Billionaire hedge fund manager Seth Klarman explains what makes a successful investor

Seth Klarman

(Getty Images/ Kevork Djansezian)
Seth Klarman.

Billionaire value investor Seth Klarman is one of the most successful hedge fund managers of all time.

Klarman, the 58-year-old founder of $27 billion Boston-based Baupost Group, ranks No. 4 on the all-time list, according to a new report from LCH Investments.

Since his fund's inception in 1983, he has made his investors net gains of $22.6 billion.

During his career, he's only had three losing years, including 2015. Baupost's public-investments portfolio fell 6.7% in 2015, while the fund's private investments gained 2.4%, according to an investor update seen by Business Insider.

In his fund's year-end letter, Klarman explained what it takes to be a successful investor:

Did we ever mention that investing is hard work — painstaking, relentless, and at times confounding? Separating relevant signal from noise can be especially difficult. Endless patience, great discipline, and steely resolve are required. Nothing you do will guarantee success, though you can tilt the odds significantly in your favor by having the right philosophy, mindset, process, team, clients, and culture. Getting those six things right is just about everything.

Complicating matters further, a successful investor must possess a number of seemingly contradictory qualities. These include the arrogance to act, and act decisively, and the humility to know that you could be wrong. The acuity, flexibility, and willingness to change your mind when you realize you are wrong, and the stubbornness to refuse to do so when you remain justifiably confident in your thesis. The conviction to concentrate your portfolio in your very best ideas, and the common sense to nevertheless diversify your holdings. A healthy skepticism, but not blind contrarianism. A deep respect for the lessons of history balanced by the knowledge that things regularly happen that have never before occurred. And, finally, the integrity to admit mistakes, the fortitude to risk making more of them, and the intellectual honesty not to confuse luck with skill.

As Klarman puts it, "You don't become a value investor for the group hugs."

NOW WATCH: Everyday phrases that even smart people say incorrectly

More From Business Insider

• A hedge fund manager shares the 10 things that could surprise the market this year
  

• Here's how much people make working for a hedge fund
  

• One of the world's best value investors has a warning about those Silicon Valley 'unicorns'