Seth Klarman

Investing and the Power of Uncertainty

March 31, 2020 | 4 Comments

With the possible exception of Warren Buffett, no investor today commands more respect than Baupost Group’s Seth Klarman. Since founding his investment partnership in 1983, Klarman has not only produced unrivaled returns, but he has also from time to time offered wise and timeless commentary on markets and the craft of investing.

Klarman is the author of Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor, which became a value investing classic ever since it was first published in 1991.

Now, the reason I am writing to you about Klarman today is twofold.

The Painful Decision to Hold Cash

March 20, 2015 | 10 Comments

One of the many investing mistakes I made during the early part of my investing career was to be rash with cash.

One salary hike, one bonus, or one big inflow of money (family gifts etc.) and I would invest the same into stocks I liked, irrespective of what the stock markets were doing.

Cash in bank was considered a wasted opportunity and every chance to “let-me-buy-stocks-now” was grabbed upon.

The question I used to ask myself was – “Why should I hold cash when it is paying nothing while stocks can grow my money much faster?”

However, over the years and after learning my lessons (from not holding cash) the hard way, I’ve found several reasons to ‘hold cash’.

10 Lessons from the 2008 Crisis

March 28, 2014 | 16 Comments

Seth Klarman is not an investor you would read about much in business media. He is one of the more reclusive kinds out there. He rarely speaks in public or grants interviews.

Klarman is known for his very deep value investing style and willingness to pursue value where others get very nervous. Some people, in fact call him Warren Buffett of his generation.

Late last year, he returned US$ 4 billion cash to his clients (from a fund size of around US$ 30 billion). In fact, Klarman has had about 30% of his fund’s assets in cash over the past two years as he has long been concerned about the state of the financial markets and typically looks for deeply-discounted situations.

In a recent letter to his clients, Klarman has warned that the QE (quantitative easing) stimulus bubble has become unsustainable and will burst at some point in time.

He has noted that “most” investors are downplaying risk and this “never turns out well,” noting that most people are not prepared for anything bad to happen. He wrote in his letter (emphasis is mine)…

No one can know what the future holds, but any year in which the S&P 500 jumps 32% and the NASDAQ Composite 40% while corporate earnings barely increase should be cause for concern, not further exuberance.

It might not look like it now, but markets don’t exist simply to enrich people.

Seth Klarman

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