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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: jrhana who wrote (31162)	6/14/2008 1:44:56 PM
From: Paul Senior	Read Replies (5) \| Respond to of 78659

This article you mentioned is very interesting and most helpful for my understanding how Seth Klarman does it. For maybe two decades I have been wondering what Mr. Klarman can tell us little investors, and how he gets his alleged great returns. I say alleged, because I generally don't believe these superior numbers, none of which are audited that I see. Klarman, Greenblatt, others. Here's what I read: "Klarman’s hedge fund the Baupost Group has done over 20% a year since he founded the firm in 1983, with only one down year." Now we throw other stuff on top of that. "Baupost manages $6.2 billion of assets across nine partnerships." (ref.: BusinessWeek , "The Seven Hundred Dollar Used Book", 8/'06). Is the percentage figure (20%) the average of all his partnerships or just the oldest (first)? Is it after his fees or before? ("Baupost charges a 1 percent management fee plus 20 percent of profits.") I have always wondered how this guy can do so well with his obscure stuff (obscure to me, anyway) and his willingness to hold cash, and so much of it ("...Focus on risk before return. This is why Baupost has so much cash, currently 45% of the fund is in cash.", a/o of the video of 2006). My questions have been 1)how does this guy do it (get those great returns year after year, if he really does), and 2)can the normal investor learn from him and use his techniques/methods and do this also? Now that I see more how he operates, it confirms for me the normal little guy cannot be expected to do what Klarman does and cannot be expected to get the good results Klarman does over time using a Klarman approach. First, Klarman is very diversified going expertly over any area where there might be a discrepancy between price and value. "Baupost has a spinoff analyst, index fund deletion analyst, post bankruptcy analyst, distressed debt analyst and an analyst looking at companies that are depressed..." That ability to both concentrate and be diverse means that Klarman can reduce his risks of Baupost making a significantly harmful decision in any particular area while increasing the possibility of finding a winner somewhere among the many fields in which his people search. Secondly, that takes resources and dedication. "Baupost looks at every (ed. 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." For me, I am always looking for what works best and what is optimum for the normal investor. What can the normal person take away from Graham/Buffett and the other great investors? Imo, regarding Mr. Klarman, it is not possible for the average investor to emulate the Baupost methodology. For Klarman, I've never quite understood the lesson. I get the margin of safety - that's from Graham. Maybe from Klarman I see that there are just some areas - restructurings, hedging with foreign currencies, bankruptcy stuff - where it doesn't pay to play. Leave those to people with the time and resources and skills to be in that game. Maybe also from Klarman - seem's he'll look at anything with a price/value discrepancy - except one thing - he won't short. Maybe that's another lesson (Don't short stocks.) Anyway, although I don't see where his methods can be emulated, and I almost never understand his buys -- his stocks usually don't look like value picks to me - I follow up on his buys when I see them, and sometimes I find a couple of stocks he has that I like too, and I will buy. As I said in an earlier post, I have some of his here: biz.yahoo.com ------ I guess I might have to say the best theoretical gain I might ever make would be my purchase of his book. I believe I paid $5 for it at a thrift shop. (I have been a collector of stock market books relating to value investing for more than thirty years.) Too bad I have underlined and highlighted passages and so have diminished the book's apparent value. "...Seth Klarman’s book Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor is one of the best books I’ve read on value investing. It’s currently out of print and selling for about $1,600." Yikes. Imo, the book is nowhere near as good or as helpful as many other books relating to value investing. The focus on risk and the continual warnings are so heavy that it becomes discouraging enough to make a person want to forget about stocks and just put money into treasury bonds.