Episode 29- Margin of Safety by Seth A. Klarman

Just like there is no such thing as a free lunch there is also no such thing as a risk-free investment. Every investment has some level of risk. However, as an investor, you must not be scared of risk. Instead, you should learn to manage it.

Summary

In this book summary podcast, we will learn how to manage or reduce downside risk through Seth Klarman’s book, ‘Margin of Safety’. The book discusses the importance of value investing and lays out guidelines on how to become a great value investor by reducing downside risk.

Key takeaways

• When you are making an investment decision, first focus on how much money you can lose and then look at how much money you can make. This basically means that managing downside risk is equally, if not more important, than return.
• A great way to reduce risk is by following the ‘margin of safety’ route.
• When you follow the margin of safety route, you look to buy companies that are available at a deep discount to their fundamental value.
• Generally, the higher the margin of safety, the lower will be the downside risk.
• There are several methods of calculating margin of safety, namely, NPV method, liquidation value method, and stock market value method.
• Another great way of reducing overall portfolio risk is through diversification. This entails spreading your portfolio investments across multiple asset classes.

For an investor, the ability to reduce downside risk can be invaluable. That is exactly what this book can teach you. You can listen to the podcast on the Edelweiss Mutual Fund website, Spotify, Google Podcasts, and Apple Podcast. We hope you enjoyed this podcast and will tune in to listen to more such podcasts on investing nuggets. If you are a bookworm, then you can also read the book summary here.