Highlights of Seth Klarman’s speech at the Columbia Business School courtesy of Alex Bossert’s Thoughts on Value Investing.
Rule #1: Don’t lose money. Rule #2: Never forgot Rule #1.
Baupost always looks for catalysts in its investments. If you find a stock trading for 50% of what you think it’s worth you want there to be something that will trigger it to reach fair value.
Baupost will always sell an investment as soon as it near their estimate of fair value.
Baupost has analysts focused around the type of opportunity; spinoff analyst, index fund deletion analyst, post bankruptcy analyst, distressed debt analyst and an analyst looking at companies that are depressed because of a bad earnings announcement.
Baupost invests in: Both public and private distressed debt, Real estate (Baupost has done over 200 real estate deals including biding on RTC auctions), U.S. and foreign equities, LBO’s and Derivatives.
Baupost looks at every merger, rights offering, privatization of government business, spin off, major share repurchase, dutch auction tender, thrift conversions or anything else that could cause mispricings.
Baupost does best when there is high uncertainty and little information.
Sometimes the market doesn’t assess risk correctly by relying on volatility (beta).
Baupost’s three investment principles:
1. Focus on risk before return.
2. Focus on absolute returns.
3. Only focuses on bottom up investing.
On a side note I have posted a few other times about Seth Klarman and these posts are among the most popular by number of pages views.
- Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor
- Seth A. Klarman