In many of his past letters and lectures, Seth Klarman (Trades, Portfolio) has talked about the importance of a long-term focus when finding and buying investments.
Klarman advocates a long-term outlook, but he doesn't always follow his own advice. Turnover at his hedge fund, the Boston-based Baupost, is not particularly low, not compared to the likes of other funds such as Norbert Lou's Punch Card Capital. The latter has only owned a handful of stocks in the past decade.
In comparison, according to public documents (Baupost's 13F), the hedge fund sold five positions in the third quarter of 2020, six in the second quarter and five in the first quarter. It bought 11 in the third quarter, four in the second and eight in the first quarter of 2020. With 36 positions in the equity portfolio at the end of September, these numbers suggest that the value investor is turning over 40% of the portfolio every year.
I should caution that this is just an estimate, and the data is incomplete because we do not know about any cash, credit or real estate holdings. Still, I thought it might be interesting to go back and take a look at some of the value investor's historical investments to see which have featured in the portfolio the longest.
Klarman's longest holding period
In the top five equity holdings of Baupost's portfolio at the end of September 2020, the only one that had been in the portfolio for longer than five years was Viasat Inc. (VSAT, Financial).
Klarman and his team first started acquiring shares in this business back in the second quarter of 2008. The first mention of the position in a 13F was a 1.1 million share position with a 1.1% portfolio weight. The average price paid for the stock at the time of acquisition was $20.21.
Baupost increased its position in the business substantially in 2009 and 2010, eventually taking the position up to 11 million shares, or 20% of the equity portfolio, in the fourth quarter of 2012.
Klarman has continued to acquire more shares. At the end of the first quarter of 2018, Baupost owned nearly 14 million shares. Then in the third quarter of 2020, the hedge fund's holdings jumped by almost 20%. The business now owns 16.4 million shares, as of its most recently filed 13F.
What's interesting about this latest trade is that Baupost has been able to acquire more shares at roughly the same price it started buying the stock in the years before 2010. After rising to more than $90 in the first half of 2019, the stock has crumbled in value over the past 12 months.
As he's owned the business for 12 years, it's hard to argue that Klarman doesn't know what he's buying. That's why I find this trade so interesting. Clearly, he believes strongly that the business is deeply undervalued after its recent performance. But why has the stock performed so weakly over the past 12-months?
It seems investors are worried about competition in the sector. Viasat builds and operates Geosynchronous Equatorial Orbit (GEO) satellites and ground station infrastructure to provide broadband. The company has invested billions in developing its capability over the past decade. Still, its dominance in the sector could now be under threat from deep-pocketed competitors such as SpaceX.
I cannot claim to be an expert on the space sector, but if I had to hazard a guess, this could be a classic case of the market over-anticipating the impact of a sector change on an individual business. Klarman clearly believes Viasat is worth more than the market is giving it credit for. It could be worth taking a closer look at what the company offers.
Disclosure: The author owns no stocks mentioned.
Read more here:
- What Seth Klarman's Approach to Investing in the Tech Bubble Can Teach Us
- Thoughts on the Margin of Safety and a Company's Profitability
- A Closer Look at Seth Klarman's SPAC Holdings
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
