I found this great article about Seth Klarman, and the methods he uses to find winners for his Baupost Group hedge fund, which has averaged 20% returns for 24 years.

One key to take away from Klarman’s tips is the value of information. Part of his job is understanding things like financial statements and balance sheets, but another important part is finding the information that isn’t available in the daily newspaper or even on the online stock site. He isn’t trading on inside information, because the information he gathers is available to the public, it’s just not readily available.

Klarman’s number one goal is to avoid losing money. That would seem to contradict huge returns like those his hedge fund has achieved. That’s where Klarman’s mind comes into play. He’s found that it is possible to find stocks that are so undervalued that even in a volatile market they are highly likely to go up, with little chance of much downward movement.

Think of Klarman’s investing strategy this way: each stock has a price which it is supposed to be at. This is the true value, based on the actual value of a company and factoring in expected growth/value. If the price of a stock is well below what Klarman has determined this true price to be, the market will bring the price of the stock up towards that level over time. That makes a good investment. Now go find them!

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