Seth Klarman's Biggest Bets

By Sham Gad | December 08, 2009 AAA

Few value investors garner the reputation and success of Warren Buffett. The compounded annual returns at Berkshire Hathaway (NYSE:BRK.A) since Buffett took over are legendary and well known in value circles. Over the past 25 years or so, Seth Klarman has earned a spot right up there with Buffett. In fact, when asked about value investors to keep an eye on, Buffett has mentioned Klarman on more than one occasion.

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The Results Do The Talking
When it comes to investment skill, a long-term track record is the only defining characteristic. Since Klarman began his investment fund Baupost in 1983, it has posted an average annual total return of over 20%, according to data provided by the hedge fund group. That's a remarkable feat considering the pullbacks the market has had over those past 25 plus years.

As we wrap up what looks to be one of the best performing years for the market in years, it pays to look at some of Klarman's biggest bets. Klarman is willing to wait years for his thesis to play out, but some of his holdings may be worthwhile ideas even today.

A Diverse Group

Baupost's biggest holding continues to be media conglomerate News Corp (NYSE:NWS) which currently trades at $14. Baupost paid less than $14 a share, but the theory is that the sum of the parts is much greater than the whole. Klarman's favorable outlook on media stocks appears strong as Baupost also has a sizable stake in Liberty Media (Nasdaq:LINTA).

The investment fund has several bets on the biopharmaceutical industry with holdings such as Theravance (Nasdaq:THRX) and Enzon Pharmaceuticals (Nasdaq:ENZN).

Baupost has a history of success with biopharmaceutical names, the most recent being Facet Biotech (Nasdaq:FACT), of which Baupost is the largest shareholder according to the most recent filings. Baupost came to own Facet through the fund's ownership of PDL Biopharma (Nasdaq:PDLI), which spun off Facet as a separate entity. As a result of the spin-off, Baupost's gains likely exceeded 100% in under a year. (For related reading, check out Parents And Spinoffs: When To Buy And When To Sell.)

The Bottom Line

It's always a good idea to watch the pros, especially guys like Seth Klarman. It's even a better to watch them closely during strong bull markets since the population of undervalued investments becomes almost non-existent. (For more, check out The Value Investor's Handbook.)

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