Margin of Safety. It sounds like it could be the title of an old action movie — starring, say, Harrison Ford as an FBI agent who’s our only hope for saving the world.
In fact, however, it’s the title of an old investing book, first published in 1991 and out of print for years. And much like Harrison Ford himself (whose popularity has revived lately thanks to a new generation of Star Wars fans), Margin of Safety is now considered to be extremely valuable — long past what you might have assumed was its heyday.
In fact, traditional print copies of Margin of Safety now sell for upward of $3,000, while Amazon just sold thousands of e-reader versions of the book for $9.99.
Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor was written by Seth Klarman — the CEO and portfolio manager of the Baupost Group hedge fund — who has a net worth of $1.5 billion, according to Forbes.
The book, which carried an original price of about $25, was basically considered a flop, and only 5,000 copies were printed. More recently, however, the volume has taken on cult status.
In part because of its limited print run, copies of Margin of Safety have become extremely hard to come by. In a 2011 interview with Charlie Rose, Klarman said that the book was all but impossible to buy except at a very steep premium. A report in 2015 showed that the few available online were listed at $1,300 to over $3,000. Today, copies of Margin for Safety are available for $780 to $2,000 at Amazon, and a copy in brand-new condition is currently listed at $3,325 on eBay. (Bargain seekers may prefer the “like new” copy selling for a mere $849.)
Then, in early July, Margin of Safety popped up on Amazon.com in Kindle format, for $9.99 — and buyers started snapping it up. As of July 10, Margin of Safety was the 16th-best-selling book in the Kindle store, Bloomberg reported.
Only one problem: The book appeared to be a bootlegged copy. Klarman was not making any money on the illegal sales, the New York Post reports, so his firm called in the lawyers, and Amazon shut down the sales.
Why is Margin of Safety such a hot commodity in the first place? The answer seems directly tied to Seth Klarman himself — and his status as a legendary yet stealthy investing genius.
Who Is Seth Klarman?
The author of Margin of Safety is well-known in investing circles for, among other things, not being particularly well known by the masses. He obviously isn’t anywhere near as famous as billionaire investor and philanthropist Warren Buffett, the so-called “Oracle of Omaha.” But as far back as 2012, the Economist referred to Seth Klarman as the “Oracle of Boston” (where Klarman’s Baupost Group is based), noting both his investing prowess and his ability to fly very much under the radar.
“Klarman keeps a low profile and rarely speaks at industry shindigs,” the Economist reported. “He is probably the most successful long-term performer in the hedge-fund industry who has managed to stay out of the spotlight.”
Likewise, the New York Times wrote in 2017 that while “Klarman has long kept a low public profile, he is considered a giant within investment circles.”
The Times was then interested in what Klarman, a registered independent, thought about what newly inaugurated President Donald would mean for investors, and for the American and global economies in general. Klarman was worried that the Trump administration’s tax cuts would drive the deficit higher, and that Trump’s protectionist policies would make American businesses uncompetitive globally, even if they save some jobs in the short term.
“The big picture for investors is this: Trump is high volatility, and investors generally abhor volatility and shun uncertainty,” Klarman wrote in a note to his investors in early 2017. “Not only is Trump shockingly unpredictable, he’s apparently deliberately so; he says it’s part of his plan.”
Klarman, by contrast, is highly regarded for his stable, grounded approach to investing and the business world. He got his MBA in 1982 from Harvard Business School (where a building has been named after him, due to a generous donation), and joined the Baupost Group when it was founded soon thereafter. He has worked there ever since.
A Value Investing Approach
Most people say the term (and concept) of “value investing” was created by Benjamin Graham, who was a professor at the Columbia Business School nearly a century ago, and is the author of The Intelligent Investor: The Definitive Book on Value Investing — which MONEY readers called one of the best books on investing ever.
Some industry observers say that Klarman’s Margin of Safety ranks right up with there with Graham’s writing on value investing. “Graham was an amateur playwright and someone who took great pains and pride in his prose style, but there is a little bit of mystery around his investing record. Not Seth’s. Seth is a more accomplished investor, Graham a more accomplished diarist — but Margin of Safety stands up very well,” James Grant, the publisher of the industry journal Grant’s Interest Rate Observer, told Chief Investment Officer in 2015.
The value investing approach is “simple enough for anyone to follow,” Klarman has said. It’s “logical, commonsensical, and proven to work.”
That doesn’t mean it’s easy. As Klarman wrote in Margin of Safety: “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.”
Perhaps what people find so valuable about Margin of Safety is that the book explains the nuances of value investing so that everyday readers — as opposed to hardcore investing professionals — can understand them. “I tried to write it to be accessible to the layperson, or to a professional entering the field,” Klarman told Charlie Rose in the 2011 interview. “I tried to use layman’s language, and just make it accessible.”
The lofty market price for Margin of Safety is probably also the result of simple supply and demand. “Maybe if people can’t get something, they want it even more,” Klarman said in that 2011 interview.
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