Today’s Outside the Box is unusual in that it isn’t an original document but rather a summary of a client letter from one of the greatest investors of our generation, Seth Klarman, who is also one of the more reclusive – he rarely speaks in public or grants interviews. He is known for his very deep value investing style and willingness to pursue value where others get very nervous.

This last year he returned $4 billion cash to his clients (from a fund in the $30 billion range). Not difficult for a hedge fund, you may say, but this is what a good value investor does when there aren’t many opportunities. He won’t have any trouble raising cash if he decides he wants more at some point, as his fund is easily in the top-performing bracket by almost any measure. Some refer to him as the Warren Buffett of his generation.

I think the author of the piece you’re about to peruse, Mark Melin, did a pretty good job of giving us the highlights and a little color from what is really a thought-provoking letter from Seth Klarman.

Tonight I find myself in Houston, where I flew down for a meeting. I am always exploring ways to serve you better and help you protect yourselves from the consequences of the Code Red policies of central banks and governments. This is not a short-term problem; it will be with us for some time. More to come as we work through a hundred logistical issues.

The last few issues of Thoughts from the Frontline have sparked the most comments and letters of any column ever, including healthcare. It seems income inequality is a very sensitive subject, and I have heard from you, both pro and con. Some remarks have been merely dismissive but most have been quite thoughtful. And I was pointed to LOTS more research that I now have to cover for this week’s letter.

One thing I can count on is that readers will let me know when I miss something. I mentioned in passing at the end of last week’s letter that I had dinner with Senator Rand Paul in DC last week and that our conversation was conducted under Chatham House rules. As it turns out that is not quite the case. I actually had a very polite letter from DeAnne Julius, a former chairman of Chatham House (and a former member and founder of the Monetary Policy Committee of the Bank of England, CIA analyst, World Bank economist, etc. – one very busy lady!). She wrote:

Not to be pedantic, but there is only ONE rule. More importantly, that rule is that participants are free to use the ideas and information they gain from the discussion but NOT to identify any of the speakers or participants. In other words, the rule is nearly the opposite of what you say below. If the content of the discussion is not to be revealed, then the discussion is “off the record” rather than “under the Chatham House rule.”

Sigh. I knew that. David Kotok gives us a lecture on the Chatham House rule every summer at the beginning of our Maine “Shadow Fed” meetings. At the end of my letters, when I write my personal notes, I sometimes write “on the fly” and don’t stop and think about what I am saying. And when I blow it, I hear from very nice people who politely correct me.

DeAnne did offer to arrange for me to come to Chatham House and conduct a discussion group, after which I presume I could actually state correctly that I was in a meeting held under the Chatham House rule. I may take her up on that.

It is time to hit the send button. I am making preparations to leave for Argentina and South Africa  next week and be out for 25 days. But I will be in contact and writing and reading away. And I will have a new wifi-enabled Moto X phone that in theory will enable me to make and receive calls from even the remote Andes essentially for free. The whole thing is remarkably cheap and is a shift in the cost paradigm for cellular. And the phone looks to be cool, although I have to learn to speak something called Android as opposed to iPhone. I am told that it is easier to learn than Spanish, so maybe this old dog can figure it out.

Have a great week and enjoy the spring weather, whenever it gets to you. It is perfect in Dallas and Houston.

Your always looking for value analyst,

John Mauldin, Editor

Outside the Box