On Strategy: Make Intangibles Tangible
By Jack Mixner
Klarman's definition of "margin of safety": "How can investors be certain of achieving a margin of safety?" writes Klarman. "By always buying at a significant discount to underlying business value, and giving preference to tangible asests over intangibles ... By replacing current holdings as better bargains come along. By selling when the market price of an investment comes to reflect its underlying value and by holding cash, if necessary, until other attractive investment become available."
Strategic Implication
While investors may make their own assessments (Klarman is famous in investing circles for his returns), one word in the difinition might be important to our discussions, namely, intangibles.
Klarman says invest in tangibles, not intangibles. When working with intangible services, take the time to make them tangible.
Productize intangibles. Ally them with other products. Make sure the story you use to plug your product actually matches the product. The same with services.
One final bit of Klarman advice: be patient. Even when you are investing in your company's dogs, take your time to make them successful. Klarman waits for stocks to "come to him" at a price he finds credible. Let your plans for your dogs mature a bit before you invest heavily.
Why dogs? It may be that they have the largest returns in the long run.
References
Klarman, Seth. Margin of Safety. Risk-Averse Value Investing Strategies for the Thoughtful Investor. [Reviewed in: Farzad, Roben. The $700 Used Book. BusinessWeek. August 7, 2006. Page 86.]
Mixner, Jack. Invest in Dogs. Increase Valuation. Contrarian Situation Analysis Increases Valuation. http://mixnerstrategy.com/ARTICLE-CONTRARIAN-SWOT.html