We have posted some notes from the presentation, but we thought readers would enjoy some further notes we just found, check it out below!
Seth Klarman – Baupost Group: “Seth Klarman in conversation with Jim Grant” Grant’s Interest Rate Observer Fall 2013 Conference? October 22, 2013
? How do you reconcile your bottom up investing strategy and your macro concerns? o It’s difficult
o Will always invest bottom up but worries top down
o Macro worries are like sports talk radio. Everyone has a good opinion which probably means that none of them are good.
? Value investors feel that they need to be fully invested at all times
? He is returning cash to his investors
o 50% of his assets are in cash, currently $14 billion, already has to invest the other $16 billion
o His firm has already grown so much in size that he is risking a deteriorating culture? currently has 200 employees
o Can’t continue producing great returns if he gets any bigger
? Invest in corporate distressed debt and corporate liquidations
o No corporate distress opportunities right now
? Structured Products
o In 2008?2009 you could buy a top tranche of a CDO and recreate real estate at 20?30 cents on the dollar
? Corporate Equity
o Used to do thrift conversions
o Currently 15?20% of total assets
o Micron Technologies worked out well for them
- Complicated
- Great acquisition that was misunderstood
? Real Estate
o Dream scenario would be a big office building where a tenant just left and the loan is about to default so they can buy at distressed prices
? Two basic edges
o Long?term orientation
o Flexibility, can invest in any category of investment
? No one knows the level of stocks or bonds without QE o The question is how to protect yourself cheaply o Gold is really the only place to be
- Owns long?dated out of the money options on gold prices
- Sees inflation as a definite possibility
- Gold hedges are about 1.5% of his assets and will rise 5, 10, or even 20 times if gold price rise dramatically to $5000 or $10000 an ounce.
? Doesn’t hedge things that are cheap in an absolute sense
o Wouldn’t pair trade a stock with a P/E of 4 against stocks with P/Es of 5
o Risk management at Baupost is just people sitting around a table thinking
? Looked at Russia in the mid?90s when there was no fundamental analysis going on.
o Never sold some of those holdings and has selectively added to a couple of them this year
o Russian equities are still cheap but you can’t back the truck up because Russia does not have rule of law
- This risk has to be managed with position size
? Has made 1 of every kind of investment mistake
o Not understanding the product, etc.
? He is still the final yes on every investment
o Had a difficult time coming up with a succession plan
- Promoted Wagner and then talked with him about being around for 8?10 more years. Wagner decided that’s not what he wanted
? Klarman knows less than everyone else about the things he decides
o Only brings experience and a certain mindset
? Everyone knows that what the Fed is doing is crazy
o This is the first time the next generation will be worse off and we should be
ashamed
o The Fed handing the reigns to someone else with no experience to continue the experiment is insane
? Big funds should be putting money in big blue chips
o They’re not really mispriced but they’re comparatively cheap
? With the exception of the unions and the auto industry, America still has rule of law
? Everything that can be financed today has been
o Even if yields go up but there’s no crisis, there will probably be a melt?down in the high yield market
? Klarman’s annual letters have been key to building a great shareholder base
o The letters articulate his philosophy and hammer on the same points frequently
