Klarman Holding 50 Percent Cash

[SharperDingaan]

On 1/25/2025 at 4:25 PM, cubsfan said:

How did I get here - my painful investment journey - as told to the St Joe crowd.

 

Great post, and thank you for sharing.

 

The common element with many of these stories ... is that one has to get past oneself, and survive the process. One then has to survive the inevitable unexpected draw-downs while developing a trial and error process that works for you 

 

Good luck!

 

SD

[thowed]

Yes, another thanks for sharing.  Would have loved to have read this when I was younger.  But there is a certain comfort in hearing others who have been through journeys of discovery about their investing style etc. and that it is not just about what they teach you on the CFA etc.

[cubsfan]

@SharperDingaan @thowed - Thanks guy. I think @LC said something about investing being largely emotional/temperment.  Buffett of course, says the same. Too optimistic, too pessimistic - not good. Too arrogant, confident or fatalistic (Hussman), not good either.

 

I should have mentioned my entry to CobF... 

 

After 2001, when I was searching for answers - the Buffett education got my head right. So up until 2009, I read all the Buffett stuff. I attended all the Berkshire meetings while I was working. When I took those PTO days my coworkers made fun of me. When I lost my last tech job in March 2009 (height of GFC) - I decided to take 2 classes at U of C - accounting/finance.  I knew I needed to understand accounting better (Buffett said so at those meetings!). I was doing all this in preparation for, hopefully, private investor career or retirement. Then I started meeting all these great people from the Berkshire crowd, and felt out of place because of my lack of knowledge.

But if you keep at it, and invest in yourself - it's amazing how much you can learn without the specific degree - especially if you enjoy reading about businesses. 

 

When I went on my own, I budgeted (yeah, with my wife) $25,000 per year to attend conferences, investor subscriptions, etc.  I made a conscious effort that I'd spend that money to get better and learn. Back then there was no such thing as a "virtual conference" - which is a huge advantage today for young investors - no travel expense, etc.   I got to CoBF becasue Pabrai spoke highly of it - I think I joined in 2013.  

 

What I'm trying to say: set up your goals and your plan - and execute on it. Don't be afraid to spend money. I kind of laugh when I see guys on here talking about how little money they spend to find a source or something.  What I learned in sales was this: you need lots of contacts, meetings, appts, etc, etc - all this costs some money & lots of time. But in sales, I would always push my salespeople for activity - don't assume anything. You have to turn over lots of rocks (ideas/appts) and you never really know where you will find revenue. If you make too many assumptions on the front end - you're going to miss an idea that will make you many thousands of dollars. I'm not going to pass on a $500 subscription, if I think there might be a $10,000 idea in there. And of course you will make mistakes - but is all the Buffett/Ted Williams Science of hitting story.

You look and work thousands of pitches/ideas over your career - you bat .400, meaning you fail on 6 out of 10 - and you're the greatest hitter of all time. Investing is the same, you can hit .250 and still get very rich. And like Buffett says: all that knowledge is cumulative. 

 

A friend of mine calls it "pattern recognition".  When I say gregmal's EBAY idea, I immeadiately thought DVA - flat business, low valuation,  huge buybacks, moat, etc, etc.  - that's worth investigating. Might work, might be dead money - gonna be hard to lose much...

 

This place is a great source of ideas to get started. You just gotta put in the time.

 

 

Edited Monday at 03:14 PM by cubsfan

[james22]

My guess is most investor's progression is either from individual stocks to Indexer or from (401k) Indexer to individual stocks back to Indexer.

 

Probably not too many "real" Value investors? And even fewer Growth investors?

 

[james22]

May 2010

 

 

https://awealthofcommonsense.com/2025/01/margin-of-too-much-safety/

[Blake Hampton]

1 minute ago, james22 said:

May 2010

 

 

https://awealthofcommonsense.com/2025/01/margin-of-too-much-safety/

If this was in 2010, I’d imagine he’d be bald now

[james22]

Heading into the 2008 financial crisis Klarman has compounded his fund at 20% per year for 26 years! When an investor of that stature says he’s more worried than he’s ever been in his career, alarm bells start going off.

 

On 1/24/2025 at 5:16 PM, Blake Hampton said:

I have some serious concerns about the current environment . . .

 

When an investor of your stature says he's some serious concerns about the current environment . . .

[Blake Hampton]

37 minutes ago, james22 said:

Heading into the 2008 financial crisis Klarman has compounded his fund at 20% per year for 26 years! When an investor of that stature says he’s more worried than he’s ever been in his career, alarm bells start going off.

Was that article really written yesterday? Ben Carlson must read this forum cause some of that stuff is eerily similar.

 

I personally don’t think Klarman sitting on a little cash is some bad thing. I think people are overly discounting the Fed’s role in all of this.

 

Edited Monday at 05:15 PM by Blake Hampton

[Gregmal]

18 minutes ago, Blake Hampton said:

personally don’t think Klarman sitting on a little cash is some bad thing. I think people are overly discounting the Fed’s role in all of this.

 

lol only because he’s a billionaire…anyone else sitting on a % of cash like that would be devastating. I’d personally rather lose money cuz then at least you learn something vs what is likely the case, guy still sitting around 15 years later being dead wrong and thinking he’s smarter than everyone else.

[Milu]

10 minutes ago, Gregmal said:

lol only because he’s a billionaire…anyone else sitting on a % of cash like that would be devastating. I’d personally rather lose money cuz then at least you learn something vs what is likely the case, guy still sitting around 15 years later being dead wrong and thinking he’s smarter than everyone else.

To provide one counterpoint, I have personally achieved a CAGR of just under 20% for last decade all while holding cash balances in the range of 25-75% so it is possible to still do well. Depends on people's personality I suppose. I kind of like having a bit of a safety blanket with the cash that allows me to go more aggressive or hold through the volatility of my investments. While I would possibly have done better if I was fully invested at all times, there is also a decent chance I might not have been able to stomach the volatility and ended up making sub-optimal decisions due to not having a big chunk of cash to fall back on. It also allows me to pick up great bargains on the cheap during panics.

[John Hjorth]

On 1/24/2025 at 7:41 PM, Gregmal said:

I don’t think Klarman can be credited with contributing much to the investing world. He has been deliberately secretive and even goes after people for trying to be transparent about his operations. This after publishing a book, for publicity, only to then go out of his way to make that book inaccessible and hard to get, presumably for marketing purposes. 

 

This. Fishy, to say the least.

[Blake Hampton]

3 minutes ago, Milu said:

To provide one counterpoint, I have personally achieved a CAGR of just under 20% for last decade all while holding cash balances in the range of 25-75% so it is possible to still do well. Depends on people's personality I suppose. I kind of like having a bit of a safety blanket with the cash that allows me to go more aggressive or hold through the volatility of my investments. While I would possibly have done better if I was fully invested at all times, there is also a decent chance I might not have been able to stomach the volatility and ended up making sub-optimal decisions due to not having a big chunk of cash to fall back on. It also allows me to pick up great bargains on the cheap during panics.

Congrats on the returns and I honestly think this is the best strategy. Graham would recommend a portfolio split between both stocks / bonds, and I believe cash is the correct substitute for the bond portion at this point. Of course this is just my opinion as it seems everybody here disagrees on this stuff.

[Gregmal]

26 minutes ago, Milu said:

To provide one counterpoint, I have personally achieved a CAGR of just under 20% for last decade all while holding cash balances in the range of 25-75% so it is possible to still do well. Depends on people's personality I suppose. I kind of like having a bit of a safety blanket with the cash that allows me to go more aggressive or hold through the volatility of my investments. While I would possibly have done better if I was fully invested at all times, there is also a decent chance I might not have been able to stomach the volatility and ended up making sub-optimal decisions due to not having a big chunk of cash to fall back on. It also allows me to pick up great bargains on the cheap during panics.

Well Seth definitely ain’t doing that 

[Blake Hampton]

3 minutes ago, Gregmal said:

Well Seth definitely ain’t doing that 

Yeah, even then, a 4% return is still surprising.

[Milu]

1 hour ago, Gregmal said:

Well Seth definitely ain’t doing that 

I've gotten very lucky with my investments so not proclaiming to be any genius. I've also held many of my best positions through 70%+ drawdowns so the cash percentage helped me hold comfortably.

 

It's interesting to look back on my progress as an investor. I started out like most people as this Graham style value investor, reading my Hussman and proclaiming that the market is overvalued because of the level of the Shiller Cape index. Keeping my dry powder ready to invest and buying a couple of cheap retail companies like American Eagle and Fossil thinking I was a genius. I had read all the buffet letters and every book about him I could get hands on. Then I read 'Fooled by Randomness' and the 'Black Swan' which had a major impact on me, decided that I'd try to implement my own barbell style approach where I'd be 5% speculative bets, and 95% Ben Graham style fundamental value stocks or cash.

 

One person I came across randomly while browsing the web was this character called Elon Musk who apparently sold a few companies, started a rocket company, and also some EV company called Tesla. I thought he sounded fascinating and read his wikipedia, and then searched online for all videos and articles I could find. I then heard that his company Tesla has recently ipo'd at the time at a market cap of $1-2B and thought hmm, that seems interesting let's have a look at the financials, basically little to no revenue, massive losses. I don't know what possessed me but for some reason I seemed to see potential in the company. Against every Graham/Buffett though in my head I decided to make this my first bet of the 5% barbell and put a couple percent into Tesla at $2 per share (split adjusted). I think this was around 2011 or 2012, would have to check. I've held the company ever since through at least three or four 65%+ drawdowns, and as of today it's a 200-bagger. The only sell I made is back in 2021 I decided to sell 20% at a price in the high 300's after Elon began to sell some of his holdings to finance the twitter purchase. This one investment had a big impact on how I view the upside vs downside tradeoff in investing. If I had never bought Tesla I likely would never have bought some Bitcoin (10 bagger) and Ethereum (20 bagger) in 2020, or Amazon at end of 2022. During that time I was also buying great companies at good prices Apple, Meta, Google and reaping the rewards.

 

I possibly learned the wrong lessons as due to the success of my 5% speculative investments doing so well but once you see a few good investments go up 10 or 20 times you start to see the pointlessness of trying to buy cheap companies at 66% of intrinsic value and sell them when they get to 100% of intrinsic value. These days I'm more along the lines of a Terry Smith or Nick Sleep, find a few good companies, don't pay too much, and then do nothing.

 

I think that the world is changing so fast now that my only hope as an investor is to rely on a few very intelligent CEO's who I believe will be able to adopt their business to whatever comes their way. Ideally founders who have large control of the company and can take the massive decisions where pivots are needed etc. Namely Zuckerberg at Meta which is my largest holding, Elon at Tesla, I also think Bitcoin will continue to perform well. I like to call it my Mountainbike Portfolio (MTB) and it currently makes up about half of my portfolio value, 25% cash, and then the rest across about 5 or 6 smaller positions.

 

Next 10 years could be a volatile but fun ride!

[cubsfan]

^^^ Great post, great strategy. It's really tough to value big growth businesses looking through the valuation lens. I'd agree with everything you said.  But one or two of those can make your career.

[Gregmal]

41 minutes ago, Milu said:

I've gotten very lucky with my investments so not proclaiming to be any genius. I've also held many of my best positions through 70%+ drawdowns so the cash percentage helped me hold comfortably.

 

It's interesting to look back on my progress as an investor. I started out like most people as this Graham style value investor, reading my Hussman and proclaiming that the market is overvalued because of the level of the Shiller Cape index. Keeping my dry powder ready to invest and buying a couple of cheap retail companies like American Eagle and Fossil thinking I was a genius. I had read all the buffet letters and every book about him I could get hands on. Then I read 'Fooled by Randomness' and the 'Black Swan' which had a major impact on me, decided that I'd try to implement my own barbell style approach where I'd be 5% speculative bets, and 95% Ben Graham style fundamental value stocks or cash.

 

One person I came across randomly while browsing the web was this character called Elon Musk who apparently sold a few companies, started a rocket company, and also some EV company called Tesla. I thought he sounded fascinating and read his wikipedia, and then searched online for all videos and articles I could find. I then heard that his company Tesla has recently ipo'd at the time at a market cap of $1-2B and thought hmm, that seems interesting let's have a look at the financials, basically little to no revenue, massive losses. I don't know what possessed me but for some reason I seemed to see potential in the company. Against every Graham/Buffett though in my head I decided to make this my first bet of the 5% barbell and put a couple percent into Tesla at $2 per share (split adjusted). I think this was around 2011 or 2012, would have to check. I've held the company ever since through at least three or four 65%+ drawdowns, and as of today it's a 200-bagger. The only sell I made is back in 2021 I decided to sell 20% at a price in the high 300's after Elon began to sell some of his holdings to finance the twitter purchase. This one investment had a big impact on how I view the upside vs downside tradeoff in investing. If I had never bought Tesla I likely would never have bought some Bitcoin (10 bagger) and Ethereum (20 bagger) in 2020, or Amazon at end of 2022. During that time I was also buying great companies at good prices Apple, Meta, Google and reaping the rewards.

 

I possibly learned the wrong lessons as due to the success of my 5% speculative investments doing so well but once you see a few good investments go up 10 or 20 times you start to see the pointlessness of trying to buy cheap companies at 66% of intrinsic value and sell them when they get to 100% of intrinsic value. These days I'm more along the lines of a Terry Smith or Nick Sleep, find a few good companies, don't pay too much, and then do nothing.

 

I think that the world is changing so fast now that my only hope as an investor is to rely on a few very intelligent CEO's who I believe will be able to adopt their business to whatever comes their way. Ideally founders who have large control of the company and can take the massive decisions where pivots are needed etc. Namely Zuckerberg at Meta which is my largest holding, Elon at Tesla, I also think Bitcoin will continue to perform well. I like to call it my Mountainbike Portfolio (MTB) and it currently makes up about half of my portfolio value, 25% cash, and then the rest across about 5 or 6 smaller positions.

 

Next 10 years could be a volatile but fun ride!

Yea see this is something wildly different than what Klarman and Einhorn are doing. I also think this sort of strategy is much more viable with more reasonable interest rates. Im in cash and shorting FANG stocks while foaming at the mouth about how Tesla is overvalued is a lesson in arrogance for the ages.

Edited Monday at 09:11 PM by Gregmal

[thepupil]

24 minutes ago, Gregmal said:

 I also think this sort of strategy is much more viable with more reasonable interest rates. 

 

What do you mean by this?

 

Why should this strategy work better or not work better now that we have more reasonable rates?

[Gregmal]

18 minutes ago, thepupil said:

 

What do you mean by this?

 

Why should this strategy work better or not work better now that we have more reasonable rates?

Because at least now you’re getting the freeloader 5%. There are plenty of strategies just like this where they buy fixed income and use the cashflow to invest in derivatives and such. Being in cash with low rates is the epitome of stupid given cash’s long term track record.

Edited Monday at 09:54 PM by Gregmal

[whatstheofficerproblem]

You know, I'm still very much a greenhorn, but growing up I drank the Graham style Koolaid so much that I had contempt for most public companies. I literally read through the entirety of Security Analysis way back when, even though I didn't understand most of it.

 

This contemptuous, I only buy 'moat' or companies under 15x earnings way of thinking changed when I was introduced to L/S equity. I found it really odd, are you telling me these market neutral pod shops lever the shit out of their books and generate uncorrelated (somewhat) gains and are crushing it? How is that possible? Are they stupid or genius?

 

Simple, the market has a mind of it's own, know where the numbers are or will go, predict themes & catalysts correctly and you have decent odds of making money. That kind of stood out to me, but it was only after I entered the buy-side workforce did I realize that the market is truly efficient.

 

You have sell-side analysts asking about inventory levels 5 years from now, buy side channel checks are literal management calls asking how a small issue with a supply van in a podunk town will affect the stock 16 months from now. You have Yipit, Wolfe & the million other boutique research firms that each have a slightly differentiated view on a name basically covering all the upside and downside.

 

The problem with traditional value guys that I have observed is that they will always call the market wrong or expensive or irrational instead of trying to understand why it is at the price it is, what are the different ways to leverage the popular theme within their own circle of competence and so on. This sometimes makes them very short sighted.

 

There is so much abundance of data & over analysis to the point that you just have to accept that the market is pretty much efficient. Half the trading volume is now dark pools, just how can one find undervalued stocks in the market? And that is when I decided to broaden my horizons, and shift to a vastly catalyst specific investing method than traditional value, of course the latter is and always will be relevant, but the weightage of that relevance keeps changing.

 

If you are holding a boatload of cash, you might just get away with it in your personal account, but at the scale Baupost was that doesn't make sense. You have an army of analysts and you have been calling for a market crash? When did Klarman become Whitney Tilson?

 

I have basically given up & no longer look at crowded value stocks, because they just go nowhere. Take a look at all the cable companies for example, CHTR, VSAT etc. How have they fared? Today, a stock trades for pennies on the dollar because the market thinks this dollar won't be worth more than pennies in a few years, try to understand why that conclusion is prevalent in the market before calling it irrational.

 

The world we live in right now is very fast paced, easy come easy go, everyone is chasing fast growth & why wouldn't they? I know for a fact that Baupost & Oakmark has analysts fly to the HQ of their portfolio companies and grill the management about the macro. They've also worked together with others of their kin to pressure managements into decisions that may or may not be good for the little guy holding the stock. All of this instead of just buying FAANG for what?

 

How do you just do 4% after all this? After all the access to data, access to management & access to talent you have? This makes me value the value folks like Arlington Value even more. Allan might have had bad years, but those were bad because of his own mistakes and he had no problems admitting and improvising, even if the mistake wasn't entirely his he never completed pushed the blame onto the markets. Hell if he believed strongly in an idea, he would even lever up and add to it, instead of just sit on a cash pile.

 

The only relevant value fund I follow is probably AltaRock, I have no idea how he does it with less than ten names but Mark is god damn magician. Anyways, I'll stop before this starts sounding like a rant. While I don't like crypto, I'm totally in favor of the 5% IBIT, might as well diversify & if you're buying ETFs anyways, what harm is a small crypto position gonna do?

 

I agree with Vish's take of IBIT, QQQM & VOO portfolio outperforming because I have first hand seen the same portfolio makeup help people retire. Although I might as well say add some RSP.

[james22]

Investors can remain irrational longer than markets.

[Parsad]

6 hours ago, Milu said:

To provide one counterpoint, I have personally achieved a CAGR of just under 20% for last decade all while holding cash balances in the range of 25-75% so it is possible to still do well. Depends on people's personality I suppose. I kind of like having a bit of a safety blanket with the cash that allows me to go more aggressive or hold through the volatility of my investments. While I would possibly have done better if I was fully invested at all times, there is also a decent chance I might not have been able to stomach the volatility and ended up making sub-optimal decisions due to not having a big chunk of cash to fall back on. It also allows me to pick up great bargains on the cheap during panics.

 

+1!  19% annualized since 2005 while on average holding 30% cash.  

 

If someone only held 50% cash over that 20 year period, yes Greg would be correct.  But if they deployed that cash and were close to 100% invested when opportunity presented itself in underpriced securities...no he is not correct.

 

In other words, you cannot look at an investment strategy solely in a vacuum.  Cheers!

[james22]

 

[John Hjorth]

3 hours ago, whatstheofficerproblem said:

You know, I'm still very much a greenhorn, but growing up I drank the Graham style Koolaid so much that I had contempt for most public companies. I literally read through the entirety of Security Analysis way back when, even though I didn't understand most of it.

 

This contemptuous, I only buy 'moat' or companies under 15x earnings way of thinking changed when I was introduced to L/S equity. I found it really odd, are you telling me these market neutral pod shops lever the shit out of their books and generate uncorrelated (somewhat) gains and are crushing it? How is that possible? Are they stupid or genius?

 

Simple, the market has a mind of it's own, know where the numbers are or will go, predict themes & catalysts correctly and you have decent odds of making money. That kind of stood out to me, but it was only after I entered the buy-side workforce did I realize that the market is truly efficient.

 

You have sell-side analysts asking about inventory levels 5 years from now, buy side channel checks are literal management calls asking how a small issue with a supply van in a podunk town will affect the stock 16 months from now. You have Yipit, Wolfe & the million other boutique research firms that each have a slightly differentiated view on a name basically covering all the upside and downside.

 

The problem with traditional value guys that I have observed is that they will always call the market wrong or expensive or irrational instead of trying to understand why it is at the price it is, what are the different ways to leverage the popular theme within their own circle of competence and so on. This sometimes makes them very short sighted.

 

There is so much abundance of data & over analysis to the point that you just have to accept that the market is pretty much efficient. Half the trading volume is now dark pools, just how can one find undervalued stocks in the market? And that is when I decided to broaden my horizons, and shift to a vastly catalyst specific investing method than traditional value, of course the latter is and always will be relevant, but the weightage of that relevance keeps changing.

 

If you are holding a boatload of cash, you might just get away with it in your personal account, but at the scale Baupost was that doesn't make sense. You have an army of analysts and you have been calling for a market crash? When did Klarman become Whitney Tilson?

 

I have basically given up & no longer look at crowded value stocks, because they just go nowhere. Take a look at all the cable companies for example, CHTR, VSAT etc. How have they fared? Today, a stock trades for pennies on the dollar because the market thinks this dollar won't be worth more than pennies in a few years, try to understand why that conclusion is prevalent in the market before calling it irrational.

 

The world we live in right now is very fast paced, easy come easy go, everyone is chasing fast growth & why wouldn't they? I know for a fact that Baupost & Oakmark has analysts fly to the HQ of their portfolio companies and grill the management about the macro. They've also worked together with others of their kin to pressure managements into decisions that may or may not be good for the little guy holding the stock. All of this instead of just buying FAANG for what?

 

How do you just do 4% after all this? After all the access to data, access to management & access to talent you have? This makes me value the value folks like Arlington Value even more. Allan might have had bad years, but those were bad because of his own mistakes and he had no problems admitting and improvising, even if the mistake wasn't entirely his he never completed pushed the blame onto the markets. Hell if he believed strongly in an idea, he would even lever up and add to it, instead of just sit on a cash pile.

 

The only relevant value fund I follow is probably AltaRock, I have no idea how he does it with less than ten names but Mark is god damn magician. Anyways, I'll stop before this starts sounding like a rant. While I don't like crypto, I'm totally in favor of the 5% IBIT, might as well diversify & if you're buying ETFs anyways, what harm is a small crypto position gonna do?

 

I agree with Vish's take of IBIT, QQQM & VOO portfolio outperforming because I have first hand seen the same portfolio makeup help people retire. Although I might as well say add some RSP.

 

This is about the most meaningless post I have ever encountered and read here on CofB&F. Please just tell us what you own personally.

[villainx]

6 hours ago, Milu said:

I don't know what possessed me but for some reason I seemed to see potential in the company. Against every Graham/Buffett though in my head I decided to make this my first bet of the 5% barbell and put a couple percent into Tesla at $2 per share (split adjusted).

 

I don't know how to put it - because there's no intent to criticize or anything like that - and I'm assuming you'd acknowledge the same - but it's merely to point out that there is a bit of luck.  Right time in the market, right stock to ride, right moment in your life, etc.  It's astounding what one good and or fortunate idea can lead to.

 

At the same time, relevant to Klarman discussion, you have to be in the market to get to be lucky.