Margin of Safety

I read a scanned PDF of this before I could afford a copy, which tells you something about how the book gets passed around. It went out of print almost immediately, Klarman never let it come back, and a real copy runs anywhere between $1,500 and $4,000 depending on who is selling.

Most investing books start with what you could make. This one starts with what you could lose and it keeps starting there for three hundred pages. His argument is that the price you pay is the only thing you actually control, and if you pay far enough below what a thing is worth, you do not have to be right about the future to do well.

That reframing is worth the whole book. I stopped asking what a deal could become and started asking what happens to me if I am wrong about every assumption in it. When I bought the park the question I kept running was not how big it could get. It was what the ground and the buildings were worth if the repositioning failed completely and I had to walk in year two.

The part almost nobody quotes is chapter four, on institutional behavior. He walks through why the people managing most of the money in the world are structurally unable to buy the things you want to buy. Mandates, career risk, quarterly reporting, the size of the position relative to the fund.

Once that is in your head you stop being suspicious of an obvious opportunity sitting there untouched, and you start asking who is not allowed to take it.