Seth Klarman, David Abrams, and Howard Marks on Value Investing: Great Read

One of our readers shared the transcript of a round table talk among Seth Klarman, David Abrams, and Howard Marks almost 10 years ago. It is a very long read (22 pages) but if you’d like to learn about these great value investors and their investment approaches, it is a great read. I will share some excerpts from each of these investors and share the link at the bottom of this article. Here is how Seth Klarman summarized what Baupost does:

“In terms of investing I would say that there is no exact formula for what we do. We try to use all the value investing principles we know. The world is imperfect. The world doesn’t just dish up net, nets all the time. The world doesn’t dish up stocks trading below cash all the time, doesn’t deliver fine businesses at eight times earnings all the time. So we look very hard for mis-pricings, for information asymmetries. for supply / demand imbalances, and we find ourselves at various times heavily in distress debt or no position in distress debt, significantly involved in equities and uninvolved in equities, very focused on private markets or uninvolved because you can create the same assets cheaper in the public market. So in a nutshell that’s our approach. Very opportunistic. We try to be not siloed the way many people are. We don’t have industry analysts we have generalists who can move quickly from working one day on a drug stock, to another day on the distress debt of a bank, and another day even potentially on a mortgage security or real estate investment. That’s not easy but it does provide constant stimulation, a lot of cross training, which people enjoy, and it also means that our resources will always be deployed in the most interesting areas all the time. So that’s Baupost in a nutshell.”


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Here is how David Abrams, who worked at Baupost for 10 years before setting up his own shop, described his investment approach:

“If I were to describe my firm we sound very much like what Seth just described about his firm. We get lumped in with hedge funds but we really consider ourselves an investment partnership. We’re pretty much long only. Occasionally we do a bit on the short side but mostly in bonds at par that can only go down, but very little. We care less about the volatility than others and try to find limited partners who are like-minded. That’s somewhat easier, sometimes more difficult. It’s a lot easier on the way up, than on the way down is what I find. But we have really a great group of limited partners.

And beyond that we’re pretty flexible. You know, somebody said yeah, there is good assets and bad assets but good prices and bad prices supercede whether the assets are good or bad. So we’ll be flexible. We’ll buy public, we’ll buy private. We think the line is pretty blurry if there’s much of a line at all. And we’ll buy debt, we’ll buy equity, try to be open minded, try to steal good ideas from other people. A lot of my best ideas have been stolen from people from in this room (emphasis added by Insider Monkey). And other than that just try to make it through the difficult times, and find something intelligent to do from time to time, and it’s kind of amazing how it works out over time.”

We emphasized the section where Abrams said he steals ideas from other investors because this is basically what Insider Monkey does. We identify the best stock picks of the best performing hedge fund managers in our flagship investment strategy. We launched this strategy four years ago and it outperformed the market by more than 30 percentage points. Our best performing hedge funds strategy returned 81.8% since its inception vs. 51.3% gain for the S&P 500 ETF (SPY). If you create a free account of our site, you will be able to download the latest issue of our quarterly newsletter and see our strategy’s latest stock picks. By the way, our latest stock picks outperformed the S&P 500 Index by more than 6 percentage points since we shared them on February 15th.

David Abrams

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Next up is Howard Marks. Here is what he said about his investment strategy:

“We have a very strongly held investment philosophy, which not surprisingly is a value philosophy, and the same philosophy works across all of our asset categories. You know, I’ve worked in two big places where they had, as I describe it they had 50 strategies run 50 ways: top down, bottom up,  aggressive, defensive, agnostic, forecasting, you name it. And we only have one philosophy and all the money is run the same way. There are six tenets. The first two are by far the most important. The first one says that the number one job of the money manager is not to make a lot of money, it’s not to beat the market, it’s not to be in the top quartile, the number one job is to not lose money, and it’s to control the risk. And our motto for the company as a whole is that if we avoid the losers the winners take care of themselves.”

You can read the entire transcript here.