Serenity Alternative Investments Blog - "Quantitative Value" - The Worst Kept Secret In Investing

Serenity Alternative Investments Blog - "Quantitative Value" - The Worst Kept Secret In Investing

As soon as we investors can accept that humanity’s ability to predict the future is limited at best, we can begin down the road to becoming a successful investor. In fact, as far as Klarman is concerned, the successful quantitative deep value investing supporter will live by one simple rule: Capital preservation.

“Value investors, by contrast, have as a primary goal the preservation of their capital. It follows that value investors seek a margin of safety, allowing room for imprecision, bad luck, or analytical error in order to avoid sizable losses over time. A margin of safety is necessary because valuation is an imprecise art, the future is unpredictable, and investors are human and do make mistakes. It is adherence to the concept of a margin of safety that best distinguishes value investors from all others, who are not as concerned about loss.”

Speculation-driven decisions tend to lead to poorer outcomes than those that are evidence-based. We want to minimize the degree to which subjectivity and speculation impact our investment decisions. We instead want to maximize the degree to which we make these choices using quantitative deep value investing strategies and fundamental factors with a high margin of safety. Only by following these rules can we ensure that we are maximizing long-term returns while minimizing the risk of permanent capital loss.

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