Seth Klarman ( Baupost Group )

[winston]

In Rare Interview, Klarman Talks Value Investing by The Guru Investor

Hedge fund guru Seth Klarman rarely talks with the media, but he recently gave an in-depth interview to Charlie Rose through the group Facing History and Ourselves. And Business Insider has provided a nice summary of the legendary value investor's wisdom.

Much of his advice focuses on the psychology of value investing. Investing is the intersection of economics and psychology, Klarman says.

The economics, the valuation of the business, is not hard. The psychology ” How much do you buy? Do you buy it at this price? Do you wait for a lower price? What do you do when it looks like the world might end? Those are the harder things.

Much of what Klarman says also involves thinking long term and not being deterred by short-term gyrations in stocks. The only reason we care about gyrations is so we can buy something cheaper,he says.

Value investors have to be patient and disciplined, Klarman adds, but what I really think is you need to not be greedy.

Greed leads to leverage, he says, and almost every financial blow up is because of leverage.

http://theguruinvestor.com/2011/12/01/i ... investing/

[winston]

Klarman: The Painful Decision to Hold Cash

Seth Klarman is known for keeping a significant amount of cash on hand and being fearless in moving largely to cash at the right times.

In his 2004 year-end letter to investors, Klarman covered the decision to move to cash. Scorpion Capital received Klarman’s permission to publish this portion of the letter.

The alternative is to remain liquid, defy the steady drumbeat of performance pressures, and wait for the prices of at least some securities to drop.

(One doesn’t need the entire market to become inexpensive to put significant money to work, just a limited number of securities.)

This path also involves risk in that there is no certainty whether or when this will occur; indeed, securities prices could rise further from today’s lofty levels, making the decision to hold cash even more painful.

Meanwhile, holding out for better returns involves a (potentially lengthy) period of very low (albeit certain) positive returns available from today’s shortterm U.S. Treasury instruments.

http://www.frankvoisin.com/2012/03/19/k ... hold-cash/

[winston]

Notes From Seth Klarman's Margin of Safety

Thanks to a reader for sending us the following notes from Seth Klarman's famous book, Margin of Safety. Written by Ronald Redfield, these notes provide a great summary of Klarman's book for those of you who don't want to pay $1,000 for a now out-of-print copy.

Why should you care about this? Well, for those of you who are unfamiliar, Klarman's Baupost Group is one of the top 10 hedge funds by net gains since inception. And since numbers do the talking in the investing world, it's time to pull up a chair and learn from the best.

Redfield singles out prudent quotes from Klarman such as this gem on risk:

"Targeting investment returns leads investors to focus on potential upside rather on downside risk ... rather than targeting a desired rate of return, even an eminently reasonable one, investors should target risk."

And by focusing on risk, Klarman of course hints that investors should seek a margin of safety in their investments. He goes on to specifically address this topic, writing:

"A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable and rapidly changing world."

Redfield points out that Klarman says investors can battle risk via diversification, hedging, and investing with a margin of safety.

Klarman also touches on other tricky aspects of investing, such as forced selling.

He writes, "The trick of successful investors is to sell when they want to, not when they have to.

Investors who may need to sell should not own marketable securities other than U.S. Treasury Bills."

John Burbank of Passport Capital has echoed this via his timeless quote: "cash is most valuable when others don't have it."

This refers to cash's utility as a hedge during a downturn as well as its ability to fund opportunistic purchases while others are forced to do otherwise.


http://www.marketfolly.com/2012/04/note ... in-of.html

[winston]

Seth Klarman is warning that the collapse of the financial markets could happen at literally any time…

“Investing today may well be harder than it has been at any time in our three decades of existence,” writes Seth Klarman in his year-end letter.

The Fed’s “relentless interventions and manipulations” have left few purchase targets for Baupost, he laments.

“(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors.”

Source: The Trading Report

[winston]

Seth Klarman Expains When "Investing Is At Its Hardest" And Why He Is Not Joining The Momentum Trade
by Tyler Durden

http://www.zerohedge.com/news/2013-05-0 ... entum-trad

[winston]

Seth Klarman — Baupost Group

Money managed: $26 billion

Bearish on: Stocks

“Investing today may well be harder than it has been at any time in our three decades of existence, not because markets are falling but because they are rising; not because governments have failed to act but because they chronically overreact; not because we lack acumen or analytical tools, but because the range of possible outcomes remains enormously wide; and not because there are no opportunities, but because the underpinnings of our economy and financial system are so precarious that the unabating risks of collapse dwarf all other factors.”

[winston]

Klarman Clarity: "If The Government [Still] Can't Allow Failure Then We Are Indeed Close To Collapse" by Tyler Durden

One of the most insightful comments explaining what happened last night, when Bernanke just killed all credibility that the economy may soon be able to stand up on its own two legs, comes from Seth Klarman who crushed the logic (or lack thereof) behind proclaiming any recovery in a world in which the only marginal factor preventing an all out collapse in the stock market and thus economy is, and continues, to be the Federal Reserve which has not only destroyed the market's discounting function, but with every passing day is taking over both the entire US economy (the Fed's balance sheet is now 25% of US GDP) and the US bond market (currently in possession of 30% of all 10 Year equivalents).

To wit:

If the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse

http://www.zerohedge.com/news/2013-07-1 ... e-are-inde

[winston]

Seth Klarman Says Markets Are Too Bubbly

By William D. Cohan

When Seth Klarman speaks, listen carefully.

http://www.bloombergview.com/articles/2 ... cmpid=view

[winston]

Today, we'll share the views of billionaire hedge-fund manager Seth Klarman.

Klarman is a value investor who founded Baupost Group, one of the most successful hedge funds in history. He has returned around 19% a year since his fund's inception in 1982… And he has achieved those returns often holding a large portion of the fund – currently around $25 billion – in cash.

Like us, Klarman is worried about the malaise in today's market… In a recent letter to investors, he said we're in a "Goldilocks stock market as a result of relentlessly low interest rates." He says investors are ignoring warning signs of inflation, low volatility, and a U.S. gross domestic product (GDP) revision to minus 2.9%… "Contrary to claims from the Obama Administration," he wrote, "the world is not a tranquil place at present."

Investors no longer fear a slowdown… "Investors have grown weary of worrying about risky scenarios that never seem to materialize or, when they do, don't seem to matter to anyone else."

Still, Klarman warns that risks to investors are rising but are not yet priced into the markets…

The higher the level of valuations and the greater the level of complacency, the more there is to be concerned about. Even as reported inflation remains subdued, signs of cost increases are more evident. We are seeing them, for example, in apartment rents and construction costs.

According to Klarman, bond yields in European countries are at multi-century lows and yields on junk bonds can't go much lower. Even a hint of instability – such as a sudden change in interest rates or investor sentiment – may throw markets in turmoil…

While we are not predicting imminent collapse (market timing is not our thing), we are saying that a selloff, greater volatility, and investor losses would hardly be surprising from today's levels.

Note that Klarman isn't trying to time the markets. The smartest investors rarely do. Instead, they understand risk and adjust accordingly. They raise cash to take advantage of future opportunities. They dump risky assets and prepare for adverse scenarios.

Source: Growth Stock Wire

[winston]

A letter gives a rare glimpse into one of the world's most secretive — and most successful — hedge funds

By Julia La Roche

One key reason the fund is able to invest in those big ideas is it keeps cash on hand

Source: Business Insider

http://finance.yahoo.com/news/letter-gi ... 47487.html