Ballinvarosig Investors Posted February 9, 2017 Posted February 9, 2017 Surprised no one brought up his points on passive funds flowing into ETFs leading to wider market inefficiency. Not my original thought, but one can argue that more passive money is better for market efficiency since it leaves more of the price-seeking function to active managers, or so called "smart money," in the long run. In the short-run however, is I agree. 25 years ago Klarman talked about this sort of effect that indexing would have on the market, he even called it a fad.
oddballstocks Posted February 9, 2017 Posted February 9, 2017 Surprised no one brought up his points on passive funds flowing into ETFs leading to wider market inefficiency. Not my original thought, but one can argue that more passive money is better for market efficiency since it leaves more of the price-seeking function to active managers, or so called "smart money," in the long run. In the short-run however, is I agree. 25 years ago Klarman talked about this sort of effect that indexing would have on the market, he even called it a fad. Same with Stahl and other active managers. As Dwight from the Office once said: " They’re going to be screwed once this whole Internet fad is over."
netnet Posted February 9, 2017 Posted February 9, 2017 Anyone want to share a copy? via PM, if necessary.
AzCactus Posted February 9, 2017 Posted February 9, 2017 Anyone want to share a copy? via PM, if necessary. I"ll second that please.
nikhil25 Posted February 10, 2017 Posted February 10, 2017 Anyone want to share a copy? via PM, if necessary. I"ll second that please. Same. Thanks in advance!
skanjete Posted February 10, 2017 Posted February 10, 2017 Anyone want to share a copy? via PM, if necessary. I"ll second that please. Same. Thanks in advance! I'd be interested as well. Thank you, very much appreciated!!
Ballinvarosig Investors Posted February 10, 2017 Posted February 10, 2017 Surprised no one brought up his points on passive funds flowing into ETFs leading to wider market inefficiency. Not my original thought, but one can argue that more passive money is better for market efficiency since it leaves more of the price-seeking function to active managers, or so called "smart money," in the long run. In the short-run however, is I agree. 25 years ago Klarman talked about this sort of effect that indexing would have on the market, he even called it a fad. Same with Stahl and other active managers. As Dwight from the Office once said: " They’re going to be screwed once this whole Internet fad is over." Haha, I agree that Klarman's statement sounds pretty foolish at the moment. The indexing strategy has been on a multi-decade bull run and shows no signs of slowing if outflows from active to indexing strategies continue. However, I think at some stage in the future, Klarman will be proved right, dumb human behaviour combined with mindless indexing is going to lead to inferior market returns. At some stage the wall of money that's pushing over-valued, US mega-cap companies on an ever upward trend will abate. If we saw a substantial market decline, we could see a rush for the exits that would exacerbate any market decline as investors decide that indexing is no longer a good strategy. Indexing is a great strategy for most investors, but I think just like we saw with the Magellan fund (where most investors saw very little gains because they bought and sold at the wrong times), human psychology can be relied upon in wrecking decent strategies.
Guest Posted February 10, 2017 Posted February 10, 2017 How could buying the index create inferior market returns? I could see it producing lower returns vs some active managers but not inferior to the average since you're buying the average.
CorpRaider Posted February 10, 2017 Posted February 10, 2017 Yeah these guys are setting up straw men to a certain extent. You don't have to buy the S&P 500 index. You can buy VTI or VT or IUSV or EFV. I mean I get what they are saying; yes momentum will underperform at some point.
SharperDingaan Posted February 10, 2017 Posted February 10, 2017 Re indexing; this board is a very good example of what Klarman is talking about. Look at the stated 2016 returns everybody posted; weight the returns by the number of people who reported them - & it comes out to a high number. Cut it by around 1/3 for calculation error and posturing. Then look at the 2016 return on the average equity index fund (after fees). The adjusted board return is what a reasonably knowledgeable person would have made. The index return is the alternative. An investor putting money into an index fund earned less, as it was much less efficient. Both index fund and investor are stock picking – it is why the fund has tracking error. But the investor has less restriction. The inefficiency is primarily fees. Assume a 100K index portfolio that rises to 106K (6% equity return), with fees of 75bp. In the same period the investor does 2 round trip trades, for total commissions of $50. The portfolio earns $6,000, that 75bp fee is $750 (12.5% of what you earned), and the difference in costs is $700/yr per 100K of equity portfolio. The same calculation using a bond fund that earns 3% with fees of 50bp; and the investor doing 1 round trip for total commissions of $80. The portfolio earned 3K, & the fund charged 16.67% ($500/yr). The difference is $420/yr per 100K of bond portfolio earning 3%. A 200K portfolio split 50/50 between equity and bonds, would earn $9,000 (4.5%) and pay an additional $1,120 of fees (12.44% of the $9,000 earned) – over what it would have cost if the investor had just invested in the market(s) directly. In Canada a great many funds charge well above the fees mentioned, making the inefficiencies materially worse. But your fees bought the benefit of our managers expertise & experience …… or you could have learned it on the COBF board. You also discover that sloth clearly pays - about 12.44% in this example! SD
JayGatsby Posted February 11, 2017 Posted February 11, 2017 Link here: https://valueandopportunity.com/2017/02/11/some-links-052017/
LongHaul Posted February 14, 2017 Posted February 14, 2017 I like Klarman a lot. I have a lot of respect for his independence of thought and action. It is highly unusual even among value investors. Minor criticisms of him: 1. Reprint your book to share information. This could probably be done with 1 phone call and yet he does not do it. Perhaps it is just ego. 2. Publish your letters. At this point he is rich and famous (among investors) so what not share them and educate the world.
Mephistopheles Posted February 14, 2017 Posted February 14, 2017 I like Klarman a lot. I have a lot of respect for his independence of thought and action. It is highly unusual even among value investors. Minor criticisms of him: 1. Reprint your book to share information. This could probably be done with 1 phone call and yet he does not do it. Perhaps it is just ego. 2. Publish your letters. At this point he is rich and famous (among investors) so what not share them and educate the world. He doesn't do either of these for the same reason, as pointed out by oddball - marketing and brand value
anony208 Posted February 25, 2017 Posted February 25, 2017 Here you go guys. In response to some earlier comments - there is no way that Klarman was unaware that the letter would become public. You may not agree with him but he is not stupid.Baupost-2016-Year-End-Letter.pdf
KinAlberta Posted April 24, 2017 Posted April 24, 2017 More references to Klarman Paul Tudor Jones Says U.S. Stocks Should ‘Terrify’ Janet Yellen - Bloomberg Excerpt: Managers expecting the worst each have a pet harbinger of doom. Seth Klarman, who runs the $30 billion Baupost Group, told investors in a letter last week that corporate insiders have been heavy sellers of their company shares. To him, that’s “a sign that those who know their companies the best believe valuations have become full or excessive.” Share sales by insiders outstripped purchases by $38 billion in the first quarter, the most since 2013, according to The Washington Service, a provider of data and analysis on insider trading. Klarman also noted that margin debt -- the money clients borrow from their brokers to purchase shares -- hit a record $528 billion in February, a signal to some that enthusiasm for stocks may be overheating. Baupost was a small net seller in the first quarter, according to the letter. https://www.bloomberg.com/news/articles/2017-04-20/paul-tudor-jones-says-u-s-stocks-should-terrify-janet-yellen
Guest Posted April 24, 2017 Posted April 24, 2017 I have no idea what the stock market will do but I don't like the margin debt argument. I would say that margin debt is almost always at the highest when the market is at an all time high (even if a bull market continues). Take a look: https://www.advisorperspectives.com/dshort/updates/2017/03/29/a-look-at-nyse-margin-debt-and-the-market
educatedidiot Posted May 15, 2017 Posted May 15, 2017 Klarman's latest 13-F is out: http://www.rocketfinancial.com/Holdings.aspx?fID=376 He bought Qorvo, Qualcomm, and Express Scripts
DooDiligence Posted May 16, 2017 Posted May 16, 2017 Klarman's latest 13-F is out: http://www.rocketfinancial.com/Holdings.aspx?fID=376 He bought Qorvo, Qualcomm, and Express Scripts Yay (and my ESRX cost basis is lower) I just hope this doesn't wind up being a quick in/out like he did with Alcoa (probably found management to be unpalatable & decided it was a mistake...)
Jurgis Posted May 16, 2017 Posted May 16, 2017 IMHO Klarman is not a good guy to clone/follow. The reasons of his buys/sells are often quite obscure.
educatedidiot Posted May 16, 2017 Posted May 16, 2017 The fact that Klarman's investments are often quite obscure is a huge positive IMO. Obscurity can be a source of significant value. In his own words: "If value is not likely to exist in what the herd is buying, where may it exist? In what they are selling, unaware of, or ignoring. When the herd is selling a security, the market price may fall well beyond reason. Ignored, obscure, or newly created securities may similarly be or become undervalued." – Seth Klarman
Patmo Posted May 16, 2017 Posted May 16, 2017 I think he means the thesis itself is obscure rather than company. Baupost stuff can be pretty out there, and its hard to justify cloning if you only dive in because someone else did, without even understanding why they did, let alone figuring out whether you agree...
educatedidiot Posted August 14, 2017 Posted August 14, 2017 Klarman's latest 13-F is out: http://www.rocketfinancial.com/Holdings.aspx?id=376&fC=1 He bought Avis Budget, Silver Run, and Spirit Realty Capital. It looks like one of his largest purchases in the quarter was a substantial increase in the Synchrony Financial position.
DocSnowball Posted August 14, 2017 Posted August 14, 2017 Just a minor query - Paratek pharmaceuticals (PRTK) shows Baupost group as the second largest institutional holder owning over 8% of the company, but it is not listed in this anywhere. Any idea why?
DocSnowball Posted August 14, 2017 Posted August 14, 2017 Just a minor query - Paratek pharmaceuticals (PRTK) shows Baupost group as the second largest institutional holder owning over 8% of the company, but it is not listed in this anywhere. Any idea why? I see it here at #24, and they added to their position https://m.holdingschannel.com/13f/baupost-group-llc-ma-top-holdings/
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