In a rare interview with Harvard Business School, Klarman talked about his investing philosophy, his approach to finding bargain assets, and his preparation for a bear market.
The billionaire boss of Baupost Group explained why he casts a wide net in his search for winning assets and warned against excessive risk-taking.
This is the first thing. "Let's look a mile wide, let's look at everything that we can figure out." We go a mile deep after finding something that looks like it might be a bargain.
There are two We are looking between the silo. The lack of competition is something I love about those.
There are three. You don't know anything about anything else when you only know a certain type of company. You can't say, "Well, this is the best of those biotech stocks that I look at, but maybe even the best of them is not as good as those over there."
There are four. I want to make the same decisions in July as I do in January." I want them to be the same on a Friday and a Monday, even if the market is up or down.
There are five. Every stock is a potential buy at one price, a hold at another price, and a sell at a higher price according to me. The risk is related to what you pay.
There are six. Warren didn't try to make the most money He didn't try to get rich fast nor did he try to get rich quickly. Value Investing is a philosophy that stays away from the hot, flashy, trendy investments and focuses more on never losing big.
There are seven. If I had to choose, I would always choose getting your capital back because you live to play another day." Losing money can be very difficult to get back. You want to be careful not to blow up or get too far over your skis. Higher employee turnover and margin calls are some of the headaches that funds that incur large losses suffer.
There are eight. "If we buy something and it goes down, you look at it, and you check and recheck your work, and then if nothing is different, you should like it more." It's similar to the sweater you bought yesterday. You might be frustrated that you didn't buy it yesterday, but you should stock up.
There are nine. A bull market and a bear market teach different things. It's important for the team to understand that there will be a day when everything you buy goes down, everything you wait on will seem like a good decision, and everything you think about selling will make you feel like a fool.
There are ten. In the last few months, my team has come up with investments that nobody knew would trade, nobody knew who would write the policy, and nobody knew that anyone would agree to that contract." You need to be out there and always be alert with your analytical skills. You are always hanging by the hoop because something might happen.
There is a new date for the 11th. I pat myself on the back and say, "Hey, you were a schmuck 20 years ago and 10 years ago, but you were smart to figure it out five years ago." Klarman was talking about how value investors overlook fast-growing technology companies.
In the last few decades, investors have had to raise their game a lot. I know I've raised it, but I probably haven't raised it as high as it needs to be. According to Klulman, investors face more uncertainty about macroeconomic forces, market volatility and how technology is changing industries.
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