market folly

*Update: Unfortunately, the video has been removed due to copyright enforcement. We apologize for this inconvenience.

Baupost Group's Seth Klarman gave a video presentation in late March and we thought our readers would love to listen about his methodology and his take on the markets.

"At Baupost, we are big fans of fear, and in investing, it is clearly better to be scared than sorry," Klarman once wrote. Klarman's investment process is detailed in his book Margin of Safety. In it, he lays out a "how-to" on risk-averse value investing. He received his MBA from Harvard Business School and started working at Baupost at age 25. In an earlier Baupost letter to investors, Klarman wrote ""Rather than ratchet up risk, our approach has been to hold cash in the absence of opportunity." He has always considered himself a value investor and has been patient through the market turmoil. The past few years they have had nearly half their $14 billion in assets in cash. But, with turmoil comes opportunity. And, as such, Baupost's cash has been gradually deployed by Klarman and Baupost's 100 employees, leaving them with around a fourth of assets left in cash. And, we've been tracking their every move to see what kind of opportunities they have discovered.

Baupost Group's tremendous performance over the years is one of the main reasons that we selected them as one of the hedge funds in our custom Market Folly hedge fund portfolio. Our custom portfolio has seen a total return of 194% since mid-2002 and is returning 17% annualized. It's very evident that Baupost's sterling reputation and performance is a big contributor to our custom portfolio's solid numbers.


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We've covered Baupost Group's portfolio before, and have detailed their recent activity just yesterday. Over the past 25 years, Baupost has seen an annual compound return of 20%, is ranked 13th in the 2009 hedge fund rankings, jumping way up from being ranked 49th in Alpha's 2008 hedge fund rankings. For more insight from Klarman, check out his take on recent market action in his interview with Harvard Business School and his thoughts from Value Investor Insight.