Seth Klarman: Stocks will probably provide poor returns for the next 10 years

By on June 14, 2010

Charles Stein, writing for Bloomberg, has authored an article on hedge fund manager Seth Klarman.

Unlike John Paulson, who made $15 billion by betting against home mortgages, Klarman didn’t see one big trade that would profit as markets began to collapse. The founder of Baupost Group LLC focused on corporate bonds he calculated would yield solid returns even if the economy got worse.

“We didn’t have the degree of conviction Paulson had,” said Klarman, whose views are so closely watched by investors that his out-of-print book, “The Margin of Safety,” is offered on for more than $1,700. “We don’t deal in absolutes. We deal in probabilities,” he said in an interview at his Boston office.

Stein discusses some of the history of Klarman’s fund and stellar returns of 17 percent annually over the past 10 years, along with what he likes currently:

More recently, the fund has been looking to buy privately held commercial real estate. While the fundamentals for much of that property are “terrible,” Klarman said, such investments may pay off for those willing to wait long enough.

Prices of publicly traded real estate securities have run up too far, he said in the interview. If the firm can’t come up with enough opportunities, it may return cash to investors, Klarman said.

“At this point, the clients don’t seem to want their money back,” he added. Baupost, whose investors are wealthy individuals and institutions such as Harvard University’s endowment, currently has about 30 percent of its assets in cash.

SMA Comment: Stein mentions Klarman’s out-of-print book, “Margin of Safety,” which has become a collectors item. I personally bought the book at a closeout for $4-5 in the mid-90’s. I subsequently read about the demand for it and sold it on Ebay for $600 about five years ago. Stein said it’s offered on Amazon for $1,700. Sounds like a bubble to me.

Source: Bloomberg

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>