Seth A. Klarman remarks at MIT

proposition that the efficient-market hypothesis is frequently wrong.

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

By borrowing, you have ceased to be themaster of your own fate and allowed the lender—or actually the market—to be. How ironic toallow the market, which has dished up your current portfolio of opportunity, to dictate to you theneed to sell your attractive holdings in order to survive.

My friend and fellow value investor, Chris Browne, President of Tweedy Browne,describes what value investors do by telling this story. He was interviewing a new trader andafter the interview, walked them through the Tweedy Browne offices. At the elevator on theirway out, the trader commented, “At other Wall Street firms, just by walking through the... See more

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 onlythrough good times but also through turmoil. Buying at a discount creates a margin of safety forthe investor—room for imprecision, error, bad luck or t... See more

Value investing is, in effect, predicated on the

The best investors do nottarget return; they focus first on risk, and only then decide whether the projected return justifiestaking each particular risk.

Value investing lies at the intersection of economics and psychology. Economics isimportant because you need to understand what assets or businesses are worth. Psychology isequally important because price is the critically important component in the investment equationthat determines the amount of risk and return available from any investment.

As the father of value investing, Benjamin Graham, advised in 1934, smart investors lookto the market not as a guide for what to do but as a creator of opportunity.