long-term investing

Seth Klarman (Trades, Portfolio) is a self-made hedge fund billionaire. He runs the Baupost Group; the world’s 11th largest hedge fund by assets under management. Seth Klarman’s investing knowledge is highly sought-after. A new copy of his 1991 book, Margin of Safety sells for over $3,000.

Seth Klarman looks for poorly understood or mispriced investments which he can buy for a fraction of their intrinsic value. Klarman has used his conservative style of value investing to average returns of around 20% a year; long-term numbers similar to investing greats Warren Buffett and Shelby Davis.

Seth Klarman has earned his place among investing greats. He is very clear about how investors can gain an edge over Wall Street’s minute-to-minute obsession with stock prices:

“The single greatest edge an investor can have is a long-term orientation”

This is perhaps the most useful quote for individual investors. A long-term orientation frees you from the worries of day-to-day market fluctuations. I find Seth Klarman’s extremely important. In fact, it is the first quote used inThe 8 Rules of Dividend Investing (see rule 1).

Seth Klarman has been referred to as ‘his generation’s Warren Buffett (Trades, Portfolio)’. The actual Warren Buffett has many excellent quotes about investing for the long run as well. Three of Warren Buffett’s quotes on long-term investing are below:

“Only buy something you’d be perfectly happy to hold if the market shut down for 10 years”

“Our favorite holding period is forever”

“If you aren’t willing to won a stock for 10 years, don’t even think about owning it for 10 minutes”

Both Seth Klarman and Warren Buffett are very clear that investors should invest in stocks for long periods of time. When two of the most well-respected and successful investors of the past several decades emphasize an investment idea so clearly and consistently, it is wise to take notice.