Klarman Warns of Risks to Investors

Risk is the most important consideration when investing, and investors are being too trusting. This according to a recent Business Insider article reporting on a client letter from hedge fund manager Seth Klarman. The hedge fund manager (who oversees approximately $30 billion) shares his view that, when share prices are low (as they were in 2008 and early 2009), risk is “usually quite muted while perception of risk is high.” By contrast, however, he argues that “when securities prices are high, as they are today, the perception of risk is muted, but the risks to investors are quite elevated.” According to […]

ETFs Make Markets Less Efficient Writes Klarman

While exchange-traded-funds have claimed a growing share of investor funds, critics say these funds are “potentially dangerous and untested through a crisis,” says a Bloomberg article from last week. In a recent letter to investors, Baupost Group founder Seth Klarman explains that the dominance of ETFs is making markets less efficient: “The inherent irony of the efficient market theory is that the more people believe in it and correspondingly shun active management, the more inefficient the market is likely to become.” Most ETFs, the article notes, endeavor to track weighted indexes which are “dominated by the biggest companies with the […]

Jeremy Grantham, Jonathan Jacobson, Seth Klarman and Jeffrrey Vinik: “Below the Radar” Philanthropy of Top Investors to Social Causes

The Boston Globe profiles philanthropy by leading investors. Jeremy Grantham’s foundations, including the $377 million Grantham Foundation for the Protection of the Environment, reflect a movement toward “making big bets on social change philanthropy,” according to Paul Grogan of the Boston Foundation. This is a shift apparent in Grantham’s own remarks: he noted that giving to traditional recipients of philanthropic dollars (such as arts and medical institutions) is “better than nothing. But it isn’t as good as medical research, or more to the point even, critical environmental donations.” Seth Klarman of the Baupost Group is another example of civic and […]

Fidelity PM Learns from Value Greats like Buffett, Graham and Klarman

Chuck Myers, who heads the Fidelity Small Cap Discovery Fund, shared some of the lessons he has learned as a value investor at the recent CFA Institute Equity and Valuation Conference. As reported in Enterprising Investor, these include: “Learn from the best, but think independently.” Myers cites some of the best known investors, and those with excellent records, as influences, but has developed his own “low expectations” approach to value investing by seeking out-of-favor stocks ripe for a turnaround. Myers cites great investors such as Warren Buffett, Benjamin Graham, and Seth Klarman as some of his top influencers in investing. […]

Two Types of Investing Inside Baupost, One of the World’s Most Successful Funds

A letter by Brian Spector of Baupost, encouraged and endorsed by the firm’s iconic value-investing president Seth Klarman, gives a rare inside look at this secretive investment firm. As Business Insider reports, Klarman asked Spector, whom Klarman describes as “an outstanding investor, collaborator, and mentor,” to write a letter directly to the company’s investors as Spector announced his retirement after a 17-year tenure. Spector described two types of investing: “needle in a haystack investing” and “tide comes in, tide goes out investing.”  According to Spector: “Most of the time we are in periods of haystack investing,” meaning “we sift through […]

Great Advice From (And For) Great Minds

The world often wants top investors and economists and strategists to give advice. But what’s the best financial advice that those great minds have received? The Wall Street Journal posed that question to a number of top thinkers recently. The respondents include Nobel laureates Robert Shiller and William Sharpe, as well as investment gurus Carl Icahn and Seth Klarman. A few of the responses dealt specifically with not falling prey to short term thinking. “An investor should think like a business owner, not a renter,” said Morningstar CEO Joe Mansueto. “Most businesspeople don’t get up in the morning and ask […]

In Rare Interview, Klarman Talks Value Investing

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 […]