3 Central Elements to a Value-Investment Philosophy

In his book, Margin of Safety, Seth Klarman states there are three central elements to a value-investment philososphy; A bottom-up strategy identifying specific undervalued investment opportunities. An absolute-performance, not relative performance orientation, and a risk-averse approach that pays as much attention to what can go wrong (risk) as it does to what goes right (return).

The entire strategy from a bottom-up approach can be described as “buy a bargain and wait.” Investors must learn to assess value in order to know a bargain when they see it. Bottom-up value investors should also not be afraid to hold cash when unable to find attractive investment opportunities, ready to put that cash to work when opportunities do surface.