Seth Klarman quotes:

A tipping point is invisible, as we just saw in Greece. In most situations, everything appears fine until it's not fine, until, for example, no one shows up at a Treasury auction.

As Graham, Dodd and Buffett have all said, you should always remember that you don't have to swing at every pitch. You can wait for opportunities that fit your criteria and if you don't find them, patiently wait. Deciding not to act is still a decision.

Do not trust financial market risk models. Despite the predilection of some analysts to model the financial markets using sophisticated mathematics, the markets are governed by behavioral science, not physical science.

Markets need not be in sync with one another. Simultaneously, the bond market can be priced for sustained tough times, the equity market for a strong recovery, and gold for high inflation. Such an apparent disconnect is indefinitely sustainable.

At the worst possible moment, when your fund is down because cheap things have gotten cheaper, you need to have capital, to have clients who will actually love the phone call and-most of the time, if not all the time-add, rather than subtract, capital.

Investors frequently benefit from making decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty. The time other investors spend delving into the last unanswered detail may cost them the chance to buy into situations at prices so low they offer a margin of safety despite the incomplete information

Selling, in particular, can be a challenge; many investors are tempted to become more optimistic when a security is performing well. This temptation must be resisted; tax considerations aside, when a security reaches full valuation, there is no longer a reason to own it.

The cost of performing well in bad times can be relative underperformance in good times.

Because investors are not usually penalized for adhering to conventional practices, doing so is the less professionally risky strategy, even though it virtually guarantees against superior performance.

As Buffett has often observed, value investing is not a concept that can be learned and gradually applied over time. It is either absorbed and adopted at once, or it is never truly learned.

I think Buffett is a better investor than me because he has a better eye toward what makes a great business. And when I find a great business I'm happy to buy it and hold it. Most businesses don't look so great to me.

Value investing is at its core the marriage of a contrarian streak and a calculator.

While it might seem that anyone can be a value investor, the essential characteristics of this type of investor-patience, discipline, and risk aversion-may well be genetically determined.

Generally, the greater the stigma or revulsion, the better the bargain.

Investing is the intersection of economics and psychology.

Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred. Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.

Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.

At Baupost, we constantly ask: 'What should we work on today?' We keep calling and talking. We keep gathering information. You never have perfect information. So you work, work and work. Sometimes we thumb through ValuLine. How you fill your inbox is very important.

The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.

Macro worries are like sports talk radio. Everyone has a good opinion which probably means that none of them are good.

Be sure that you are well compensated for illiquidity - especially illiquidity without control - because it can create particularly high opportunity costs.

The strategy of buying what's in favor is a fool's errand, ensuring long-term underperformance. Only by standing against the prevailing winds - selectively, but resolutely - can an investor prosper over time. But for a while, a value investor typically underperforms.

The latest trade of a security creates a dangerous illusion that its market price approximates its true value. This mirage is especially dangerous during periods of market exuberance. The concept of "private market value" as an anchor to the proper valuation of a business can also be greatly skewed during ebullient times and should always be considered with a healthy degree of skepticism.

Value investors will not invest in businesses that they cannot readily understand or ones they find excessively risky. Hence few value investors will own the shares of technology companies. Many also shun commercial banks, which they consider to have unanalyzable assets, as well as property and casualty insurance companies, which have both unanalyzable assets and liabilities.

Sometimes buying early on the way down looks like being wrong, but it isn't.

The risk of an investment is described by both the probability and the potential amount of loss. The risk of an investment-the probability of an adverse outcome-is partly inherent in its very nature. A dollar spent on biotechnology research is a riskier investment than a dollar used to purchase utility equipment. The former has both a greater probability of loss and a greater percentage of the investment at stake.

While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.

The single greatest edge an investor can have is a long-term orientation.

In a world in which most investors appear interested in figuring out how to make money every second and chase the idea du jour, there's also something validating about the message that it's okay to do nothing and wait for opportunities to present themselves or to pay off. That's lonely and contrary a lot of the time, but reminding yourself that that's what it takes is quite helpful.

Pressure to produce over the short term - a gun to the head of everyone - encourages excessive risk taking which manifests itself in several ways - fully invested posture at all times, the use of leverage, and a market centric orientation that makes it difficult to stand apart from the crowd and take a long term perspective.

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.

A commodity doesn't have the same characteristics as a security, characteristics that allow for analysis. Other than a recent sale or appreciation due to inflation, analyzing the current or future worth of a commodity is nearly impossible.

A simple rule applies: if you don't quickly comprehend what a company is doing, then management probably doesn't either.

A value strategy is of little use to the impatient investor since it usually takes time to pay off.

All an investor can do is follow a consistently disciplined and rigorous approach; over time the returns will come

All investors must come to terms with the relentless continuity of the investment process.

Almost no one will accept responsibility for his or her role in precipitating a crisis: not leveraged speculators, not willfully blind leaders of financial institutions, and certainly not regulators, government officials, ratings agencies or politicians.

Always look for forced urgent selling.

Always remembering that we might be wrong, we must contemplate alternatives, concoct hedges, and search vigilantly for validation of our assessments. We always sell when a security's price begins to reflect full value, because we are never sure that our thesis will be precisely correct.

Analysts recommendations may not produce good results. In part this is due to the pressure placed on these analysts to recommend frequently rather than wisely.

As value investors, our business is to buy bargains that financial market theory says do not exist. We've delivered great returns to our clients for a quarter century-a dollar invested at inception in our largest fund is now worth over 94 dollars, a 20% net compound return. We have achieved this not by incurring high risk as financial theory would suggest, but by deliberately avoiding or hedging the risks that we identified.

At equal returns, public investments are generally superior to private investments not only because they are more liquid but also because amidst distress, public markets are more likely than private ones to offer attractive opportunities to average down.

Avoid organizing investment team into silos.

Avoiding where others go wrong is an important step in achieving investment success. In fact, it almost assures it.

Bad things happen, but really bad things do not. Do buy the dips, especially the lowest quality securities when they come under pressure, because declines will quickly be reversed.

Be focused on process and not outcome

Be indifferent if you lose your short term clients, remember they are your own worst enemy

Below, we itemize some of the quite different lessons investors seem to have learned as of late 2009 - false lessons, we believe. To not only learn but also effectively implement investment lessons requires a disciplined, often contrary, and long-term-oriented investment approach. It requires a resolute focus on risk aversion rather than maximizing immediate returns, as well as an understanding of history, a sense of financial market cycles, and, at times, extraordinary patience.

Benjamin Graham wrote, "Those with enterprise haven't the money, and those with money haven't the enterprise, to buy stocks when they are cheap."

Beware leverage in all its forms. Borrowers - individual, corporate, or government - should always match fund their liabilities against the duration of their assets. Borrowers must always remember that capital markets can be extremely fickle, and that it is never safe to assume a maturing loan can be rolled over. Even if you are unleveraged, the leverage employed by others can drive dramatic price and valuation swings; sudden unavailability of leverage in the economy may trigger an economic downturn.

Buying's easier, selling's hard - [it's] hard to know when to get out.

By investing at a discount, Benjamin Graham knew that he was unlikely to experience losses.

Complexity - limits competition.

Costs and liabilities are rarely overstated.

Courage is a function of process.

Depressions aren't good but the depression mentality is good.

Do not accept principal risk while investing short-term cash: the greedy effort to earn a few extra basis points of yield inevitably leads to the incurrence of greater risk, which increases the likelihood of losses and severe illiquidity at precisely the moment when cash is needed to cover expenses, to meet commitments, or to make compelling long-term investments.

Do not suffer interim losses, relish and appreciate them

Don't short many stocks. Instead they hedge for tail risk with CDS and options. They are happy to incur illiquidity

Excess capacity in people, machines, or property will be quickly absorbed.

Financial innovation can be highly dangerous, though almost no one will tell you this. New financial products are typically created for sunny days and are almost never stress-tested for stormy weather. Securitization is an area that almost perfectly fits this description; markets for securitized assets such as subprime mortgages completely collapsed in 2008 and have not fully recovered. Ironically, the government is eager to restore the securitization markets back to their pre-collapse stature.

Flexible approach - will look at ALL asset classes.

Frequent comparative ranking can only reinforce a short-term investment perspective. It is understandably difficult to maintain a long-term view when, faced with the penalties for poor short-term performance, the long-term view may well be from the unemployment line ... Relative-performance-oriented investors really act as speculators. Rather than making sensible judgments about the attractiveness of specific stocks and bonds, they try to guess what others are going to do and then do it first.

Gold is unique because it has the age-old aspect of being viewed as a store of value. Nevertheless, it's still a commodity and has no tangible value, and so I would say that gold is a speculation. But because of my fear about the potential debasing of paper money and about paper money not being a store of value, I want some exposure to gold.

Graham's wonderful sentence as, an investor needs only two things: cash and courage. Having only one of them is not enough.

Great investments don't just knock on the door and say "buy me".

Having clients with a long-term orientation is crucial. Nothing else is as important to the success of an investment firm.

Having great clients is the key to investment success.

Here's how to know if you have the makeup to be an investor. How would you handle the following situation? Let's say you own a Procter & Gamble in your portfolio and the stock price goes down by half. Do you like it better? If it falls in half, do you reinvest dividends? Do you take cash out of savings to buy more? If you have the confidence to do that, then you're an investor. If you don't, you're not an investor, you're a speculator, and you shouldn't be in the stock market in the first place.

Hold cash when opportunities are not presenting themselves.

I don't have a Bloomberg on my desk. I don't care.

I find value investing to be a stimulating, intellectually challenging, ever changing, and financially rewarding discipline

I know of no long-time practitioner who regrets adhering to a value philosophy; few investors who embrace the fundamental principles ever abandon this investment approach for another

I think markets will never be efficient because of human nature.

If an asset has cash flow or the likelihood of cash flow in the near term and is not purely dependment on what a future buyer might pay, then it's an investment. If an asset's value is totally dependent on the amount a future buyer might pay, then its purchase is speculation.

If another person were to enter the building, it would once again be empty.

If only one word is to be used to describe what Baupost does, that word should be: 'Mispricing'. We look for mispricing due to over-reaction.

If you are predisposed to be patient, disciplined and psychologically appreciate the idea of buying bargains, then you're likely to be good at it. If you have a need for action, if you want to be involved in the new and exciting technological breakthroughs of our time, that's great, but you're not a value investor, and you shouldn't be one.

If you can remember that stocks aren't pieces of paper that gyrate all the time --they are fractional interests in businesses -- it all makes sense.

If you've just stared into the abyss, quickly forget it: the lessons of history can only hold you back.

In a crisis, stocks of financial companies are great investments, because the tide is bound to turn. Massive losses on bad loans and soured investments are irrelevant to value; improving trends and future prospects are what matter, regardless of whether profits will have to be used to cover loan losses and equity shortfalls for years to come.

In a rising market, everyone makes money and a value philosophy is unnecessary. But because there is no certain way to predict what the market will do, one must follow a value philosophy at all times.

In contrast to the speculators preoccupation with rapid gain, value investors demonstrate their risk aversion by striving to avoid loss.

In investing it is never wrong to change your mind. It is only wrong to change your mind and do nothing about it.

In reality, no one knows what the market will do; trying to predict it is a waste of time, and investing based upon that prediction is a speculative undertaking.

In the financial markets, however, the connection between a marketable security and the underlying business is not as clear-cut. For investors in a marketable security the gain or loss associated with the various outcomes is not totally inherent in the underlying business; it also depends on the price paid, which is established by the marketplace. The view that risk is dependent on both the nature of investments and on their market price is very different from that described by beta.

Individual and institutional investors alike frequently demonstrate an inability to make long-term investment decisions based on business fundamentals.

Interestingly, we have beaten the market quite handsomely over this time frame, although beating the market has never been our objective. Rather, we have consistently tried not to lose money and, in doing so, have not only protected on the downside but also outperformed on the upside.

Investing is the intersection of economics and psychology. The analysis is actually the easy part. The economics, the valuation of the business isn't that hard. The psychology - how much do you buy, do you buy it at this price, do you wait for a lower price, what do you do when it looks like the world might end - those things are harder. Knowing whether you stand there, buy more, or whether something has legitimately gone wrong and you need to sell, those are harder things. That you learn with experience, by having the right psychological makeup.

Investing today may well be harder than it has been at any time in our three decades of existence,

Investment success cannot be captured in a mathematical equation or a computer program.

Investors need to pick their poison: Either make more money when times are good and have a really ugly year every so often, or protect on the downside and don't be at the party so long when things are good.

Investors should pay attention not only to whether but also to why current holdings are undervalued. It is critical to know why you have made an investment and to sell when the reason for owning it no longer applies. Look for investments with catalysts that may assist directly in the realization of underlying value. Give reference to companies having good managements with a personal financial stake in the business. Finally, diversify your holdings and hedge when it is financially attractive to do so.

It is always easiest to run with the herd; at times, it can take a deep reservoir of courage and conviction to stand apart from it. Yet distancing yourself from the crowd is an essential component of long-term investment success.

It is crucial in a sound investment process to search a mile wide than a mile deep with they find something - also.. never stop digging for information.

It is crucial to have a strategy in place before problems hit, precisely because no one can accurately predict the future direction of the stock market or economy. Value investing, the strategy of buying stocks at an appreciable discount from the value of the underlying businesses, is one strategy that provides a road map to successfully navigate not only through good times but also through turmoil.

It is important to remember that value investing is not a perfect science. It is an, with an ongoing need for judgment, refinement, patience, and reflection. It requires endless curiosity, the relentless pursuit of additional information, the raising of questions, and the search for answers. It necessitates dealing with imperfect information - knowing you will never know everything and that that must not prevent you from acting. It requires a precarious balance between conviction, steadfastness in the face of adversity, and doubt - keeping in mind the possibility that you could be wrong.

It sounds kind of crazy, but in times of turmoil in the market, I've felt a sort of serenity in knowing that I've checked and re-checked my work, one plus one still equals two regardless of where a stock trades right after I buy it.

It turns out that value investing is something that is in your blood. There are people who just don't have the patience and discipline to do it, and there are people who do. So it leads me to think it's genetic.

It's awful to have a depression, but it's a great thing to have a depression mentality because it means that we are not speculating, we are not living beyond our means, we don't quit our job to take a big risk because we know we might not get another job. There is something stable about a country, a society built on those values.

It's incredibly important to note that when you don't allow failure, you get more failure.

Like to have a catalyst - reduces dependence on the market: Distressed debt inherently has a catalyst - maturity.

Limit risk with: Deep analysis Bargain purchase Sensitivity analysis.

Literally draw a detailed map-like an organization chart-of interlocking ownership and affiliates, many of which were also publicly traded. So, identifying one stock led him to a dozen other potential investments. To tirelessly pull threads is the lesson that I learned from Mike Price.

Loss avoidance must be the cornerstone of your investment philosophy.

Many LBOs are man-made disasters. When the price paid is excessive, the equity portion of an LBO is really an out-of-the-money call option. Many fiduciaries placed large amounts of the capital under their stewardship into such options in 2006 and 2007.

Most institutional investors feel compelled to swing at almost every pitch and forgo batting selectivity for frequency.

Most investors are primarily oriented toward return, how much they can make and pay little attention to risk, how much they can lose.

My experience is that short sellers do far better analysis than long buyers because they have to. The market is biased upward over time-as the saying goes, stocks are for the long run.

My view is that an investor is better off knowing a lot about a few investments than knowing a little about each of a great many holdings. One's very best idea's are likely to generate higher returns for a given level of risk than one's hundredth or thousandth best idea.

Never stop reading. History doesn't repeat, but it does rhyme.

Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return. Conservative positioning entering a crisis is crucial: it enables one to maintain long-term oriented, clear thinking, and to focus on new opportunities while others are distracted or even forced to sell. Portfolio hedges must be in place before a crisis hits. One cannot reliably or affordably increase or replace hedges that are rolling off during a financial crisis.

Occasionally we are asked whether it would make sense to modify our investment strategy to perform better in today's financial climate. Our answer, as you might guess, is: No! It would be easyfor us to capitulate to the runaway bull market in growth and technology stocks. And foolhardy. And irresponsible. And unconscionable. It is always easiest to run with the herd; at times, it can take a deep reservoir of courage and conviction to stand apart from it. Yet distancing yourself from the crowd is an essential component of long-term investment success.

Once you adopt a value-investment strategy, any other investment behavior starts to seem like gambling.

One must understand the importance of an endless drive to get information and seek value.

One of the biggest challenges in investing is that the opportunity set available today is not the complete opportunity set that should be considered. Limiting your opportunity set to the one immediately at hand would be like limiting your spouse to the students you met in high school

One thing I want to emphasize is that, like any human being, we can discuss our view of the economy and the market. Fortunately for our clients, we don't tend to operate based on the view. Our investment strategy is to invest bottom up, one stock at a time, based on price compared to value. And while we may have a macro view that things aren't very good right now - which in fact we feel very strongly we will put money to work regardless of that macro view if we find bargains. So tomorrow, if we found half a dozen bargains, we would invest all our cash.

Over the long run, the crowd is always wrong.

Patience and discipline can make you look foolishly out of touch until they make you look prudent and even prescient

People should be highly sceptical of anyone's including their own, ability to predict the future, and instead pursue strategies that can survive whatever may occur.