Must Read: Seth Klarman On The True And False Lessons From The Financial Crisis, Blasts Government Market Intervention

Tyler Durden's picture

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Jim in MN's picture

Here's a market solution for Greece: Senior German politicians call for selling Agean islands...perhaps confiscating them from the super-rich to sell to others (oh that's not as market-friendly is it)...



mule65's picture

The markets are just like golf:  When you think you got it figured out you're really in trouble.

B9K9's picture

virtually all of these lessons were either never learned or else were immediately forgotten by most market participants.

The operative word is 'most', for without this qualifier, the entire premise of the article is completely incorrect.

To interpret the level of outright fraud, corruption & market manipulation as some irrational behavior based on lessons never learned or forgotten is astoundingly naive.

The people who are (still) moving the markets, and have been setting the tone for hundreds of years, not only never forgot their lessons, they learned at the feet of masters.

I have come to the conclusion that the serfs really deserve their fate; they are simply too stupid to warrant anything better. It is so utterly transparent to see how these situations are played out over & over again to each new generation; the never ending 3-card monte trick.

The only downside to being a MOTU is the complete & utter boredom. Where do the financial masters get the energy to endlessly repeat the same set of exercises? Aren't they bored to tears? This is why artists & scientists will often forego material rewards just to have the opportunity to pursue something presently unexplored or which they find personally interesting.

From an evolutionary stand-point, this is a real weakness. Take two individuals of comparable IQ, one intellectually curious, but the other completely nihilistic. How do the artists & scientists compete? Answer: they don't; they get crushed along with everyone else. Their only advantage (?) is knowing what is happening and to make certain preparations to survive the coming shit storm.

In the meantime, please refrain from the "lessons not learned" schtick. The real underlying truths have been drilled into the players' heads for generations. They haven't forgotten the most important fact of all: people are dumb, and they deserve to be raped.

Anonymous's picture

"They haven't forgotten the most important fact of all: people are dumb, and they deserve to be raped."

While I agree that people can be dumb, it doesn't follow that they deserve to be raped for it. However, it is true that it's easier to rape someone who is dumb. That is the lesson the MOTU and other criminals get. Certainly, they might also rationalize that dumb people deserve to be raped. Though that is likely merely to satisfy the weak protests of their own underdeveloped sense of justice.

Anonymous's picture

Greatest investor in history.

RobotTrader's picture


Let me simply it some.....


1) Fundamentals are to be ignored entirely.

2) Its all about motion chasing and momentum

3) All losses are to be cut immediately

4) It its going up, buy it.  If its going down, sell it or short it.

5) Trading stocks and following trends is now like a greyhound following a meatball.  Most 17-year old video gamers can do this perfectly.


chindit13's picture

I'll steal from my comment on the Fed Balance Sheet article and add to your list:

6)  Let ye who is without sin pay for everyone else.

7)  Never address today what you can pass off to the next generation.

8)  There is no such thing as a bad debt.  There are only bailouts-in-waiting.

9)  If at first you don't succeed, spend and spend again.

10)  Red futures at night, traders' delight;  red futures in morning, PPT take warning.

dumpster's picture

good read thanks


sinclair take .. on the going ons

Not one word we hear is truthful. Finance has been totally degraded, and the sheeple so far don’t really care.

The problem with this is that when the reckoning arrives, which it will, it will come like the Four Horsemen of the Apocalypse.

Truly MOPE is a set up for the end of financial days

Oracle of Kypseli's picture

Yes! great lessons, but still....

Combine "chaos theory," "irrational exuberance," "heard mentality," "momentum investing" "friendly trend" add the fear and greed factors, stir with a dash of short term gambling and you have a deadly cocktail. 


Dehrow's picture

I concur.

I especially like the bold ones, they are particularly insightful. However, until society learns these lessons, the teachings will be to the benefit of only a few. Who knows, maybe once these lessons are learned, a whole new batch will need to be learned.

SP<600, here we come.

illyia's picture

Hey Tyler. I saw your movie the other day.

You were really good!


Anonymous's picture

"Yet one year after the 2008 collapse, investors have returned to shockingly speculative behavior..."

That's because people have turned their money over to mutual funds and no longer have direct control. Fund managers have returned to shockingly speculative behavior, but people are obliviously along for the ride. These are hardly investors.

faustian bargain's picture


Wish more people were this thoughtful, especially in the media.

BlackBeard's picture

Klarman has a pretty good book out.  Out of print tho.

godfader's picture

Why are performance numbers for Baupost for 2007/2008 and especially 2009 so hard to get? I couldn't find them anywhere.

bruiserND's picture

11) this was a crisis by design

12) Not even FOX news was capable of telling the truth about CDS & CDOs and breaking a story about the largest property crime in the history of civilization

13) The Baader Meinhoff gang was right after all.


theprofromdover's picture

I think Nassim Taleb needs to write another chapter.

As well as Black Swans, there are Thanksgiving Turkeys.

A Thanksgiving Turkey can * be induced to appear just after a Black Swan, when those in power move the goalposts and change the rules of the game to fix the result in their favour.

* as in 'will always be the case from now on'

I think if every time Roubini makes a valid dire prediction, he just should preface it with 'unless the T-T appears, the following will happen. He might get a better hearing.

brodix's picture

Life is a bubble. We don't build for the walls, but the spaces they create, but if you build poorly, the spaces get smaller quickly.

godfader's picture

Can the team at Zerohedge post annual performance numbers for Baupost's flagship fund for 2007, 2008 and 2009? TIA.

Anonymous's picture

thats a big bunch of bulls...PROPAGANDA - JUST LOOK AT JAPAN or the lost 2 decades 60s to 80s being in stocks lost you tons of money in real terms

Anonymous's picture

12. Free Bernie.

Anonymous's picture

Here it is....

Without doubt....the problem is one of tax structure....

What would be a proper tax structure ?

This begs the question of fairness....

Answer the question....

Should one pay for what one uses ?

Now answer this question....

Should one pay for what one does not use ?


Next question....

Should any family of four ....spend more than it earns ?


Next should tax revenues be spent ?


Next question ....

What structure would create conditions such that manufacturing would be rapidly re-established in the US such that when one walked into would be buying US made goods ?


Answer....15% Consumption tax

No individual or corporate taxes....

Each township....state by state would vote via internet as to how revenues are spent....(not lobbyists)


Next question....

Would the tax revenues of a 15% consumption tax be exponentially higher in 10 years than the soon to be annopunced VAT which will be added to individual and corporate well as in addition to state taxes....?

Answer...the tax take from a sole 15% consumption tax would be exponentially higher than the current and proposed tax structure....

Would there be higher or lower employment under a 15% sole consumption tax ?

Answer....there would be labor shortages


My friends....time to hit the reset button....

blindfaith's picture

Of course all who read Zerohedge don't need to be told this.  And, those who don't, won't.

Lessons learned by the


A friend who has LOST 6 income rentals in Key West, his business and now soon his residence, plans to "JUMP BACK INTO" the market as soon as he sells his house (if the bank doesn't get it first).  Can't tell him a thing.  And, what is his favorite show?  Why CNBC of course.  He Says he "finally understands the market, he didn't before".  Sad.

Cognitive Dissonance's picture

"......Can't tell him a thing.  And, what is his favorite show?  Why CNBC of course.  He Says he "finally understands the market, he didn't before".  Sad."

Any market ultimately feeds off the greater fool. And greater fools are (self) created by denial. No one needs to convince the greater fool that he (she) is a greater fool. He does it to himself, often willingly and gladly.

Sad indeed.

DavosSherman's picture

says it all super read

Anonymous's picture

> False Lessons
> ...
> 4. If you’ve just stared into the abyss,
> quickly forget it: the lessons of history
> can only hold you back.

If your gonna quote Nietzsche, I can't resist commenting:

While I was looking for that, I ran across this:

Seemed appropriate, somehow.

(PS: I got "[ ] plus one equals 35" as a captcha. Now where's my calculator so I can figure it out...)

dnarby's picture

Did anyone else have a problem with:

"9. You must buy on the way down. There is far more volume on the way down than on the way back up, and far less competition among buyers. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy."


godfader's picture

Losers average losers.

Lux Fiat's picture

Heck yes.

If there is going to be a decent uptrend, then you should have plenty of time to make money once it is apparent the trend has changed (based on some basic technical indicators).  I know plenty of folks who decided to bottom fish in the fall of 2008.  For the most part, it didn't work out very well.  From my perspective, folks who want to capture 100% or 95% of a move will usually make a lot less than those looking to capture 60% or so.

Anonymous's picture

This rule makes sense for his investment style. Baupost puts a LOT of capital to work in relatively illiquid investments. Building a sizable position frequently requires catching falling knives. I've got some experience in this area and what he says is quite true.

I'm personally quite wary of "simple technical rules" (mentioned in another comment) and don't use them myself. But there are a lot of ways to make (or lose) money in the market, and many of the "rules" that apply to one approach are not relevant or even counter productive in another approach.

Traders don't buy dips. Value investors do. Both parties can still make money. And there are plenty of people who have tried a hybrid approach melding momentum and value approaches...with some success.

Next time you decide you want to own a couple weeks or months worth of volume of a stock, bond, loan, etc. you'll likely appreciate Seth's advice.

Anonymous's picture

there were some truly amazing bear market rallies
in the fall of 2008 ... fast and furious ...
kept me alive ...

crzyhun's picture

Quick overview/response before I read this over the weekend.

On BBerg this very morning, one their light bulbs. Hayes was her name, was interviewing a 'joker' about the wall of worry this market is climbing on. First, I almost drove off the road. Second, a time warp, and you were in 1998, same small talk, patter and jive. I am totally sure and convinced that these people believe they are right, that you can truly, really, understand Mr Market or Ms Market, whatever, and follow the same tripe and get the same results.

If we here in ZH land are insane, like we are in an institution for the insane, and out there is reality, I want none of it- out there. I'll stay with the slightly insane among us and hope for the best---prepare for the worst.

PS-Greece should sell those islands. Pronto. They seem not to get one scintilla of what they are f/g with. But then, hey it's big rock candy mountain, right comrades.


Cognitive Dissonance's picture

The diagnosis is correct, we are all insane. It's simply a matter of degree. Unlike pregnancy, it's not an all or nothing proposition.

Anonymous's picture

Thanks for a teriffic read. I think I'll print this one out and frame it for my son as a college graduation present.

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