How Does Seth Klarman Implement His Value Investing Strategy Differently To Many Other Value InvestorsThe Acquirer's Multiple
Last week @NeckarValue tweeted a link to a great interview with Seth Klarman at Barron’s titled – “Value Hunter in a Sky-High Market”. The article provided a number of great value investing insights by Klarman and how he implements his value investing strategy differently to a lot of other value investors.
Here’s an excerpt from that article:
Q: You talk about value investing. Which can mean almost anything. And what it has meant in recent years for most people is a lack of return. How do you define value investing?
A: I was waiting for you to ask.
Q: This is known as a soft-hanging-curve-ball question.
A: Atlanta could have used one Sunday night. We define value investing as buying dollars for 50 cents, somewhat like Mike Price’s definition.
Q: Or everybody else’s.
A: That is a favorite phrase. We certainly don’t stick to it rigidly. We will buy dollars for 40 cents or dollars for 60 cents when they are attractive dollars to buy. I think that we implement it a fair bit differently than many value investors, or many so-called value investors who frankly I’m not sure are buying good value at all.
Value to some extent is in the eye of the beholder. It is very hard to pin down what the value of a future set of cash flows from a business, be it cable TV or biotechnology, is going to be. Some are easier to predict than others. But it is very hard to predict what those future cash flows are going to be. And it is very hard to ascertain the correct discount rate to bring them back to the present with.
Q: Fine, but tell us not how difficult it is to define, but what you consider value?
A: When we look at value, we tend to look at it on a very conservative basis—not making optimistic forecasts many years into the future, not assuming growth, not assuming favorable cost savings, not assuming anything like that.
Rather looking at what is there right now, looking backwards and saying. Is that the kind of thing the company has been able to do repeatedly? Or is this a uniquely good year, and is it unlikely to be repeated? We tend to look at hard assets as much as possible.
Here’s the tweet by @NeckarValue:
Seth Klarman interview with Barron's in November 1991, at the beginning of the 90's bull market
"Value Hunter in a Sky-High Market"
Baupost: three wealthy families pool their money
Of course at $400m AUM he wanted to stay small 🙂
— NeckarCap (@NeckarValue) July 4, 2018
You can find the entire interview here.
For more articles like this, check out our recent articles here.
Article by Johnny Hopkins, The Acquirer's Multiple