Big Moves by Seth Klarman’s Baupost Group: American International Group, Inc. (AIG) and More

However, as a testament to the fact that hedge fund managers aren’t always right, Klarman is probably kicking himself for having sold his H-P, as shares are up almost 20% since the turn of the year.

That said, those who have enjoyed H-P’s recent recovery might reconsider their holdings. If Klarman, a guy known for buying distressed companies, thinks H-P is too dangerous to hold, it might very well be.

In the summer, rival hedge fund manager and noted short seller Jim Chanos came public with his bearish thesis on H-P. Chanos pointed to declining PC sales and labeled H-P a “value trap” — an investment that looks good to value investors, but will ultimately lead to a loss of capital.

By completely selling his H-P stake, it seems as if Klarman has admitted defeat.

Klarman juggles his Microsoft Corporation (NASDAQ:MSFT) stake

What investors might make of his Microsoft move is a bit unclear. Klarman had 1.4 million shares of Microsoft, but he sold them all. Yet, he didn’t seem to completely give up on the Windows-maker, as he purchased 2 million call options.

It’s hard to say what such a sophisticated investor like Klarman was doing in switching from actual shares to options, but traditionally, investors prefer buying calls over simple stock when they are particularly bullish.

There’s also the fact that Microsoft is not a very volatile stock, meaning that perhaps Klarman simply came to the conclusion that the risk/reward profile on call options was better than shares.

The bottom line

Investors should never take a 13F at face value. The filings are outdated and fail to tell the whole story. That said, investors should at least read the 13F filings from major funds, particularly if those funds own shares in the companies they are invested in.

In Klarman’s case, investors might conclude that AIG is undervalued, H-P is a value trap, and Microsoft could have significant upside from here.

To be fair, Klarman isn’t always right. Yet, he’s one of the top performing hedge fund managers of the last few decades. Investors should, at the very least, keep an eye on his positions.

The article Big Moves by Seth Klarman’s Baupost Group originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

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