Investment Theory #22: Klarman’s 2000 Letter

Let’s continue our series on the 1990’s. You may recall that 2000 was the year the bubble popped and Klarman began putting his large cash balances to work.

Klarman is a well-respected value investor who founded the Baupost Group in 1982. Since then he has generated an average annual return of 19%. Klarman’s investing philosophy can be summed up by the title of his book Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.

This series of posts will reflect on Klarman’s activity during the period 1995 to 2001. Links to past posts: 1995, 1996, 1997, 1998, 1999

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Investment Theory #13: Buffett’s 1968 Letter

In 1956, Warren Buffett concluded his work for Benjamin Graham and returned to Omaha, where he started an investment partnership. This partnership was formed with seven limited partners, made up of family and friends, contributing $105,000, and Warren Buffet contributing $100. It grew over time.

This post continues my series about that partnership. The goal is to gain some insight into one of the most successful investment vehicles in modern history.

Links to past years can be found here: 1957, 1958, 1959, 1960, 1961, 1962, 1963, 1964, 1965, 1966, 1967

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Human Nature #10: Reciprocity

Imagine you are eating at a restaurant with a coworker. You both engage in some small talk and then the check comes. As would be expected, you both dive for it. Your coworker was a bit faster. You offer to pay, but the coworker just says you can get it next time.

You just landed a free lunch but something doesn’t feel right. You don’t like being indebted to someone even if it’s insignificant. The next day at work, your coworker asks for some help with a project. You jump at the opportunity to balance the scale.

If you can relate to this, you would be victim to the rule of reciprocity that Robert Cialdini popularized in his book Influence: They Psychology of Persuasion. If the significance of this isn’t apparent, here’s Sheldon Cooper to explain (excuse the laugh track).

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