Seth Klarman Talks to Charlie Rose About Value Investing

Seth Klarman, founder and manager of the Baupost Group, was recently interviewed by Charlie Rose. Klarman offers very few interviews, but when he does he doesn’t skirt any issues (see the complete interview here).

In Klarman’s interview with Charlie Rose, he opens with discussing his philanthropic activities, of which there are many. Then, Klarman spends the remainder of the interview discussing his investment philosophy – specifically value investing. Klarman talked in detail about another famous value investor – Warren Buffett. He explained that Buffett “evolved” through different phases:

1. “Buying cigar butts and getting the last few puffs for free.”
2. “Buying good companies at great prices.”
3. “Buying great companies at so so prices.”
4. “Buying weird securities from crappy businesses at better than market prices.” (like Buffett’s recent purchase of Bank of America Special Preferred Stock).

Klarman says that he is still in phase one.

Klarman goes onto explain that his fund is focused on longer term investments, like three to five years. He says that he is really only interested in the daily fluctuations of stock prices except for as it matters with regard to getting a good deal for a company the fund has already identified as a buy. Klarman offered a few nuggets of wisdom in the interview as well. One of our favorites is Klarman’s advice is to “be comfortable holding cash” in bad economic times.

Klarman also hints at reprinting his famous book, “Margin of Safety,” to raise money for charity. For the uninitiated, Klarman published the book in 1991. It was a short run and went out of print. It re-emerged in recent years as a wild success, with used copies selling for between $750 and $2,500. Klarman still holds the copyright but has never reprinted the book.