all, a very good book on value investing. Why not buy it? Too expensive. The book is good, but very basic. You can do better for free with:

• Warren Buffett’s stockholder letters.
• Marty Whitman’s shareholder letters.
• And others…

So how much would it cost to buy a copy? $900-$2000. You can see the results at Ebay and Amazon. Put on your cost-sensitive sunglasses before viewing.

It’s a very good book, but relative to what is available for free or at nominal (<$30) cost, it doesn’t make sense to buy it, aside from bragging rights.

So, how did I end up with a copy? I don’t have a copy. I borrowed it via Interlibrary loan and quickly read it, sending it back to the nice library in Florida that lent it to my library. I recommend that you do that as well, if you want to read the book. If you are game, I also ask that you write Seth Klarman at:

THE BAUPOST GROUP
10 St. James Avenue - Suite 1700
Boston, MA 02116

617.210.8300

Write a nice letter, asking him to do a second edition of the paperback version for a new generation of young value investors. At least a reprint…

For those just wanting to know what he holds for clients, the 13F is available here.

PS — No link to buy it here, but remember, I do book reviews of all sorts of books, not just new ones. Often the old stuff is better, like today’s book. If you enter Amazon through any link on my site and buy anything there, I get a small commission. It is my version of the tip jar, and the best thing is, it comes out of Amazon’s pocket, and not that of my readers.

Comments

[Wide Moat I...:]

I won't go so far as to link it, but I do know that there are pdf copies of the book floating around on the web. Google is a friend.

I do especially appreciate Klarman's chapter on "The Art of Business Valuation." He notes that one should deploy the appropriate valuation tool only for the right type of assets:

"Net present value would be most applicable, for example, in valuing a high-return business with stable cash flows such as a consumer-products company; its liquidation value would be far too low. Similarly, a business with regulated rates of return on assets such as a utility might best be valued using NPV analysis. Liquidation analysis is probably the most appropriate method for valuing an unprofitable business whose
stock trades well below book value. A closed-end fund or other company that owns only marketable securities should be valued by the stock market method; no other makes sense."

At times, investors should use a variety of methods to value a particular security, and then choose the lowest, or most conservative, value.

Feb 07 12:26 AM

[longtermstocks:]

your correct I googled Margin of Safety pdf and there it was thanks

Feb 07 01:11 AM

[Tradememe:]

The price is set for the ego of the author. I doubt he will consider a paperback reprint. As much as I don't like illegal copies of books on the net, I think the author would not care if people find pdf copies.

Feb 07 02:33 AM

[morph366:]

To answer the question posed by the article - No.

Feb 07 03:37 AM

[fatcat:]

My question....who goes to all the trouble of presenting this obscure book on the web in pdf?Wheres the profit?

I guess someone had a lot of time on their hands...perhaps a skiing accident or untimely job loss....

Feb 07 06:03 AM

[John from C...:]

If you're anywhere near Boston, go to the business branch of the Boston Public Library downtown. They have a copy, and while they won't let you take it out of the room, the room in question does have a photocopier... takes about 30 min and less than $20 to copy the whole thing. I did it about 3 years ago, and the librarian who helped me joked that it was almost certainly the most-photocopied book in the entire BPL system.

It's a good book. Not anywhere near $1000 good, but good.

Feb 07 06:46 AM

[digi:]

fatcat, obviously your not from the net generation. This is what makes the web tick. Not that its right, but thats The Internet. Enjoy it. $1K for this book? More than the CRB manual, holy moly.

Feb 07 06:47 AM

[NutritionFacts:]

fatcat, not everything in life is about making money.

Feb 07 07:03 AM

[John from C...:]

fatcat, you must be new to this Internet thing... it's on the web in a pdf BECAUSE various young Wall St wankers have bid the price of hard copies up so high. Just as -- if you know where to look -- you can find pdfs of all kinds of expensive textbooks, Ferrari service manuals that the company charges $1000+ for, rare occult texts, etc., etc., it was inevitable that this would appear.

The principle at work is this: If a piece of information becomes a) expensive and b) highly desired, those who have time and creativity but not money will arrange to get access to it. Sure, buying a hard copy is expensive -- but getting and copying one from a library isn't, and from there to the internet is but a few minutes' work -- and it lets the cool kids in on the info the suits consider so valuable. Given all the hype around this book in recent years, I'd be shocked if it weren't available.

Feb 07 08:27 AM

[fatcat:]

Thanks for setting me straight,I'm an old guy,and I do appreciate web content very,very much.

I know its not all about money,but often wonder what is the future of newspapers online if they unable to monetize the service.Will they be able to have the staff necessary to cover the banksters ,politicians and even who died lately.

Newspapers can be a little sketchy at times,but they protectors of the citizens,in a sense....

Feb 07 11:52 AM

[tekram:]

A better summary here and you don't have to break any laws to get it:
www.rbcpa.com/Notes%20...

Feb 07 02:00 PM

[Jolly_Rancher:]

Thanks for the book recommendation. I downloaded the PDF and am reading it.

Here's a quote apropos to our current deflationary environment:

"Should investors worry about the possibility that business
value may decline? Absolutely. Should they do anything about
it? There are three responses that might be effective. First, since
investors cannot predict when values will rise or fall, valuation
should always be performed conservatively, giving considerable
weight to worst-case liquidation value as well as to other methods. Second, investors fearing deflation could demand a greater than usual discount between price and underlying value
in order to make new investments or to hold current positions.
This means that normally selective investors would probably let
even more pitches than usual go by. Finally, the prospect of
asset deflation places a heightened importance on the time
frame of investments and on the presence of a catalyst for the
realization of underlying value. In a deflationary environment,
if you cannot tell whether or when you will realize underlying
value, you may not want to get involved at all. If underlying
value is realized in the near-term directly for the benefit of
shareholders, however, the longer-term forces that could cause
value to diminish become moot."

This explains how value investors erred in 2008 by underestimating the degree of business asset devaluation. Will asset values increase in 2009? If the answer is "yes," I doubt that it will occur across the board. Picking the right business is the right sector will require a scalpel.

Feb 07 06:16 PM

[Moon Kil Woong:]

Self education is the only education after graduation. Most likely, the ones posting such pdf's are ones that wish to share the wealth of knowledge at a minimun cost and hassle since publishers are blocking digital archiving by google and libraries (Of course everyone would prefer legal digital distribution methods if they are available). In this case, maybe other books would serve that purpose better.

What will happen to publishers will be the same thing that happened to recording studios and the film industry unless they wake up and smell reality.

Feb 07 08:43 PM

[KJP712:]

Spend $1000 on a book ? That thousand making a beeline right to the brokerage account to shore up the account balance.

Feb 07 10:05 PM

[morph366:]

Re constructe's comments about digital rights violations.

The only real money to be made for authors, musicians etc is when they have a blockbuster hit and can then merchandise their brand and images in conjunction with public appearances. All the smaller book titles, records, films are chump change.

Feb 08 05:36 AM

[Mr G:]

I checked it on Ebay. None have actually sold at that price. One seller could not even get $.01 for it. The book has an asking price between .01 -1000.00. Until a bid is placed, it is worth $0.00!

Feb 08 07:25 AM

[Jared Schne...:]

There was an interview with a money manager, it could have been Paul Tudor Jones, and it was extremely expensive on ebay. I think the market price was $1500 or something crazy like that. I was on a search for it for a few weeks, and it is almost unattainable.

Bottom line-not worth it!

Feb 08 10:24 AM

[Joyful Alte...:]

Fatcat, I hope you won't learn this personally for decades, but when someone dies these days, if you want an obituary in the newspaper, you'll have to pay, about $100 in a small-city paper for a modest obit with no picture, and much more in a big-city newspaper. You will also have to write it yourself.

Newspapers are running out of barrels to scrape the bottoms of.

Feb 08 10:31 AM

[maz:]

I think most of you are missing the point here. It is a good book written by a modern investing master but for the info in the book it obviously isn't worth $1,000 and if you are looking at it from that point of view put the $1,000 in your battered brokerage account.

Apart from some who just want it for their library, Klarman's "Margin of Safety" should be looked at in the way Klarman looks at a prospective investment. What price is it, what's its value and what catalyst will make the market price higher in the future.

Determining the value might be difficult but I'm pretty sure it will go up in price over the long term as those buying & hoarding the book in their libraries will make available copies scarcer in the future.

Also I don't think a reprint would have any effect on the price of the first edition - see fine (no markings essentially) First Editions of Security Analysis which go for almost 50 times the price of a new book.

I actually bought a really good copy in 2005 for $500 and I can say that its current value beats most stock investments made over the same period. The only marking now is that it's signed by Klarman. At the moment I'm not selling but should I fall on hard times the value is still there

First Edition Security Analysis, Intelligent Investor & Margin of Safety are collectibles in the same way you can collect anything else whether it be art, wine, other books Elvis memorabilia etc

And in that light the book is worth at least $1,000

Make sure you get a copy that has got a previous owner's highlighting, margin notes etc etc.

Feb 08 04:22 PM

[Joyful Alte...:]

Thanks, Maz, for promoting my hobby business! And what you write is true, although like stocks, some book prices keep rising, and some drop. (Some Life magazines were worth a good bit 20 years ago, and then the Internet brought them out of thousands of attics.)

Feb 09 05:44 PM