Seth Klarman Speaks

Update: Check out these excellent Klarman notes as well.

I try not to put too much stock into what any one person says about the market. Right now, there are lots of people saying the market is overvalued. There are also lots of people out there saying the market is undervalued. I don’t know whether there are more of one than the other. It doesn’t matter. Historically, you want to be investing when no one likes the prospect of being in stocks. When all the buyers have left, that’s when stock prices have the potential to become truly irrational.

That being said, there are a couple of people that I pay special attention to. One is Seth Klarman. Seth Klarman is famous for his aversion to risk. He’s well known as a person that keeps very large cash positions that enable him to take advantage of opportunities when they arise. When you hear people refer to the smart money, they’re talking about people like Klarman. He’s the perfect investor – extremely conservative, but able to earn outsized returns anyway. Most fund prospectus’ will say that their objective is to earn above average returns while employing below average risk. That’s exactly what Klarman does.

So after that longer than necessary preface, Klarman spoke out about the market today. He doesn’t like it. He doesn’t think it’s attractively valued right now. He thinks it has come too far, too fast. Klarman is quoted as saying that he’s more worried about the world right now than he’s been in his entire life. Highlighting just how much he doesn’t like the broader market and the opportunities available to investors is the fact that he’s considering returning money to investors, making his fund, Baupost Group, smaller and more agile.

It’s important to be independent when it comes to investing. Of course, it might help you formulate that independence intelligently by knowing where investors like Klarman stand. Klarman preaches investing with a margin of safety. He doesn’t see many in this market. That doesn’t mean they don’t exist, but, as always, tread carefully. Good luck, and thanks for reading.