2 Useful Investment Tips from a Less-Known Investing Guru

Hedge fund manager Seth Klarman may not be a well-known name.

His results, though, have been mightily impressive. As the founder and president of Baupost Group, a hedge fund company with assets of US$28.5 billion (as of March 2015), he has delivered compound annual returns of close to 20% since 1992.

Given Klarman’s accomplishments, there would be useful investing lessons to learn from him. Here are two investing tips from him which caught my eye.

Investment Tip No. 1:

“We don’t try to be anyone’s best performing manager in a given year because such an attempt would almost certainly fail. It would distract us from our focus on risk-aversion and the pursuit of excellent long-term results, while shifting our attention toward quick gains, short-term trades and market momentum”

If we are to judge our returns on a 12-month basis, our performance may appear to be no better than a coin flip. Even worse, as Klarman suggests, the short term focus could shift our attention towards unproductive aims such as going for quick gains.

History has shown that shooting for a quick buck may well end badly. As such, we might want to lengthen our investing time horizon. The value of being patient when investing cannot be overstated. Like my colleague Chong Ser Jing once found with Singapore’s market barometer, the Straits Times Index (SGX: ^STI):

“Measuring returns at the start of every month from 1988 to August 2013, if the index was held for a year, there’s a 41% chance of sitting on negative nominal (i.e. unadjusted for inflation) returns. Hold it for 10 years, and losses occurred only 19% of the time. Double the holding period to 20 years however – here comes the kicker – and there were no losses.”

Put simply, the longer you hold stocks, the lower your chances of making a loss.

Investment Tip No. 2:

“Value investing requires deep reservoirs of patience and discipline. You have to be able to stand things going bad before they go good”

Klarman stresses the importance of patience and discipline here. The point on patience is pertinent, especially considering the big correction in the stock market that we’re seeing today. To put this into context, from its peak in April, the Straits Times Index has fallen by close to 17% up till its close yesterday.

The decline feels uncomfortable over the short-term, but that’s what investors need to endure from time to time in order to enjoy long-term gains. And like I mentioned earlier, the stock market can be a place that rewards those with a long time horizon.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.