Baupost Seth Klarman 2021 Letter on 2020

[thepupil]

He did very poorly late 90s relative to market (tech bubble), then did very well in early 2000’s, preserved capital in 2007/8* (big CDS gains), then did well on rebound from GFC but not great after that..

 

you are correct that if one sold in 97-99 one would have underperformed drastically. There are some letters

floating around the internet. 

 

 

* there’s an NYT article saying >50% in 2007 and “-7 to mid teens in 2008”. Same article says 19.5%/ye since inception. Then the II article (recent) says “double digits” last decade. 

 

Edited February 1, 2022 by thepupil

[thepupil]

http://1icz9g2sdfe31jz0lglwdu48.wpengine.netdna-cdn.com/wp-content/uploads/2012/09/Seth-Klarman-Baupost-Group-Letters.pdf
 

this is all I can find which has some redactions 

https://www.cnbc.com/amp/2017/02/08/bauposts-klarman-proud-of-funds-high-single-digit-return-last-year.html

Klarman's fund has reportedly generated annual returns of 16.4 percent and $22.6 billion in net profit for his clients since inception through 2015. 

Edited February 1, 2022 by thepupil

[Gregmal]

Yea I mean my main thing is like yo stop making excuses. Start being accountable to your investors. Klarman and Einhorn and all these guys have enough capital to go activist. Or make bids. To do SOMETHING. Yet they’re lazy and sit on their asses and put up horrible numbers insisting on doing it their way. I don’t think there’s anything admirable about a one dimensional investor. That’s what makes Buffett so amazing. Tepper too. Ackman as well. Look at how they evolve constantly. 

[RVP]

I agree the industry is rife with folks justifying their underperformance (or performance), and I understand the bitter after-taste it can leave. But I also understand the pressure to do so is intense, especially when you have a public persona and outside expectations. Yes sometimes letters may come off as arrogant and self-righteous, but everyone has their own circumstances and communicates differently. No point dwelling on it or criticizing others. It’s too easy to point fingers when we’re not the ones in the pit. Just throw it away and read something else if it turns you off/ you find no value.

[thepupil]

6 hours ago, Gregmal said:

Yea I mean my main thing is like yo stop making excuses. Start being accountable to your investors. Klarman and Einhorn and all these guys have enough capital to go activist. Or make bids. To do SOMETHING. Yet they’re lazy and sit on their asses and put up horrible numbers insisting on doing it their way. I don’t think there’s anything admirable about a one dimensional investor. That’s what makes Buffett so amazing. Tepper too. Ackman as well. Look at how they evolve constantly. 

the LP’s haven’t hired baupost to do any of those things….It’s a “stay rich” fund

 

it’s their fault not his (if they expect to beat a 15%/yr stock mkt investing in baupost) 
 

He’s more or less done what he said he would (decent absolute return, low downside).

 

too big, too much cash, fees too high, no distress debt crisis to take advantage of… all reasonable criticisms, but all consistent for a decade… plus. 

anyways the thread has morphed from me defending two people from a baseless “they aren’t transparent about where their money came from” ( which is just false and ad hominem) to me defending a fund for which I have no real affinity with incomplete information. 

 

there are numerous funds out there whose goal is not necessarily to outperform. I know that will trigger a “that’s the problem!!!!” Response…

 

 

 

Edited February 1, 2022 by thepupil

[Gregmal]

Eh I think they’re all valid criticisms and things that contribute to the performance of these guys. But we can agree to disagree and revisit the next time the next letter comes out and he still wants to blame the same things as for his poor performance even though he s not expected to perform.

[Guest]

pupil, I scanned the letter and it has inception since 1990 but he started Baupost in 1982. I wonder why those 10 years aren't included? 

 

Edited February 1, 2022 by stahleyp

[Guest]

By the way, gentlemen, fund managers from poorer backgrounds do better than rich ones.

 

https://qz.com/882508/fund-managers-who-come-from-poor-backgrounds-are-better-investors-than-rich-ones/

Edited February 1, 2022 by stahleyp

[thepupil]

that's a good question, the answer to which i don't know...funds often have different series (onshor/offshore) or get reorganized or whatever...it could be when he took over as PM...it could be a less innocent explanation...

[Spekulatius]

Baupost deserves some credit for navigating crisis scenarios like 2001 and 2008 well. in my opinion, if you have a goal to protect principal in drawdown/crisis scenarios, it is Ok to underperform in a relentless bull market, even throughout the cycle. I don't really have access to performance data, just want to throw this out there to the wolves.

[gfp]

Can anyone actually post Baupost's performance over any time frame?  I feel like there are a lot of assumptions being made.  What are the returns?

[Guest]

The reason I keep up with Klarman is allegedly Buffett said he is one of 3 managers he would use if he didn't manage money. Greenwald supposedly said that. I have no idea if it's true or not. If Buffett really said that, you can't get a better compliment. 

 

From his "legendary" book Margin of Safety he even said index funds were a fad. I mean...it doesn't take much beyond some basic math skills that index funds will do better than the vast majority of alternatives. I mean, it speaks volumes of his character that the guy won't have the book republished. I mean, is he embarrassed of it, doesn't want to share his wisdom or is it that he just understands excellent marketing and it keeps up the mystique? None of those are good traits. 

 

He was bullish in March of 2009 (OID) and bearish since 2010 (his letters). He turned slightly bullish in March of 2020 (moving from 32% cash to 27%) per that article. So yeah, he was bullish when a lot of people were losing their heads but...that did not make up for his bearishness after. 

 

The people investing with him are way smarter than I am, way richer and way more connected...with that said, it doesn't take a genius to know that if you have 30% (or 50%!) of your portfolio in cash, it's going to take almost other worldly returns on the invested half to overcome the -1.25% on cash and the "performance" fees and whatever else. 

[Guest]

2 hours ago, gfp said:

Can anyone actually post Baupost's performance over any time frame?  I feel like there are a lot of assumptions being made.  What are the returns?

 

Pabrai's is 26% and Baupost's is around 20% since inception.

 

Please don't ask for evidence though...I mean, Pabrai's license plate says that. Are you going to believe some random "audited" numbers or the man's licenses plate?

 

I mean, who would pay $2,500 for a used book if Klarman's returns weren't legendary like that?

[ValueArb]

5 minutes ago, stahleyp said:

 

Pabrai's is 26% and Baupost's is around 20% since inception.

 

Please don't ask for evidence though...I mean, Pabrai's license plate says that. Are you going to believe some random "audited" numbers or the man's licenses plate?

 

I mean, who would pay $2,500 for a used book if Klarman's returns weren't legendary like that?

 

When your investment manager is driving a Ferrari, you don't need the license plate for proof he's done very well.

[gfp]

Does anybody know Baupost's returns for the past 20 years or so?

[Gregmal]

1 minute ago, ValueArb said:

 

When your investment manager is driving a Ferrari, you don't need the license plate for proof he's done very well.

He has done very well. The big mistake most people make is using that basis and also assuming that most of his investors have also done well. 

[boilermaker75]

44 minutes ago, stahleyp said:

 

From his "legendary" book Margin of Safety he even said index funds were a fad. I mean...it doesn't take much beyond some basic math skills that index funds will do better than the vast majority of alternatives. I mean, it speaks volumes of his character that the guy won't have the book republished. I mean, is he embarrassed of it, doesn't want to share his wisdom or is it that he just understands excellent marketing and it keeps up the mystique? None of those are good traits. 

 

 

When I got a pdf copy of the  book I started reading it with great anticipation. It has been a while so I don't remember much except that I was disappointed. I didn't see what all the fuss was about with this book.

[thepupil]

So setting aside Baupost....(none of the below describes Baupost)

 

A question for you all. 

 

If you learned of a manager who had made 10% / year for his partners, took no leverage (let's say averaged 30% cash), generally invested in "safe" stocks/bonds/whatever and had done so for the past 3 decades (assume you could verify all this) and you thought there was no reason that those results were "unrepeatable". Let's add the wrinkle that this manager had say...10-30% down capture in rough markets.

 

Would you invest in that manager? would you do so if the index had made 11%? or 13%? 15%?

 

could you understand why people in different circumstances do? 

 

how does your answer differ at various net worth levels? $100K, $1mm, $10mm, $100mm, $1B 

Edited February 1, 2022 by thepupil

[Spekulatius]

2 minutes ago, thepupil said:

So setting aside Baupost....(none of the below describes Baupost)

 

A question for you all. 

 

If you learned of a manager who had made 10% / year for his partners, took no leverage (let's say averaged 30% cash), generally invested in "safe" stocks/bonds/whatever and had done so for the past 3 decades (assume you could verify all this) and you thought there was no reason that those results were "unrepeatable". Let's add the wrinkle that this manager had say...10-30% down capture in rough markets.

 

Would you invest in that manager? would you do so if the index had made 11%? or 13%? 

 

could you understand why people do? 

I do understand people picking a manager that get's lower returns with a much lower volatility. Personally, if someone could credibly "guarantee" me 10% returns going forward with very low risk and low volatility, I would take the offer.

[thepupil]

7 minutes ago, Spekulatius said:

I do understand people picking a manager that get's lower returns with a much lower volatility. Personally, if someone could credibly "guarantee" me 10% returns going forward with very low risk and low volatility, I would take the offer.

yes. I would as well...probably for 30-80% of my portfolio depending on what level of wealth I'd achieved. 

 

now in the real world, even to make 10%, you have to take SOME risk...the managers that look like this (Elliott is not dissimilar) are taking other kinds of risks. the "low vol" is in part fake because of private equity/real estate investments, these funds also own and pick stocks (the same ones any of us do)...you have to do complex stuff like fight each oteher in PG&E's bankruptcy or take on merger arb risk...or SOMETHING.  there's no such thing as some magical low vol 10% risk free return...but it's also fair to say these funds are doing different stuff than buying /hol;ding equities and have different risk profiles, may behave differenlty etc. 

 

 

 

Edited February 1, 2022 by thepupil

[Gregmal]

It’s easy to see why this service is valued on the institutional level. The feckless suites who have to allocate OPM largely care about one thing and that’s self preservation/enrichment and CYA. They’d sign up all day for 3% returns and no volatility as long as they got their salaries and bonus in perpetuity. So there’s that. 
 

On an individual level though, idk but I’ve always thought that once your life quality was cemented, the rest just kind of isn’t as important. So like, if $2m covers your shit for the foreseeable future, why in the world would you be such a baby with respect to dealing with volatility on the rest? If you don’t need the money tomorrow why do you care what it does tomorrow? It’s so dumb logically. 

[Peregrine]

10 minutes ago, Gregmal said:

On an individual level though, idk but I’ve always thought that once your life quality was cemented, the rest just kind of isn’t as important. So like, if $2m covers your shit for the foreseeable future, why in the world would you be such a baby with respect to dealing with volatility on the rest? If you don’t need the money tomorrow why do you care what it does tomorrow? It’s so dumb logically. 

 

There is not rational explanation for this except that humans are irrational.

[Spekulatius]

8 minutes ago, Gregmal said:

It’s easy to see why this service is valued on the institutional level. The feckless suites who have to allocate OPM largely care about one thing and that’s self preservation/enrichment and CYA. They’d sign up all day for 3% returns and no volatility as long as they got their salaries and bonus in perpetuity. So there’s that. 
 

On an individual level though, idk but I’ve always thought that once your life quality was cemented, the rest just kind of isn’t as important. So like, if $2m covers your shit for the foreseeable future, why in the world would you be such a baby with respect to dealing with volatility on the rest? If you don’t need the money tomorrow why do you care what it does tomorrow? It’s so dumb logically. 

I can speak to this one as well, because it sort of captures my own situation. If you have $2M and it works out to be enough well that's great but it is likely that after a 50% drawdown $1M would not be enough. On the other hand, an extra $1m may not buy you much either in terms of quality of life and how you can spent it. It's a matter of the utility function of money - at a certain point the extra $ isn't worth much for you any more.

 

50% drawdowns are not theoretical exercises either - I have seen two of them in 2001/2002 and 2008/2009. I have also seen in both of these cases people who thought they are set having to go back the drawing board and change their life plans going forward. I believe that with when asset prices are inflated overall, these sort of drawdowns become much more likely and that's why a defensive posture may offer a lot of value to some people.

[thepupil]

30 minutes ago, Gregmal said:

It’s easy to see why this service is valued on the institutional level. The feckless suites who have to allocate OPM largely care about one thing and that’s self preservation/enrichment and CYA. They’d sign up all day for 3% returns and no volatility as long as they got their salaries and bonus in perpetuity. So there’s that. 
 

On an individual level though, idk but I’ve always thought that once your life quality was cemented, the rest just kind of isn’t as important. So like, if $2m covers your shit for the foreseeable future, why in the world would you be such a baby with respect to dealing with volatility on the rest? If you don’t need the money tomorrow why do you care what it does tomorrow? It’s so dumb logically. 

 

I've had this conversation numerous times with lots of people...some people think you take MORE risk as you get wealthier (because of what you articulate)...many and I would say MOST people who've made it desire to take LESS risk and avoid ruin as they get wealthier. "you only have to get rich once" 

 

and there's also the very real and quantitative and rational reason for avoiding drawdowns/volatility...if you don't have inflows, big down years can really hurt...the whole "sequence of returns risk" is real. <---not exactly what i'm talking about but i think you get it. 

 

big withdrawals after big drawdowns impair the corpus and reduce long term spending power.

 

i fully intend to take less risk at some point in my life...(and kind of already have made some adjustments) 

Edited February 1, 2022 by thepupil

[Guest]

1 hour ago, boilermaker75 said:

 

When I got a pdf copy of the  book I started reading it with great anticipation. It has been a while so I don't remember much except that I was disappointed. I didn't see what all the fuss was about with this book.

 

 

It sells for $2,500. It's got to be worth that or else all of these smart people wouldn't buy it, right? 

Edited February 1, 2022 by stahleyp