According to a 2006 Business Week article, The $700 Used Book: Why all the buzz about Seth Klarman’s out-of-print investing classic?: The 249-page book is especially hot among those seeking jobs with value-oriented investment firms.
“It’s pretty much assumed that you’ve read Graham and Dodd and Warren Buffett.” (Benjamin Graham and David Dodd’s 1934 work, Security Analysis, is a seminal book on value investing, while Buffett’s annual letters to shareholders are considered gospel.) “The book belongs in the category of Buffett and Graham,” says Oakmark Funds manager Bill Nygren, a collector of stock market tomes.Klarman’s attitude to liquidation value investment closely accords with our own, and so we’ve reproduced below the relevant portion of Chapter 8 Liquidation Value The liquidation value of a business is a conservative assessment of its worth in which only tangible assets are considered and intangibles, such as going-concern value, are not.Accordingly, when a stock is selling at a discount to liquidation value per share, a near rock-bottom appraisal, it is frequently an attractive investment.A liquidation analysis is a theoretical exercise in valuation but not usually an actual approach to value realization.Seth Klarman, the founder of The Baupost Group, an exceptionally well-performed, deep value-oriented private investment partnership, is known for seeking idiosyncratic investments.The Baupost Group’s returns bear out his unusual strategy: Over the past 25 years, The Baupost Group has generated an annual compound return of 20% and is ranked 49th in hedge fund rankings.
Klarman detailed his investment process in Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor, an iconic book on value investing that is required reading for all value investors.
Published in 1991, the book is long out-of-print and famously difficult to obtain.
In the book, Klarman carefully explains the rationale for an investment strategy grounded in the value school.
He also discusses at some length several sources for value investment opportunities.
Why is the book germane to Greenbackd’s ongoing discussion of liquidation value investment?
One source of investment opportunity identified by Klarman is stocks trading below liquidation value.