Book recommendation 2/5: Margin of Safety — Seth Klarman

I made some of my best investments by doing the exact opposite of the crowd This is one of the most recommended investing books of all time. I won’t try to summarize the whole thing — you should read it yourself. Instead, here’s the single most important lesson I took away: Where to look for mispriced companies 1. Look at companies below certain prices & market caps. Many institutions can’t buy: Small caps Low-priced stocks Illiquid names Not because they’re bad, but because of self-imposed rules. Less institutional attention = more mispricing. 2. Look where bad news caused an overreaction Markets are emotional. Temporary issues often get priced as permanent failures: PR scandals One bad quarter Industry-wide fear Your job is to ask: Is this pain temporary or permanent? 3. Look at asset-rich balance sheets Assets create downside protection. Especially: Cash Liquid investments Hard assets If you can’t read a balance sheet, you’re guessing, not investing. (This is a learnable skill with massive payoff.) 4. Look for upcoming catalysts Value alone isn’t always enough. Catalysts help the market realize it’s wrong: Earnings normalization Buybacks Asset sales Growth re-acceleration You don’t need timing perfection, just asymmetry. 5. Avoid crowded trades. This is where we are today! When you hear: “This is the future” “This can’t go down” 🚀🚀🚀 moon The margin of safety is usually gone. Great stories often make terrible entry points. Real example: my investment in $HOOD This is where theory met reality a) Coming off the 2021 GME “scandal” Public sentiment was destroyed around Robinhood. b) Stock trading around $8 Market cap ≈ $8B Too small / too ugly for many institutions. c) ~$8B in cash on the balance sheet Enterprise value ≈ zero The market priced it like a dying company. I saw a growing one buried under fear. That disconnect made me a lot of money. A similar setup happened when I invested in $RKLB after their early-2024 capital raise. Let me know what you think. I would love some feedback!