1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Bram de Haas
Bram de Haas
Articles (335)  | Author's Website |

You Won't Guess Seth Klarman's Biggest Position

With the CAPE ratio at its 2nd-highest level ever, what is the bearish Klarman doing?

September 29, 2017 | About:

Baupost Group's largest U.S. equity positions are Cheniere Energy (LNG), Synchrony Financial (NYSE:SYF) and Viasat (NASDAQ:VSAT). Seth Klarman (Trades, Portfolio) allocated 11.6%, 10.04% and 10.02% of his portfolio to just these three names. Cheniere is a liquefied natural gas exporter whose revenue is based on 20-year-long contracts with big oil companies. Synchrony Financial is a credit card processing company. Viasat is a sattelite company with subscribers like the government, the military and airlines. You could say these appear to be fairly defensive positions with locked-in revenue streams. His largest position, however, cash, makes up 42% of the entire portfolio. If we ignore for a moment Baupost may have global positions and private real estate investments, more than 70% of the portfolio is invested extremely defensively. I have identified three reasons why.

Not enough ideas

Klarman told Bloomberg he cannot come up with enough great ideas to put the $30 billion under his command to work. That is not too surprising given Klarman has a proclivity toward deep-value situations. With the cyclically adjusted price-earnings (CAPE) ratio at its second-highest level in history, that is not easy. TheShiller P/E is 83.9% higher compared to the historical mean of 16.8, implying a future annual return over the next decade of -2.2%

1506692379354.png

Insider buying

Earlier this year, Klarman said insider buying slowed down significantly, which he takes as an important negative. GuruFocus data bears this out as well, although the buying has picked up a little bit since Klarman’s warning.

1506692655645.png

Low volatility

Bloomberg also leaked that Jim Mooney, Baupost's president, warned in a July letter the current low volatility environment could precede another financial crisis because people start taking more risk by using more and more leverage. I see this happen around me. People start incorporating leverage into their trading strategies. It happens at an institutional level with something called volatility control strategies, in ETFs based on selling puts like The WisdomTree CBOE S&P 500 PutWrite Strategy Fund (PUTW) and individual investors building dividend portfolios based on 60% leverage. It is all easy money until you blow up.

Conclusion

Holding 42% of cash is quite an extreme measure, but Klarman has a long and superb track record. To quote another bearish legend, Howard Marks (Trades, Portfolio):

"There are old investors, and there are bold investors, but there are no old bold investors."

I am raising cash levels and pivoting away from U.S. and S&P 500 (SPY) investments. Small investors like myself can find value in other places with much better average expectations and less risk.

Disclosure: No positions.

About the author:

Bram de Haas
Bram de Haas is the managing editor of The Black Swan Portfolio.

Visit Bram de Haas's Website


Rating: 4.8/5 (6 votes)

Voters:

Comments

raj123456789
Raj123456789 - 1 year ago    Report SPAM

Atleast it is reassuring people who are holding big percent of cash are not completely illogical :)

Bram de Haas
Bram de Haas premium member - 1 year ago

I think so too.

snowballbuilder
Snowballbuilder - 1 year ago    Report SPAM

So...

Klarman biggest position is... cash ~ 42%

us equity is , in total, around ~30%

So cheniere energy (11% of 30%) is only ~3% of Baupost AUM.

Just to have the complete picture...

Best snow.

Bram de Haas
Bram de Haas premium member - 1 year ago

Hi Snow, where did you get U.S. equity is at 30%?

snowballbuilder
Snowballbuilder - 1 year ago    Report SPAM

Hi Brian i found the numbers on "dataroma"

Baupost us equity portfolio ~8.7 bln...

So If your 25 bln of total AUM is correct thats ~ 35% (not 30% My error)

cheniere is ~ 11% of 35%.. So still less than 4% of total aum .

best snow

Bram de Haas
Bram de Haas premium member - 1 year ago

$30 billion of AUM is from Bloomberg
https://www.bloomberg.com/news/articles/2017-09-08/klarman-s-baupost-is-said-to-plan-to-return-some-investor-money
Thanks for that, puts the equity bets into perspective.

Please leave your comment:


Performances of the stocks mentioned by Bram de Haas


User Generated Screeners


pjmason14Momentum
pascal.van.garsseHigh FCF-M2
kosalmmuse6
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
kosalmmuseNice
kosalmmusehan
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat

{{numOfNotice}}
FEEDBACK