6 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 six investing tips which caught my eye.

Investment Tip No. 1 and 2 – click here

Investment Tip No. 3 and 4 – click here

Investment Tip No. 5:

“Right at the core, the mainstream has it backwards. Warren Buffett often quips that the first rule of investing is to not lose money, and the second rule is to not forget the first rule. Yet few investors approach the world with such a strict standard of risk avoidance.”

It’s perhaps fair to say that people invest in search of wealth. But in the process, some may forget that investing also involves risk. For Klarman, his first priority in investing is to avoid risk.

Risk can come in many different forms. It can come from a company’s industry, a company’s weak balance sheet, or its high valuation, just to name a few sources of risk.

As investors, we may want to follow Klarman’s lead in thinking through the different kinds of risks that may crop up in the stock market.

Investment Tip No. 6:

“We try to focus on the downside. We diversify.”

To manage risk, Klarman suggests portfolio diversification.

Like risk, diversification can come in many forms too. A simple approach would be to keep a higher number of stocks. This can protect your portfolio from severe damage if one of your stocks tanks.

A different way would be to own a company with many different types of exposures.

For instance, Singapore Technologies Engineering Ltd  (SGX: S63) can provide exposure to the aerospace industry, the electronics industry, the marine industry, and the land systems industry.

A real estate investment trust like Ascott Residence Trust (SGX: A68U), on the other hand, may provide geographical diversification. In 2014, the REIT derived almost 90% of its revenue from countries like China, Vietnam, Japan, France, and the United Kingdom.

It pays to consider diversifying your portfolio as you build it.

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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.