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Klarman's Quiet Quarter
In this author's humble opinion, after Warren Buffett, Seth Klarman of the Baupost Group is the one to watch and listen to very carefully. Since inception in 1983, the three private investment partnerships that Klarman manages as part of Baupost have delivered a return of approximately 19% a year. Even more impressive, over the past decade when the S&P 500 was flat, Baupost funds were up nearly 17% a year. So, on average, Klarman beat the index by 17 percentage points a year.
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It's rare when Klarman speaks. So when he does, any investor would be well advised to listen up. Klarman recently addressed a CFA conference. His overall sentiment is that investors ought to be extremely cautious in today's world. Markets have rallied very quickly and stocks aren't cheap. Klarman couldn't have been more direct: "I am more worried about the world, more broadly, than I ever have been in my career." So if this legendary investor is worried, it would benefit investors to see what he's been doing with his money over the past few months. With the recent Baupost 13F filing, the answer was clear: Baupost has been quiet.
Focusing On Valuable Assets
Klarman added two new positions in the quarter, and they were both quite small. The first, ADC Telecommunications (Nasdaq: ADCT) is a $770 million provider of broadband communication network infrastructure. Clearly, this seems to be a classic case of buying a business that's completely out of favor. ADC is currently unprofitable and trades for twice book value. Yet the cash flow statement shows a healthy level of cash generation. The other new holding is Solar Capital (Nasdaq: SLRC), a closed-end investment company that focuses on making investments that are higher up in the capital structure. Inquiring investors may want to look deeper at this issue because it does very little in terms of marketing. However, the company does state its investment approach is tied to a value-oriented approach of capital preservation and rigorous monitoring, philosophies that Klarman values immensely.
Baupost's largest holding continues to be media giant News Corp. (Nasdaq: NWSA), representing 19.3% of the portfolio. Klarman's view here is clearly focused on the value of the company's various media assets. ViaSat (Nasdaq: VSAT) is the second-largest holding with a 17.5% portfolio weighting. Like ADC, ViaSat is in the business of wireless communication networking systems. It seems Baupost is very fond of media and broadband. The fund completely sold out of its position in CIT (NYSE: CIT) after an incredible surge in the stock price after is bankruptcy restructuring.
Boring But Successful
Baupost's newest picks clearly reflect Klarman's view in buying the most-hated companies as a way of getting value. But overall, his capital deployment was very muted in the recent quarter, reflecting his current view of investing in a valueless market. (For related reading, check out Removing The Barriers To Successful Investing.)
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IN PICTURES: 20 Tools For Building Up Your Portfolio
It's rare when Klarman speaks. So when he does, any investor would be well advised to listen up. Klarman recently addressed a CFA conference. His overall sentiment is that investors ought to be extremely cautious in today's world. Markets have rallied very quickly and stocks aren't cheap. Klarman couldn't have been more direct: "I am more worried about the world, more broadly, than I ever have been in my career." So if this legendary investor is worried, it would benefit investors to see what he's been doing with his money over the past few months. With the recent Baupost 13F filing, the answer was clear: Baupost has been quiet.
Focusing On Valuable Assets
Klarman added two new positions in the quarter, and they were both quite small. The first, ADC Telecommunications (Nasdaq: ADCT) is a $770 million provider of broadband communication network infrastructure. Clearly, this seems to be a classic case of buying a business that's completely out of favor. ADC is currently unprofitable and trades for twice book value. Yet the cash flow statement shows a healthy level of cash generation. The other new holding is Solar Capital (Nasdaq: SLRC), a closed-end investment company that focuses on making investments that are higher up in the capital structure. Inquiring investors may want to look deeper at this issue because it does very little in terms of marketing. However, the company does state its investment approach is tied to a value-oriented approach of capital preservation and rigorous monitoring, philosophies that Klarman values immensely.
Boring But Successful
Baupost's newest picks clearly reflect Klarman's view in buying the most-hated companies as a way of getting value. But overall, his capital deployment was very muted in the recent quarter, reflecting his current view of investing in a valueless market. (For related reading, check out Removing The Barriers To Successful Investing.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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