Margin of Safety

Oliver and I started reading the book Margin of Safety – Risk-Averse Investing Strategies for the Thoughtful Investor. None of that jargon is of especial importance. It essentially outlines some principles for investing in stocks to minimize the risk involved and maximize chances of success. Nor is that particularly relevant.

For me, what is of interest is the fact that whether we are investing in stocks or investing in our lives or investing in interpersonal relationships, we are the same people and thus our decision making process remains the same.

In his book, Klarman first starts by outlining common mistakes of investors and– big shocker– they are the same mistakes that we make with decisions regarding our emotional well-being.

He writes, “Investors are frequently lured by the prospect of quick and easy gain and fall victim to the many fads of Wall Street.” Similarly when searching for happiness we often reach for the nearest quick fix– TV, shopping, online games, whatever– to temporarily medicate our pain. He goes on to say, “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.” Even if we have the steps leading to peace and contentment laid out before us, few of us are willing to overhaul our entire way of life in order to implement the changes necessary. I love listening to a motivational speaker as well as the next person, but tell me that after that hour is over I have to always be conscientious of and rigorously honest about my mistakes? Phew. Not so sure about that.

It is clear, however, that a significant number of people have succeeded in value investing, Warren Buffet being one of the more notable examples. And so if people can employ such diligence in investing in stocks, why not invest equally (or more) in our emotional wealth? After all, the only reason to want anything is the belief that it will add to our happiness. All the carefully earned money of all the value investing in the world won’t do us a spit of good if we aren’t happy to begin with.


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