Value-Stock-Plus

Beaten-down markets have been a boon for Baupost, which has become the sixth-largest hedge fund in the United States & a force to be reckoned with.

by Stephen Taub (Abolute Return + Alpha – June Issue)

Seth Klarman, president and portfolio manager of 28-year-old Baupost Group, is considered the dean of value investing among hedge fund pros, and such a devotee of Benjamin Graham and David Dodd that he was the lead editor to the reissue of their classic, “Security Analysis,” in 2008. With his wire-rimmed glasses, graying beard and kindly smile, the 53-year-old Klarman has a gentle, professorial air about him—and a reputation as a cautious investor who is more likely to be found sitting on a mound of cash than taking big risks in frothy markets.

That being the case, it might be surprising to learn that Klarman’s Baupost bested Carl Icahn in the tussle over CIT Group last year and helped wage a successful activist campaign in a merger battle for a small biotech company. But if Baupost has been able to throw its weight around recently, it’s not just because beaten-down markets provided tremendous opportunities for value investors. It’s also because Klarman has been on such an asset-building binge that Baupost has become the sixth-largest hedge fund firm in the United States, with $21 billion under management—three times the $7.4 billion Klarman managed just three years ago. After raising more than $4 billion in early 2008—the first time in eight years that he had opened his fund to new investors—the founder of once-obscure Baupost has become a hedge fund titan.

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One scandalous document can make or break a fraud case, but there’s a big problem: finding it among millions of others.
Source: Fortune

SETH KLARMAN NOTES FROM 5-17-2010 MEETING

by iluvbabyb

Jason Zweig interviewed Seth Klarman and these are my incomplete notes scribbled in haste and not direct quotes.

In value investing, you should think about investing Graham & Dodd style. Volatility works in your favor in terms of providing mispriced assets. Volatility shouldn’t be viewed as a problem. You should be seeking to buy bargains, and the best bargains often are found in the “hairiest” situations, such as in distressed securities or securities in litigation.

The business climate is more volatile today than during Graham’s time. What’s on the books today may not be as reliable as during Graham’s days. You need to look behind the numbers. There are more fads today in consumer goods i.e. Lady Gaga sneakers.

Seth Klarman previously worked for Michael Price and Max Heine of Mutual shares. The lesson he learned from Michael Price was the endless drive to get information by pulling all threads on a business in the efforts to seek value. Seth described Max Heine as a very kind person…he always had a smile and kind word for everyone in the shop from a junior analyst to the receptionist.
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Most detailed notes! (Source: Inoculated Investor)

Berkshire Hathaway 2010 Annual Meeting Notes

Source: CrossingWallStreet.com (Eddy Elfenbein) (Post Link)

In his 1988 Baseball Abstract, Bill James listed a number of lessons had had learned so far through his study of baseball statistics. In that vein, I’ll list some observations that I’ve learned over the years:

The Federal Reserve isn’t nearly as powerful as is commonly believed.There isn’t a person or group of people in charge of the market.

There’s no such thing as a “healthy correction.”

Good stocks can go down for no reason.

Bad stocks can go up for no reason.

A trend can last much longer than you thought possible.

Stocks don’t know you own them.

The market doesn’t care about politics.

The most important variable to the stock market, by far, is the direction of long-term interest rates.

Mega-mergers rarely work.

Investment bubbles aren’t due to the moral failings of the market participants.

Ignore anyone who tells you that the Federal Reserve is a private bank.

Commodities are almost always terrible investments.

The stock market hates inflation. The only thing it hates more is deflation. The best environment for stocks is a low stable inflation rate.

As an investment tool, P/E Ratios work much better for individual stocks than for the market as a whole.

The best three fundamental metrics are (in order) ROE, Debt Ratios and Cash Flow.

Wherever possible, seek out stocks with expanding margins.

Dividends are underrated by investors, especially companies that consistently raise them.

Portfolio diversity is overrated.

As a general rule, IPOs are a bad deal.

Boring but profitable always beats exciting and unprofitable.

CAPM and MPT are nonsense.

No one can consistently time the market. No one.

The Equity Risk Premium (over long-term debt) is probably much smaller than commonly believed.

The data showing a return premium for small-cap stocks is probably wrong.

The media never questions the bond market. Only stock investors are “greedy.”

Perma-bears are never held to account for being wrong so if you want to sound smart, be very bearish and very vague.

The market really does “climb a wall of worry.”

Follow unfollowed stocks.

The market is self-aware. Scary but true.

It’s far easier to rationalize selling than buying.

The market isn’t efficient—it can be beaten.

But it’s very, very, very, very hard.

Most technical analysis is complete garbage.

A high P/E Ratio is much better sign of a stock to sell than a low P/E Ratio is a sign to buy.

It’s pointless to measure the stock market relative to gold or in euros or pork bellies or whatever else people can come up with.

Ignore any chart that has seemingly similar lines trying to show how this market is “just like’ the one in 1831.

Except at very low levels, volatility is neutral.

Many gold bugs are quite simply fanatics.

Whatever the issue, your typical finance professor will blame the investing public and urge more self-denial as the solution. Bank on it.

Never base an investment decision of demographics.

The worst investor in the world is the guy holding on to a small loss waiting for the rally because “they don’t want to take the loss.” Again, the stock doesn’t know you own it.

Very, very few serious companies are traded on the pink sheets.

Never stress out about what a stock does after you sell it.