YouSaid · the spoken record

Seth Klarman

lines on the record: 115
first: 2023-07-17
most recent: 2023-07-17
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Something of famous investor said to me once, which is to never be afraid to bet on yourself. Obviously, my career path was a bet on myself, but I also probably would have done even better if I had had more confidence about the uniqueness of the kinds of opportunities I was finding earlier in my career. I never want to look back. I never want to whine and complain about coulda, woulda, shoulda, maybe I could have made a few more dollars. But I think the advice that Don't be afraid to bet on yourself is really important. It's advice I give to young people all the time. I don't tell them to go start a fund, but once you're out there, once you feel ready, don't sell your business. Apply yourself, make your business as good as it can be. So that applies to me too. We each bring whatever qualities we have and whatever dreams we have to everything we do. I was just fortunate that I had the opportunities I did.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Philanthropy mom and dad got divorced when I was young, but each of them wrote checks to their colleges, wrote checks to various organizations that were on their near and dear list. And I found that motivational and inspiring that I realized that it's also important to me the same way to give back, to repay organizations that have benefited you in your life.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Max Heine told me that I ought to take Adele Carnegie course on public speaking. And I didn't know what was behind that. But when I reflect back, being able to communicate your ideas, being good public speaker, being comfortable with that, are just so important. Max saw in me that was an area that wasn't as strong as it could be. And so almost 40 years ago, I give him enormous credit. I'm glad that I took his advice that was so spot on.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think there are three, but they're in different categories. The two are Max Heina and Michael Price for mutual shares, from Max I learned to be kind to people, and from Mike I learned to never stop pulling threads. But the third is my wife, who's been so supportive that without her and everything she did to organize our family and take care of the kids when I was unavailable writing my book or working her on a business trip, I couldn't have done it. So it would be those three.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“This isn't a profound one, but it's my first one. And I don't know that anybody knows about it. I've never talked about it. But in the earliest days of Bow Post, we had this great idea there was a closed-end publicly traded mutual fund that had omitted some dividends and it was in arrears. And as you know, they have to clean those up before they can pay common dividends. And this company had announced that they were going to be cleaning them up and paying a giant dividend. And the stock went up a lot to what I thought was full value. So I sold it. And then I realized I was two weeks away from going long term. So giant mistake just from sloppiness. Now I have an operations team that would never let that happen. Back then I didn't. I knew it, but I didn't stop and check. So it just made me realize again how you have to check every detail.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think as an individual, I don't like people who take each other for granted. I think that it's easy to get busy. It's easy to go on autopilot. But I think it's really important to stop and ask the extra question, especially care about the people that you care about and live that way. In investing, I get frustrated at the short-term orientation. I think it's so pernicious. It's easy to fall into that trap. And to have investment success, you have to fight that successfully. I also get stuck on the idea that stocks can be valued to the penny, that I believe in the concept of a range of value, that there's no exact price for a business when you read Wall Street reports. Our price target is $52.50. Why don't we say between 50 and 60? But if you buy at a 35, you're okay. I think that would be for the best.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm a Red Sox fan. I love going to the Red Sox. I love thinking about their next move and imagining what the GM job might be like because it's, I think, not that different from a PM job only much harder.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“On organizations that protect the vote, organizations that defend against litigation, organizations that are fighting gerrymandering, that are innovating in types of election structures that might lead to better outcomes, maybe more centrist candidates.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Probably the single biggest area right now is democracy funding because you know about how threatened American democracy is in terms of what happened in 2020, but also in terms of kicking people off the voter rolls and gerrymandering and making voting harder in general. This is not what a healthy democracy does. Of all the things I want for my kids, obviously I want good health, but I also want them and their kids and their grandkids to live in a democracy. Democracy has been the most important thing in my life that I can't imagine what my life would have been like if I didn't grow up in the United States or Britain or Canada or somewhere. I don't want that for them. And a lot of the trends are disturbing. And we're in a very difficult, fraught time for America. I obviously want the country to come back together. But I especially need it to come back as a democracy. So that's become a very large area of funding. We're focused on.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a lot of fun. It's a challenge. Philanthropy focuses on the world's problems. And they're called problems for a reason. If they had easy solutions, they wouldn't be called problems. We work on some things in biomedicine and healthcare. We are doing some really interesting things in Israel, both in medical research, but also with the Arab population, trying to bring people into the 21st century in terms of diversifying their workforce and creating opportunity for kids of all backgrounds in Israel to get a great science education and then to have career opportunities.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Six weeks. Not everybody will love it, but a lot of people have their eyes opened this summer bow post will have three girls who invest, but about a dozen interns total spread out across the organization from IT and HR and communications. We have interns pretty much up and down the organization. And we feel great about it. It's good for our team to be doing that. We actually have long been convinced that having a more diverse team makes us better as a firm. diversity of thought, diversity of experiences, challenging existing thinking. It just has to make us better. And so we want to always be part of that. This was an example of philanthropy. to further an end. over 30 years ago when I first started to make real money. We joined the giving pledge a number of years ago. We've already given away over half and continue to make that a priority.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Just to touch on this one thought about philanthropy relates to this book because I pledged all the proceeds and royalties from this book and as well as a masterclass I recently did to increase diversity in the investment field. So I'm giving all of the money to three organizations, SEO, something called lighted pathways and girls who invest, all of whom are bringing people that are underrepresented in the investment business into the business. This summer, girls who invest, for example, has 207 scholars who are rising college juniors who have found out about the program, applied to it, it's selective, and are going to be scattered out at different investment firms and endowment offices and other related types of enterprises and getting exposure. They get trained at Wharton for five or six weeks and then they do their summer job for the next.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“at some point a friend from childhood said Why don't we buy a horse together? Which probably happens a lot and is always a terrible idea. It was a terrible idea in terms of making money. It was a fun idea and that led me to stay involved and so I have horses and have been incredibly fortunate in the last couple of decades to win the pre-ness twice. It's a race that for me, it's as good as winning the derby. It's the middle jewel of the triple crown. Well, it's not the Kentucky Derby. It's really special. And to do it on my home field three blocks from where I grew up is very special. So that's been a lot of fun.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“So when I was a kid, we used to go to the races after school literally junior high school. We'd run home, throw our books down, head up to the track. They'd let you in free 10 minutes before the eighth race, and you'd bum a program and a racing form off some old guy who was leaving, and you'd handicap quickly and put down a few dollars, or sometimes you get an old guy to bet for you as well since you were too young legally to do it. Then I'd go home and do my homework. I just love the analytical experience of handicapping. It's not the same as investing, but it has commonality. You take an enormous amounts of information. It's highly disparate. You need to factor in so many different considerations of the horse and the trainer and the jockey and the track condition and the distance and who else is in the race and likely pace scenario of the race. You need to factor in a lot. And I love that analysis.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“So the other one circling back to stats and sports and maybe even Baltimore, you've been involved in horses. And I think twice had a horse win the prekness at Pomico. We'd love to have you share a little bit about that experience and horse handicapping as it relates to investing.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“And it might be a good investment, but it's bound to be fun. It turned out to be a way better investment than I would have thought, as good as any investment one could have made. It was a fractional interest in the team, and those were trading probably relatively inexpensive compared to where the team would have traded. And the team has done a brilliant job under the operational leadership of Sam Kennedy, who's the best COO of anything in the whole sports world, which I think most people would actually agree with. And they've grown the value of the business enormously. John Henry and Tom Warner have also built a huge amount of value in their activities and their leadership. So it's been great, and it turned out to be a value investment. I didn't know it was, but the real return has still been the fun. It's just been enormously fun to be part of it, to go to meetings, and express a few thoughts here and there. And my wife and I go more than we ever did. And that also has been fun, not only for me, but for her as well.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“So as a lifelong baseball fan, as a money ball fan, as a Red Sox fan after I transplanted up here, the story behind it is somebody had approached me to buy into the Celtics when that franchise changed hands something like 20 years ago. And I thought about it. I thought hard, but I passed because I felt like my true love was baseball. And I said to the sports agent who was marketing it, look, I'm going to pass, but if you ever see a slice of the Red Sox, give me a call. And four or five years later, he called. He was a former patriot, actually. He was a wide receiver for the Patriots Randy Vataha, and he called and I bought somebody else's steak. I didn't know if it would be a good investment. It was probably thirty times current cash flow. What I thought was it would be fun. And I said to my wife, I said, this might be crazy. It's not money. We absolutely have to have.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'd love to circle all the way back to the beginning with your studying of baseball stats. And I want to ask you about two personal investments, which may not at all fit into your value-investing framework. So one, which you've been involved with for a long time, the Boston Red Sox. How did you think about that as an investment when your day job is so focused on the analytics of value investing?”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, there's a lot to be said. There's an old saying somebody told me after I wrote that book, the saying is it's good to have written a book. And it is good to have written a book. It's not good to be writing a book. And especially when you've got a day job, it was hard enough when I wrote that book that I had two small kids. So my hands are full, but it's not impossible that I would bring it back in some way. I still love that I stole the title blatantly from intelligent investor because it's such a great expression and it really captures what a value investor tries to do. You need to leave room because you might be wrong. Markets might go against you. But if you're patient, you can find a margin of safety. And having one means you're likely not to be in tears when a lot of other investors are.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I did some of that in my preface, but I would greatly elaborate on that. And look, the other thing about margin of safety is it's 30 years old, and I think part of it was meant to be just an intellectual continuation of intelligent investor. And I think I achieved some of that. There's some things in it I wouldn't write today, some things I think are just wrong. I didn't really do a good job on understanding the value of intangible assets, for example, the world of distressed debt still applies and is still really interesting, but there'd be whole new sections on that because the game has changed.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Truly has gone out of print. Maybe at some point I'll bring it back. I have an idea in my head of what might be a companion edition that could make sense of bringing it back in some way. When this project came up, I knew that I could only do one or at least one at a time. So I thought this thing deserved to be updated, a lot of change in the world in 15 years. I thought I knew a good group of contributors. And when I called them to see if they'd be willing, and they all said, yes, I felt like now I had to go forward, but I got a great team. There's some ample reason that I could redo a new edition of Margin of Safety. I would talk more about process. I'd talk about culture and investment firm. I'd talk about the flexibility of approach in that you don't need it to look exactly the same as it looked last year or five years ago, that the markets evolve, the kinds of securities that exist evolve. I would talk much more about private investments and the applicability of Gram and Dodd principles to private investments.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's somehow we've gone an hour and a half without mentioning the phrase margin of safety. So I feel like I have to ask you about the one book that you wrote and whether you have any reflections on margin of safety that you wrote 30 years ago now and whether you're thinking about an update to that high-priced scarce book only available on eBay.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Really strong group, a variety of different approaches, and I think it holds together really well. I didn't say it, but I wrote the preface. That was meant to be as good as I know how, what has changed in the last 15 years and what has changed in the last 89 years. So when you take Graham and Dodd and you say, this is the Bible, this is what they wrote, what part of it still applies, what's the intel inside? Where's the beef? and what has changed and to do both of those with an attempt to have this be that if nobody updated this for the next 50 or 100 years they'd still be a lot of beef here for future readers which I think we've accomplished but we'll find out”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“And I know I got the best example of that out of current endowment management, what a great thinker Seth is and a wonderful guy. And he jumped on the chance to do this, which I wasn't sure I'd be able to get him. But truly, it's a broad group of contributors. I mean, we have Todd Combs, who is one of the right-hand men of Warren Buffett. He doesn't talk much in public, but he has a great section about bottom-up fundamental analysis and how important that is to him and his approach. We have somebody who's not been heard from that much, Dominique Miel, but she wrote a beautiful book about her investing called Damsel in Distressed. She was focused on distressed debt when she was at Canyon Partners. She's funny and a wonderful writer. Dominique has a great section. Nancy Zimmerman has a really important section on arbitrage in investing and how to think about that in terms of market inefficiency and value investing. But I could go on and on.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“They're really important to outpost. I think they're really important in general as a way to think about where value is. The David Abram section on the lessons of investing in both public and private assets and how they hand in hand can make you better at each, which is what Warren Buffett says, that I'm a better businessman because I'm an investor and I'm a better investor because I'm a businessman. And then Seth Alexander, who's another wonderful protege of Dave Swenson and somebody you and I both know and appreciate, wrote about endowment management. And I wanted that because I wanted the perspective not just of somebody who's picking stocks or bonds, but somebody who's actually in the business of giving out money to money managers, somebody who's thinking about stewarding a large pile of assets over a very long-term period and doing it in a unique way that is differentiated from what everybody else in the field is doing.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was very helpful for me because living through it still isn't the same as like a play-by-play in your ear, but remembering all of the fads and bubbly aspects of the last fifteen years and how long and painful that's been for value investors because money has tended to flow into growth and out of value, some of which, by the way, justifiably because disruption and a lot of businesses had their long-term prospects damaged. But nevertheless, I think in many ways a big overshoot as people have become less patient and less willing to hold any investment through thick and thin. The most important thing I think we realized is that grandma wrote about equities. They wrote about credit. They did not write about international and so we have a section on international investing, what's different about it. They didn't write about private asset classes, which are really important.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I was a co-editor of the sixth edition and we had the idea in that edition that none of us were going to take the fifth edition or an earlier edition and strip it down and provide fresh examples. It would have taken five or ten years. Nobody is certainly nobody with a day job like mine could do that. So we wrote covers over each of the important sections. So we wrote about a historical perspective, Jim Grant provided that. Jim's such a brilliant historian. Roger Lowenstein provided a perspective on what the market had been up to since the prior edition. And so they both did a reprise of that for this edition. Jim's piece is fabulous. I didn't think he could top himself, but he wrote again about what the world was like in Graham's Day and how an investor ought to think about that today, the importance of financial history as I emphasize. And Roger wrote about the last 15 years and frankly.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the impetus for your doing this was your editing of the seventh edition of Grammar's security analysis. I'd love to hear any reflections you have on value investing of some of the contributors that you brought in to the book to write new chapters on different investment disciplines.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Has prospered And a lot of people have made their entire careers here. We're very proud to say we have people that have been here not just five or ten years, but many people 20, 25, 30 year anniversaries, which we enthusiastically celebrate. A good thing that serves interest of employees and clients ought to be around. I will need to pull back. I will need to continue to delegate like I've been doing and find more things to delegate. And I continue to do that. I continue to push people to take on more responsibility, give people promotion opportunities. And truly, I think right now we not only have a deeper partner group than we've ever had and as talented as ever, but we also have a very, very deep middle of people that have joined the firm in the past three, five, seven, ten years who have tremendous potential already contributing at a high level. So I'm really excited at what the future can bring. But I know a lot rests on my willingness.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm very cognizant that I can't and shouldn't be doing this forever. I think Warren and Charlie are great exemplars that you can still be doing this into your 90s, but I don't think I should be running Bow Post more than another 15 or so years. Maybe I'll still be involved in some capacity. People have done a good job in some cases of stepping back, still playing a role. And I'd like to think as long as I'm sharp that the investment skill set actually is cumulative additive thing where you may be not familiar with the latest change in technology in the world, but you have a large amount of perspective on what are good entry points and exit points and where risks might lie. So I'd like to think Bao Post will succeed past my tenure. The reason I think it is we've been a great thing for our clients. The clients have made a lot of money with very little drawdown in the bad years. And the team at...”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Over a lot of years has worked hard to form long-term partnerships with managers. And those long-term partnerships are ones of trust and trust being concretized through actions and performance, teams getting to know each other, not top person and top person, but deeply enmeshed throughout organizations. And I think from the institution's perspective, the ability to follow a manager through thick and thin, that you can read a brochure, you can talk to somebody for an hour, but you don't really know how they're going to handle adversity. You don't know character. And so it takes a long time to see that play out. And the same thing from the manager perspective, that it helps to see how the client behaves and will they be a good long-term partner? Will the capital be there when you need it the most? And so I think that alignment is perhaps one of the biggest keys to”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Success factors for any investor. If you don't have long-term oriented clients, you can't make long term investments, and since I have no idea how to make short term investments that work, I don't know how people without long-term money can invest. So it's very important to have a courtship period where you meet with clients. Literally, I've had people offer us money and I've said, I won't take your money until you read this annual letter and you read the last five years and you understand what we do and you really appreciate because we don't want to be out of alignment where we think we had a pretty darn good year and you don't. So let's talk about what we are trying to achieve, what's attainable, and what's not. And I think those kinds of things have served us in really good stead because it has led to a much greater overall alignment. I think the endowment world especially matches well for us. The endowment world following your and my mentor's wisdom, Dave Swenson”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“We took families by word of mouth in the early years of Baupost, so maybe we'd add a family or two a year, but even with that our assets were still in the couple of hundred million dollar range ten years in, and we took our first institutions in'98, so we're probably coming up to our 25th anniversary of that. And they've been great partners because they're aligned. Every type of client has its solidity. We love individuals because we can explain what we do. Our founders were individuals. Individuals tend to think about protecting on the downside at least as much, if not more than institutions who maybe can take a longer term view, who are in competition with each other in a way that individuals aren't necessarily. Both types have made fantastic clients. We've been very careful to avoid hot money type clients, short-term thinking type clients. The alignment is one of the most important”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'd love to take a step back and talk a little bit about the business of Baupost. For a long time in the early years you didn't have any clients except for the family. And then I guess, I don't know, 15, 20 years ago now you did bring some institutions but been very careful about who was an investor. What's your perspective on the importance of that alignment between what you're trying to do and who your investors are?”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Extreme scenarios, it wouldn't surprise us to encounter those that we don't really understand the degree of exuberance in the market. There were certainly individual stocks that were oversold in the downdraft of 22, but the overall market did not really reach bargain levels. Maybe it reached fairly price levels and now is rebounded again to overpriced levels. So I'm not making a market prediction, but I do think there's vulnerability. So while our credit exposure has gone up or equity exposure has gone down somewhat, and we're trying to focus a greater percentage of the equity book on positions with catalysts.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“One off hairy deals of some sort that are mispriced for a particular reason. Now we've rebalanced into credit. Everything we do is bottom up. It's not top-down asset allocation, but we found enough debt to make that about 15% of our portfolio, and that's been pretty steadily growing. This is not anything like peak opportunity, but I think could continue to increase depending on what happens with inflation and what happens with the economy. You could even have an economy where interest rates go down, inflation gets tamed, but that's accompanied by an economic downturn, and that could lead to more financial distress. A lot of companies have taken on way more debt than probably would be that prudent. So that's probably the biggest change in the portfolio. We are pretty well hedged. We don't try to hedge every ounce of risk. We never have. We're not a zero beta fund or anything like that. But we're protected meaningfully against some pretty...”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've been yield starved like everybody else for the last 12 years until rate started to move up a year ago. We like credit. Credit often is misunderstood, lends itself to inefficiencies. When a bond gets downgraded below investment grade, there can be a natural constituency of holders who want to churn out of that. And that can lead to pricing inefficiencies as well. So we like to look at credit. We like distress credit. We like bankrupt debt. We're not rooting for it to happen, but it's a playing ground. We can hunt through when those markets exist, when there's hardly any distress credit, Bow Post has to look elsewhere. So in the 2010 to 2012 to 2021 period, we focused more on some private markets and private inefficiencies, real estate for one, private equity for another. But it doesn't look a lot like other people's private equity. It looks like more.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“When you combine that study of history and this very uncertain and in some ways unprecedented time, how does that translate into how you're positioning the portfolio relative to how you have in the past?”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of advice to people. I just remind them study financial history that Jim Grant likes to say science progresses secularly, but finance progresses cyclically, and that most ideas have been around before, and we repeat the same mistakes. And there's a lot to learn. Obviously, I didn't live in the Great Depression, but I feel like even studying that has prepared me for bad markets. It's prepared me to make really tough decisions. It's informed me of how bad things could get and yet also emboldened me to understand that if it's not the Great Depression, maybe down 40 or 50% is actually a pretty steep decline. So I think the history helps center us on what a reasonable range of outcomes might be while we never lose sight of what the extremes of history might dictate.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Surprised me to see pockets of private credit blow up, private equity funds has been rescued historically. So in the 0809 period, I always thought there should be an asterisk on private equity because those guys got rescued by the Fed rushing in cutting rates and Congress's stimulus plans as well, which a lot of private equity debt was trading down to 50 cents on the dollar. And yet all those deals ended up working out had that rescue not happen when it did, you might see very, very different numbers at a private equity. Now, there might be an argument that private equity is always going to be on the beneficiary side of that. That might be true, but it also might not get rescued in some further period, especially with the imbalances in our society and with moms and pops wondering why they're rescuing wealthy Wall Street financiers. So there's just a lot of uncertainty in my mind about that. I just think in general, if I had to give one piece of...”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“But people needed to sell stocks to pay the bills and to meet their commitments. You had a genuine liquidation. You really haven't had much of that for a really long time. You had a lot of hiccups around between 98 and 01. And then the great financial crisis was a really ugly 12 months or so. I'm just not sure why you couldn't have more trouble, especially because you had enormous capital flows. You had entire buildup of a private credit industry and disintermediation from banks. Maybe that'll all go smoothly. Maybe it won't. It's not been tested. The nature of most Wall Street and innovation is it's never stress tested for a rainy day because that wouldn't be any fun. It's fun to sell a lot of bonds, sell a lot of stocks, sell a lot of partnerships, and rake in the investment banking fees. But when the rainy day comes, mortgage-backed securities can blow up.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“The irony of this moment is that while you had a Greenspan put and a Bernanke put and a Yellen put, now Powell is breaking it. I don't know if he can break it and provide the put right afterwards. On the other hand, with SVB, we did. We changed all the rules around deposit insurance in order to not let them splatter. And so these are really complicated questions. I don't feel like I know the answer for sure. But I think the moral hazard is very high. I think people's memories are short. I think people would be really wise to pay attention to history, to think back to an era where everything didn't get rescued, to try to imagine a bare market that didn't immediately just lead to a buying opportunity. You don't have to look that far back. People could look back to 74, 5, 73.4. Many, many stocks trading at single digit earnings multiples that weren't going out of business.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“They couldn't get paid by taking credit risk. It still wasn't much. They couldn't get paid by going out in duration. The yield curve was decently flat, at least part of the time. And so we've seen some financial institutions do what like Silicon Valley Bank did and end up with significant mismatches of assets to deposits. But I'm not convinced we know where all the bodies are buried. I think here and there you read an article that says this bank has $100 billion of bonds below market or whatever. But I'm just not convinced. I'm not saying there's anything more. I don't know anything, but I'd be nervous because markets cause behaviors. And when people have to put money to work, have to run a matchbook, have to run a large balance sheet, they're going to do something with the money. We haven't seen a lot of bodies float up. I don't know what that means, but I'd be worried. I think that we've become incredibly dependent on the government rescuing everyone.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“This is to me one of the weirdest times since I've been in the investment business for over forty years, that you had a bubble. It was really a credit bubble that became an everything bubble. Super low interest rates at time zero rates made capital easily available and incredibly cheap. And that led to startup manias and spacks and meme stocks and crypto, all kinds of speculative activity. I'm not convinced that we've even begun to sort out that bubble. Now that bubble did a pretty good job of collapsing in 2022, but the market has rallied back so much this year. We're now in a bull market, no longer in a bear market by that at least arbitrariness of 20%. I think that the damage that was done over a 12-year bond bubble, and of course, don't forget it's been a 35-year bond bull market up till 2022, that what were financial institutions supposed to do during that time?”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“We just take each individual investment as it is, try to understand what the risks and opportunities are in it, and make our determination then.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“So good, but it's not a large percentage of our capital, but it was a very intrepid idea by one of our analysts. I don't have a view about emergent markets, about the frontier markets. We're humble enough and cautious enough to know that if you don't live in a country, if you don't have people that are active in that country, you're at a real disadvantage. And so I have no idea what the premium should be for buying equities in Africa or equities in Asia. But when I find a stock trading at 25 cents on the dollar, I know that those things tend to work out. So that's how we've applied it. But the vast majority of our investments are US and Western Europe. And I don't know that Western Europe needs particularly significant risk premium over the U.S. Obviously for clients who live in the US or with exchange rate risk, you may have some considerations there. That wouldn't be a big discount from our perspective.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“We invest internationally, we have stocks in Europe, we have debt in Europe that we sometimes buy. We own real estate globally, although mostly it's US and Western Europe. Our mandate is broad and flexible, which lets us move where the opportunity is. We talk to our clients not that long ago about a few Chinese stocks we were finding. We had never owned anything in China for decades. It was in favor. Everybody was lining up to go there. I knew that they have a pretty authoritarian system of governance and didn't want to be on the wrong side of that. We stay away from most markets like that as a pretty regular rule. Yet, the stocks were starting to discount such a significant degree of China risk that we felt like for the first time ever that you're actually getting well paid. And we found a company whose stock was beaten down 90% and thought that was attractive. And so far.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“you could create that at a 10% yield, but you couldn't trade it for five years. There's a price on liquidity. Would anybody do that? Well, I would argue that anybody that's going to buy treasury bonds and would likely keep holding them for five years ought to be first in line to do that trade. And that exists. I can't describe all the ways it exists, but we are trading off things like that all the time. Maybe the cash is in a liquidating trust and will only get paid out slowly. Maybe there is something.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“understanding in recent years among some people who run money that illiquidity itself delivers degree of return, that if you take the liquidity, you automatically get the return. I don't think anything could be weirder than that idea that the reason you make money from illiquidity is when you have people on the other side of the trade who have an illiquid asset and they suddenly need to monetize it. They want it off the books, that may cause it to trade at a discounted price, and the discounted price provides the higher return. The liquidity itself doesn't. Generally, when clients ask this, I say you ought to make several hundred basis points. I don't know if that's $200 or $500 basis points, but giving up the liquidity, the right to change your mind is worth a lot. On the other hand, just as a thought experiment, let's take the most liquid of all instruments. And let's say I found a five-year treasury bond at a time when treasuries yield four percent, and I had a way.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think you have to get paid for illiquidity. I think that there is a cost to giving up control over getting in and getting out. But there are offsets. And so one of the offsets is you'd think if you bought a building, it's illiquid. But if you own the whole building, you get to decide when to sell it. Whereas if you own 100 shares of stock or a million shares of stock of a company, management can do something extraordinarily dumb that you wouldn't have done. And so there are puts and takes. And so I want to make sure I get paid for giving up the right to change my mind. But just because an asset is in a liquid form doesn't mean it's purely illiquid. Buildings get sold all the time. Whole companies get sold all the time. Whereas 9.9% of the shares of a $400 million company might be a very illiquid block. And so liquidity may not be what everybody seems to think. There's been, I think, a great mis”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source