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

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“Five of its forty one years, Albadom, two of those have been in the mid single digit range or less. So protecting capital to that extent over four decades, I think is the name of the game for what Balpost tries to do, what value investors hope to accomplish.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“A layer of portfolio hedges that look like essentially puts on the market. And the reason for that is that the average long-term multiple of the markets about 17 times, but you have moments, today it's 20 times, you have moments it's hit closer to 30 times, and other times it gets to 10 times at times when the market is more expensive than historic averages, you are exposed like crazy to just the multiple coming down to the long-term returns winning out. And you can lose a lot just from that kind of mean reversion. So we try to protect against that too. I will hold cash in the absence of immediate opportunity. That's not a terribly big number these days. But the combination of those hedges, those mitigants, do provide a significant degree of downside protection. And when we do have downside, it tends to be quite limited. So Bow Post has only lost money in...”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“That no one should own common stocks who's not comfortable with a 50% drop in the market. I could tell you almost nobody's comfortable with a 50% drop in the market, yet Americans own more stocks than ever before. And so I think people have forgotten that kind of admonition. I think that's really important too. So it's why I don't just want pure beta equity long, diversifying into other asset classes, into credit, for example, shorten your duration, give you a senior position in a capital structure where you're likely to get paid back even if the equity struggles mightily or if you don't get all your money back, you get 80 cents on the dollar back. A lot of things diversify away from full market risk. It's position diversification. It's hedging at the portfolio level. We tend to overlay macro hedges and commodity type hedges, interest rate hedges as appropriate based on each individual investment.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Outpost was founded on the principle of protecting the capital first and foremost of the families that founded it, and so I would describe us as having a risk averse approach. We try to think about downside in every individual investment. We roll that into a portfolio, not in some fancy math formula, but intellectually. Where are our correlations? Do we have exposure as a portfolio that's as bad as the individual investments? Or might there be much less exposure because we have offsetting investments if this one does well, that one's likely to do less well, or if this one does poorly, that one's likely to be a grand slam home run? Are there ways to mitigate risk just with offsets in the portfolio? Then you can also mitigate with catalysts. Catalysts shorten your duration. They make you less dependent on the overall level of the market in the future. And we know Warren Buffett wrote in the 73-74 time frame, unfortunate,”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Bow post also because we know we don't know everything, we know we know so little in the scheme of how much there is to know that we spend a great deal of time trying to learn lessons. And so we spend time learning both from our successes and from our failures because they both contain valuable learnings. Those learnings aren't always available the first day. It may take quite a while to reflect back. I remember reading years ago in an interview, they asked a head of a mutual fund, tell me about your best idea over the years. And they said, well, I found this stock at $5 and it went to $50. And when I looked up that stock, guess what? It had gone from $5 to $50, but it was back to five. So was that a great idea or was that a lucky trade? I don't know the answer.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Presence of a catalyst makes us comfortable having a bigger position, the hardest thing about value investing without catalysts is you can own something that's out of favor for an incredibly long time. And over five or ten or longer year period being early and being wrong look exactly the same. And you can start to get confused and your people can start to get confused and your clients can start to get confused. And so I don't know anybody other than maybe Warren Buffett who could underperform for a decade or more and feel like everybody's just dandy with that because they have confidence it's going to work out. And of course every investor should also be asking themselves those questions that if you own a stock that just goes down and down and down might you have been wrong or at least maybe you could have figured some things out earlier and not owned it from the highest price you paid. One of the things about”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“And maybe you've studied the company long enough that you understand or can appreciate right away what that news means where somebody else might think it's directionally not the direction to go or at least not understand the impact of it. So we obviously stay very far away from any line of inside information, but we want to capitalize on our insights and patience that our long-term oriented clients give us. We have made our big dollar profits over the years usually in ideas that have gone against us at first and we average down and when they are catalyzed, which means some event is going to happen that will cause us to make money. We're not just dependent on somebody waking up tomorrow and liking it more than.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sizing has been one of the strengths of Bowpost over its history. I've run into people with unusual views about sizing, so I've come across a number of funds that have a view that the goal in investing is to limit how much you can lose on any idea. So the key is to have 200 ideas in your fund, none of them more than half a percent. You don't understand that. If you can establish that an idea is good versus one that's bad, then why can't you understand that there might be one that's great rather than just good? And why would that not be bigger? I also think a portfolio can absorb more than a tenth or two tenths of 1% of loss. So we prefer to identify over time through continued work, through price decline that a good idea has now become a great idea, or through an event, through a company announcement that the following is going to happen.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“A portfolio manager still needs to sit on top of the structure, and it's because we slosh money into and out of areas. So we might have loaded up on corporate credit over the last six months. But if tomorrow there's something better to do in a private investment or in real estate, we may be reducing positions we like to buy something even better. The organizational key is somehow to have people that are team oriented enough to say, oh, I get it. I worked hard on this idea. I'm glad we own it. But if we can own something better that's going to make more for the clients, I trust that's also in my best interest. And we try to pay people not just on their own bottom line, but on a firm wide bottom line for that exact reason.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would tell you I've done it poorly. I continue to have final say in the portfolio. So the way I wield that power is I have final say, but I defer a great deal to my team. So I give the team rope. If it's a senior partner who's produced a lot of profit for the clients over the years, and they want to do something that I'm not sure about, I tend to give them room to do that. I think that's valuable and probably career extending for them. It makes them feel appreciated. It gives them satisfaction that they're getting to make decisions. But I also, it's some sense, I'm deciding on investments, but I'm also deciding on people. Who do I trust when they say they've done the work? What does that mean? Have they done good work? And for our best people, which we have a lot of really great people, long-tenured people, trusting them has been exactly the right thing to do for a very long period of time. The final say.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“You just like something new that came along more those kinds of conversations, I think, are extraordinarily helpful in optimizing a portfolio”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is these things churn in my head so sometimes I'll wake up after a meeting the next morning and think I forgot to ask one question or there's a risk I hadn't thought about that now I'm thinking about. And so we'll reconvene. It probably drives my people a little crazy, but I always think protecting the client's capital is more important than whether I drive somebody a little crazy. So we are constantly reconvening if it moves closer to our price target. Is this a good sale? When should we get out? Do we sell part of it? How should we think about that? If it falls, should we buy more? How big should it be? If something else gets more interesting, should we keep holding it? Or is this new thing even more attractive? There are two things that are limited in investing to constraints on every investor. One is capital and the other is time. And they're both really important. So if something you own falls, sometimes you'll trade out of it even though you don't like it any less than you did.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Meet once a week at lunch. Anybody who's around and wants to meet, the partners don't attend that. So it's a free space for analysts to be running things by each other and not feel like partner's going to hear them or they might judge them for being naive or having a silly idea. So I think that's really important for people's development. When the team's ready to pitch the idea, they run it by me. They run it by our president Jim Mooney as well, usually at once in the same meeting. If it's a public idea, we have our traders in the room who can shed insight into how the thing is trading or any particular thoughts about what's going on in the market at the moment on that name. We reach a decision often in an hour. Sometimes we don't reach a decision and we agree to reconvene or we agree that it's interesting but not at the current price. Other times we'll meet, we'll agree, we'll buy it, and then in days we're meeting again because the prices drop further and it's now an even better bargain. And do we want to own more? Part of my nature.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Things that have changed over the course of my career when I started, there were no expert networks to call you had to figure out your own and maybe figure out who might know something about this business or piece it together talking to experts on certain part of the business. So I would argue for sure there's way more information available. We all have more information available at no cost or low cost at our fingertips than people in the most serious investment positions had 20 or 30 years ago. But that said, information's only so valuable also because it's what you do with it. It's having a differentiated view about it. We have then active internal debates. The teams meet as pods, which tends to be a partner and a more senior and a more junior analyst altogether. That's an approximation, but that's what it looks like. When they're ready to make a recommendation, they may run it by another pod just to say, hey, does this sound crazy? We have our analyst.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“The Patsy at the table in the way Warren Buffett would describe it. We do a ton of deep work. We dig deep into company financials. We look back a number of years. We always ask ourselves about not just what's the reported number, but what's really going on, what's the free cash flow, what are the margins doing, have they gotten better? Have they gotten worse?”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“It can be days and it could be years that depends on the nature of the opportunity. I like to say that a big enough discount maybe offsets a lack of the deepest possible knowledge. Sometimes there's chaos in the markets and you want to move quickly. On the other hand, anybody that looks at the price and says, wow, that stock has fallen 20% in the last couple of days to think that happened for no reason would also be incredibly naive. So I think that investors need to move with a degree of alacrity because opportunities don't last forever, but they also need to do everything with a great deal of humility because the market doesn't just give away free money. There are a lot of smart people. Sellers might know as much or more than you. They, after all, have owned it for a period of time and you haven't. So you ought to really spend enough time to get comfortable to at least make sure you're”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Once you've found one of these opportunities, pattern recognition, canvassing wide, what is a fully vetted process at outpost look like from seeing the opportunity to doing the deep dive to when you're ready to make an investment?”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Up ones in the SP and one's not. And the one that's not trades at a 20% discount, which is likely to be the better long-term investment? I think we'd say on an evaluation basis, it's every time it's the one not in the index. Maybe there's some benefits to being in the index, a lower cost of capital. Maybe it gives the other companies some kind of advantage. But I think a value investor would generally say, give me the one that virtually the same company, but at a much lower entry price, I'm going to have the higher return over time. And of course, looking at returns over a long period of time, measuring kind of any which way, the better returns come from paying a lower multiple of earnings, a lower multiple of book, a higher dividend yield, whatever it is. So at least that's food for thought.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“From the market, you should own the top seven stocks. You should own the stocks that are obvious. You should move your money into indexes because indexes tend to outperform. If a stock's kicked out of an index, in the short run, it underperforms. There's a lot of people that have to sell it. Nobody that has to buy it. But I would argue that over a longer period of time, it's those stocks that don't make it into the index that are actually the attractive ones because if they stay out of it, you're buying the same kind of company at a discount to the ones in the index. And God willing, if it's ever included in the index, now you have significant gain from the step up as well. This is not an argument to index or not index. It's to say that what tends to be in favor tends to be very fully priced and what tends to be out of favor can become even more out of favor but tends to offer better investment fundamentals. Literally if you and I said look there are two companies that are identical.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so I think it's seeing those patterns, and then it's a little bit like that quote that when you come to Baupost as a young person, either what we do resonates or it doesn't, I think for the great majority of our people who tend to be quite long tenured, they come here and it's like they too have been let in on a little secret and they realize that looking at what everybody else is looking at is probably not that interesting. If you're going to look at what everybody else looks at, look at it in a highly differentiated way, that's fine, but you're not going to make money by outsmarting people on widely followed stocks with an undifferentiated opinion. But there's a lot out there, right? Private markets are arguably as big or bigger than public markets. The real estate market itself is thought to be around the size of global stock markets. And so there's a lot of assets and a lot of transactions and a lot of things that can be bought. The current feedback”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that's part of the Intel inside at Baupost, but it's not as hard as you might think in the historic days of Baupost, 35, almost 40 years ago, we'd get a phone call, hey, I'm Joe Smith or Jill Smith, and I'm your new coverage for Merrill Lynch, and I'd like to come by and talk about what we can do for you. And time being scarce and just me or a very small group of people, we'd say, look, you don't need to come by. But if you guys ever see on your desk a bond that you've never heard of or a stock you've never heard of, or 20% shareholder in a business that wants to move it quickly, wear your call. So don't call us with IBM insights or your new rating of Microsoft, but when you find that secondary partnership interest or you find that illiquid stake in a private company, call us with that because we'll have a bid for you.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“But to guess legal probabilities, I don't think anybody's probably good at that. I'm not sure we're good at that, although we try. But I think there are factors that are just more important in the business than they've ever been, such as that. There are many, many of them that add up. And so I think that the combination of that leads to some playing fields that probably have fewer people playing on them that can lead to mispricings, as well as areas that maybe are more likely to be mispriced than others. So I think by following our nose, by looking for patterns, by pulling on threads of similarities, we end up with a pretty good portfolio of investments that are individually likely to be mispriced and collectively are reasonably diversified.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think the biggest part of it is probably pattern recognition that you notice that patterns from the past have a way of repeating not exactly but with some similarity. You can find a fund that is in the process of liquidating its last asset. The pressures on them are, you better get that asset off the books. We don't want to carry it through another year end. And so all of a sudden, an asset that wouldn't normally be sold now needs to be sold with some degree of urgency. It could be something as simple as realizing that a bond or a loan is about to default or narrowing default and might then trade at a steep enough discount or that there's a restructuring opportunity. It might be that the market misperceives litigation and that either thinks the litigation is unimportant or thinks it's more important than it really is. So most investors are trained to analyze cash flow.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“in recent years so that because of technological disruption, in Graham's day he could look at a balance sheet and an income statement and say look I'm buying the stock at six times earnings and two thirds of working capital or two-thirds of book value and probably be right about that and realize that the tables will turn what's out of favor will come back into favor which is what the quote from Horace, the poet that's at the beginning of intelligent investor but what changes now is a business could be doing just fine, but if somebody's working on something in their garage that's going to disrupt that company five years from now that company may barely exist or certainly become a lot less profitable and so an investor has to be thinking about not just cyclical change like Grand Dod were worried about in the Depression but secular child.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“And finance and whatever else, but they're not as focused on why might any of this be particularly mispriced? And in fact, maybe they're actually oriented towards not going where the mispricings are. The stock's mispriced because management has not done a good job lately. That's hard for people to recommend to their clients or to their bosses. Or maybe the company was involved in something that left them with a degree of stigma, a failed acquisition or a management misstep. And yet those things can cause prices to really get out of whack and lead to opportunity. So that's the challenge is to find ways to find the bargain. In a sense, you have to be right about less when you don't have to be particularly right about what's a business going to grow into over the next 10 years. Maybe right this second, it's 30 or 40 or 50 percent undervalued. Now, the world has changed.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“That has one or two more assets and wants the last assets off the books, they can close out the fund and maybe now go raise the next fund or the fund after that. Tracking that way, sourcing opportunities that way is so different that, again, I don't know what a machine can be trained to do. It's not easy to train humans to do it. Maybe it'll be easier to train machines, but I'm not sure because it really is a lot of sample sizes of one. You see patterns, but patterns don't exactly repeat. That is what we're doing. That is what Bow Post has done for 40 years. We're looking hunting broad and wide. I like to say we go miles wide to look for opportunity. And then when we think we found it, then we drill miles deep. Maybe the contrast is that other people are going miles deep first so they know everything about every industry. They know deeply pharma and”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Leads to lower prices and then maybe make the connection that sometimes that's overshot in some new incarnation the company gets taken over or can come back into an index but when you multiply that by all the kinds of things that lead to these mispricings and imbalances is it a downgrade is it bankruptcy filing itself what about with a private asset that Graham and Dodd didn't write about private assets they didn't write about real estate they didn't write about privately owned companies yet the same general principles that cause stocks to overshoot can cause business prices to overshoot financing becomes less available so buyers will need to pony up more money as equity and therefore the price drops somebody needs to get a loan that's turning sour off their books by the end of the quarter a bank or an insurance company or a real estate fund formed twelve years ago”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Equity list of let's know these 200 stocks or let's look at certain kinds of industries because we like their growth prospects we're set up in a much more opportunistic way where inefficiencies right now and where are they likely to lie and how do we get them to come into our inbox so we can look at them we're looking for supply demand imbalances in the market now if you told me a stock in Turkey is going to be delisted from an exchange I would tell you that while we don't look at Turkey, we might start to figure out that stock because when it's off the exchange and out of an index there might be a lot of people that have to sell it and there might be a lot of people that quasi follow that index that don't hold it anymore. And so all of a sudden you've got a chance that stock price just falls into some kind of black hole. I think a computer could of course figure that out. It could say delisting.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“although they'll be in the proxy eventually. I don't know how they'd know what telecor shareholders would get or how to think about the contingencies around those kind of liquidation distributions. And that's not the most complicated thing that could come along. How will they think about what a bankrupt or near-bankrupt bond might get in a restructuring? Again, I just don't know to somebody who really is sophisticated in AI, maybe that sounds naive. But to me, I believe that it's likely that the artificial intelligence dealing with a sample size of close to one on a particular oddball transaction may not know what to project. So in effect, how does Bow Post practice value investing? I think that we're set up not on a basis of let's look at the world like other people. We don't have industry analysts per se. We don't focus on a certain”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Waiting for a bus, and the buses, as you know from the schedule, come every fifteen minutes, and it's been forty five minutes. So either four or five buses are going to come right away, or the road is collapsed and no buses are coming. Which is it? What will the computer tell you? Which is it? Those are hard questions. I don't think humans will always know the answers. I think AI will be amazing at saying, oh, well, when the Suez Canal gets closed by an attack of some sort, here's what happens to oil prices, or here's what happens to GDP around the world in the next quarter. Or when there's a war in Europe, here's what happens. And computers will figure that out and humans would have to ton of work to catch up. And maybe computers will see connections that aren't easily seen. But how will a computer figure out the next telecore and electrorent? Electrorent hasn't been public. There are no published financials yet.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Caveat that anything to do with technology, you've got the wrong guess and that I need to know about it. I need to be up to speed. I need to have an opinion about where it might go, but I'm not an early adapter. I don't fool around with it the way some people do. So my opinion may not be as good as some people's. But when I think about it, first of all, my understanding of AI is that it is trained to look at enormous amounts of past data. I don't fully understand how that is done because, for example, up until 2022, we'd have the longest bull market in history. And so depending on what period one looked at, one might think, well, the absence of a bull market maybe we're past that. Is that right? Or is it pent up that the absence of a down market, the straight up 12 years of bull market that ended in 21? It's like if you're”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“There is a degree to which AI, as you get closer to general intelligence, tries to throw out. As computers on the short end, say, of trading and then AI maybe over time replicating thinking will still go wrong relative to human behavior.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“And we're doing all the trading. And that's because the nature of what causes the inefficiency. It's human, but I think the computers will mimic what the humans would do because that's what they're trained to do. And so I think that even AI wouldn't make the markets fully efficient.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“That they talk about are based on laws at the time around prudent man rule or other regulations that no longer apply. But what's still applicable is that despite all the changes, the general principles, which are essentially dependent on humans and their psychological tendencies to get overly exuberant and to get overly depressed, and to have constraints on the humans, you must buy a highly rated bond. You can only own a stock that pays a dividend. You cannot own a stock below a certain market cap or below a certain share price. And those kinds of rules and constraints can lead to inefficiencies. And so while the nature of the exact inefficiencies may have changed a lot in 89 years, the certainty that there will be those, I think remains high. And I actually am pretty optimistic that they will remain even if computers were replacing people as money managers.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Worse before it got better. That also, by the way, resonates with me because I think the idea of financial writing, you can write a newsletter, I suppose, and try to be right for the next two weeks, or you can try to write something down and say to yourself, what is the essence of this that's going to matter, not just months from now, but years and decades and maybe even a century from now, just as Graham and Dod are applicable eighty nine years after it was written in 1934, what might we say about what we're writing today that will still be applicable in 89 years? So I at least think that lens is really important. And that to me is what gives that book historical significance, that nobody's saying follow their exact formula or go page by page and you'll know what to do. The companies are all gone. They've been merged or liquidated decades ago out of existence. Many of the principles”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Graham and Dod lived in a world where I believed there was considerably less technological innovation. There wasn't none over that period of time we invented radio and refrigeration and air conditioning eventually and automobiles decades before. But a lot of innovation. But there was no venture capital industry. These innovations often took a while to take hold. The rollout was slow. It wasn't like downloading software at a click with no cost of goods sold. When the economy suffered, when a stock became mispriced in the 1930s, it was almost certainly because we were in a depression and that there was a cyclical downturn. Grandma and Dod knew that. They wrote about it, which I give them a huge amount of credit for. They wrote that it would not be reasonable to assume that depression will always be the circumstance. And yet, they couldn't know when it would end or if it would get.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“A lot of businesses you could buy in the form of stock or assets you can buy, they're not static values. Things change over time. And I'd love to hear a bit about from those early lessons of Graham and Dod, how you've thought about adapting the way you apply valuation to businesses and assets.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you look to the market for feedback, the market might regularly say, you're an idiot, you bought it, now it's down, you don't know what you're doing. But the reality is you've got to see that a little bit differently. You've got to see that as the market is now offering you a better bargain. Either you have confidence in yourself or you believe in the market as giving you valuable information. And then as Bram and Buffett say, if you look to the market for the answers, you're going to just be following popular opinion. But if you look to the market as a manic counterparty that sometimes sells you something at a big discount from what it's worth and other times pays you more than it's worth, now you're talking. Now you're going to be able to take advantage of the erratic market to profit as an investor.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“in general as the market tells you you're wrong all the time, that the very reason that you can find a mispricing, the very reason that you can find a market inefficiency that causes a stock to go to a discount might well still apply after you own it and it might go to a bigger discount. And that's not lost on Graham and Dodd. That's right there in security analysis. But the idea of that is perhaps there are ways you can speed it up. Maybe you can apply Bill Ackman's hair dryer into the process. One of the things that Bow Post has done over the years, we follow the basic principles. We're looking for bargains. We're patient. We're disciplined. We're willing to say no a lot, as Warren Buffett says. We're not afraid to just leave the bat on our shoulder and not swing. But at times, you do swing. And then you've got to be comfortable with some of the important elements of value investing. You've got to be comfortable that a bargain can become an even bigger bargain. And this is what resonated with me maybe the most.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so you saw at least the idea that this approach might apply in a variety of places. And then Buffett also, in that article, makes the observation that value investing is something not everybody is comfortable with, but that it's like an inoculation. When you get introduced to the approach, either it makes sense and you get it or you don't. And I felt like that inoculation had taken with me, that it made complete sense that people have trouble being patient and holding out for their best opportunities to show up and not just plunging in. Bill Eckman once said to me that value investing in a classical senses like watching paint dry, but I bring a hair blower. I thought, well, that's a good definition of activism. And certainly I'm not one to just want to own stocks forever and sit on them forever. There are times when it actually can be challenging. In effect, the hard thing about investment.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Was too enamored of book value. When you think about book value, you need to go back to the founding principles era in which Graham and Dob were writing. So security analysis came out in 1934, first edition. There's description among other things of the super investor's article that Warren Buffett wrote in the Columbia Business School magazine in the early 60s. And the super investor's article looked at several investors, all of whom were familiar to Buffett and how they'd all had exceptional performance. Now, I'm not sure this was a perfect scientific test because not all of them maybe had previously been identified. Nevertheless, they followed general value principles in their investing. They followed them very differently. One followed bigger cap companies and another followed smaller cap companies and one was global, not just United States.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Was just a lot of learning there that the broad scope was attractive and perhaps also valuable for an investor because the ability to move capital into whatever was attractive. Maybe sometimes stocks were high but bonds were low or sometimes stocks and bonds were both high, but real estate was low. That was also a piece of the thinking.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“The landscape to equities, but also to arbitrages and to credit. And in the case of these railroad bonds, distress credit. So I think it gave me a good analytical grasp rather than being pigeonholed into one single asset class to understand that investors can look broadly across the landscape. And if you can figure out a stock, for example, why can't you figure out the value of the entire private business if you can understand a bond, why can't you understand a bank loan or convertible bond or a municipal bond?”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“The key definition for value investing comes from Graham and Dodd, and the idea of it is that because markets are inefficient, prices deviate from value and that deviation, sometimes they fall below underlying value, and that makes them a value investment. It makes them attractive. Other times they get to full value and maybe even significantly exceed it, at which point you should have sold. And if you were inclined to be a short seller, perhaps shorted it. The principles made sense. I was probably too literal in my earliest understanding of Graham and Dodd, which I'm sure I read the intelligent investor first being the more accessible of the two books. Security analysis came later. But I think what I was applying was not Graham and Dodd value investing, but mutual shares value investing. So I was already looking a special situations, looking at broadly across the...”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Among other things, it revealed a great deal of groupthink. Everybody's favorite stocks were the same stocks. Everybody was buying Warner Brothers back then because they owned Atari. There was a lot of excitement around video games, as there has been excitement every few years about something different in the market. And then shockingly to me, how few of the managers of money actually put their own money in the same product that they were expecting their clients to be in and how important that alignment is. It's one of the main reasons Outpost didn't invest with any of those managers, we have realized that people talked to good game, but they didn't put their money where their mouth is and why eating home cooking is such a foundational principle of Bowpost. We're still today the employees and their families are by far the largest client on a collective basis.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“This plan was in motion. Balpost would have been formed with me or without me, but my coming along maybe changed the trajectory and they realized the original plan was to hand out the capital to smart money managers. And in the earliest days of Baupost, when I joined after I graduated in May of 82, I went to New York a bunch and met with money managers and thought about, well, would this one be good to hire? Would that one be good to hire? What's the playing field look like? It revealed a lot, but it also ultimately led to the decision that we would actually be better off managing the money ourselves.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I had a professor of real estate and I took his course. At some point he called me in to talk about a test I'd done in my exam. But what really had happened was he and some friends had a stake in Channel 5 in Boston. Channel five at the time was being sold to Metrimedia for pretty fancy price at maybe the highest price for a TV station up to that point. And he had decided that he'd want to join with a few other friends, some from the TV station, one not from that background and create an expanded family office. This was the early 80s. So it was an era of bank failures and rapidly rising interest rates and inflation and in some ways a general distrust of the financial system and where should you put your money and how could you make sure the taxes got paid and the coupons got clipped and all of that. So at the exact same time that I was graduating.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“Something else I'd rather do, although I kind of suspected that investing was my thing. So I did investing before, took a summer job at Solomon Brothers just to see what investment banking was. It was very popular back then and a lot of people were going in that direction. And I didn't think I'd love it, but I figured I'd try it. And I actually had a great experience. I enjoyed the young people at Solomon Brothers and met some of the partners who stayed in touch over the years. But I realized that investing was where my heart was. as soon as I graduated, I had an offer to go back to mutual shares, but serendipitously had an opportunity to come in at the ground floor of Baupost being formed, and that's what I chose.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was actually really tough. I enjoyed mutual shares immensely. I loved sitting side by side. I was literally next to Mike Price and right around the corner of the trading desk from Max Heine. And I was the only analyst. It was literally the three of us, met a bunch of traders, admin people. It was such a wonderful learning experience, and I was soaking it in. On the other hand, I had a sense that top business school would be a good place to go. It would round me out. I may have known more and more about stocks, but I didn't know a lot about business. And so to study business to try to understand what's a good company, what makes a company great, how to think about running a company, upside the challenges was certainly appealing. And I ultimately thought, it's not going to be a negative. It's probably going to have a lot of positive, and it will make me better investor if I decide to stick to investing. I also wanted to rule out that there was.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's as simple as that, that you need to be creative, you need to be curious, you need to be not afraid to fail, willing to think outside the box, and maybe you'll come up with something.”
2023-07-17 · Capital Allocators · Seth Klarman – Timeless Value Investing (EP.328) · IDENTIFIED FROM THE TRANSCRIPT · source