market folly

Seth Klarman's hedge fund Baupost Group has recently filed an amended 13G with the SEC. Due to activity on June 30th, 2009, Baupost has now disclosed a 0% ownership stake in Omnova (OMN) with 0 shares. They have completely sold out of their position having previously owned 7.4% of the company with 3,242,800 shares as we noted when we covered their Omnova position in the past. Back then, they were selling down the position and its now clear that they continued to sell the name in the months of May and June. This isn't the only activity we've seen from Klarman recently, as he also has bet big on Capitalsource (CSE) and News Corp (NWS-A) as we detailed when we presented Baupost's portfolio.

Over the past 25 years, Baupost has seen an annual compound return of 20%. Such a pristine track record has landed Baupost in our custom Market Folly portfolio, where we have cloned a hedge fund portfolio with the Alphaclone software that is returning 27% annualized since mid-2002. Baupost's contributions to our portfolio are definitely a big reason for the solid numbers.

Klarman received his MBA from Harvard Business School and started working at Baupost at age 25. Klarman's hedge fund was recently ranked 13th in the 2009 hedge fund rankings (jumping way up from being ranked 49th in Alpha's 2008 rankings). Klarman 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, leaving them with around a fourth of assets left in cash. Additionally, Klarman has authored a now out of print but acclaimed book entitled, Margin of Safety.

Taken from Google Finance, Omnova is "a provider of emulsion polymers, specialty chemicals and decorative and functional surfaces for a variety of commercial, industrial and residential end uses. The Company’s products provide a range of functional and aesthetic benefits to products that people use daily. OMNOVA operates in two business segments: Performance Chemicals and Decorative Products."

For more on Klarman and Baupost, we've assembled a collection of excellent resources here:

- Klarman's question and answer session from the Graham & Dodd Breakfast Conference
- Seth Klarman's Endowment Management Seminar
- His interview with Harvard Business School
- His thoughts from Value Investor Insight