4 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 four investing tips which caught my eye.

Investment Tip No. 1 and 2: click here.

Investment Tip No. 3:

“Unlike speculators, who think of securities as pieces of paper that you trade, value investors evaluate securities as fractional ownership of, or debt claims on, real businesses”

At the Fool, we are big fans of looking at the business behind a stock ticker.

As an analogy, when you go shopping for your favorite bottle of wine, it would be unlikely that you would get excited if the price tag of the bottle goes up. Yet, many stock market participants tend to behave in that way when it comes to stocks.

There is a big difference between stock market participants who view stocks as electronic digits to be traded (Klarman refers to this as speculating) and those who see stocks as representing fractional ownership in real businesses.

Klarman is a bona fide value investor and so, falls into the latter camp. There’s a good reason for doing so. Ultimately, a stock’s price is governed by its business fundamentals.

Owning shares of BreadTalk Group Limited (SGX: 5DA), for instance, gives the shareholder a piece of the profits every time a Xiao Long Bao is sold in its Din Tai Fung restaurants in Singapore or when a customer buys the famous Pork Floss Bun from the company’s namesake bakeries.

Over time, BreadTalk’s shareholders have benefitted from the performance of the firm’s underlying business. From 2005 to 2014, the food & beverage outfit’s shares have seen its profit jump nearly 12-fold from S$1.04 million to S$12.2 million; Breadtalk’s shares are today up by 513% since the start of 2005.

Investment Tip No. 4:

“We pursue opportunity largely off the beaten path, sifting through the debris of financial wreckage, out-of-favor securities and asset classes in which there is limited competition”

If Klarman was a fisherman, he would be fishing in ponds or lakes with less people.

He reasoned that such ponds would likely contain neglected companies which are unloved or out-of-favour. That neglect could result in a lower price tag for a company in relation to its business value. In turn, that may offer an opportunity for an investor to profit if and when the tide turns.

To be sure, not all out-of-favour stocks are worth picking up. But, Klarman’s point still remains. If you want to look for a bargain, one place to start is where everyone else is not looking.

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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.