SETH Klarman is a diehard member of that vanishing breed known as value investors. He believes, in the classic definition of value investing, in buying a dollar’s worth of assets for 50 cents. Although somewhat tender in years, Seth is wise in the ways of the business world and the financial markets and his investment vehicle, the Baupost Group in Cambridge, Mass., boasts a sterling track record.
While he professes to ignore both the economy and the stock market in his hunt for superior returns, he concedes that the abundance — or absence — of inviting investments often reflect whether share prices generally are too high. Although he’s heavily in cash, as he has been all year, Seth still has a few special situations that he considers attractive buys now. What his thoughts are on the current investment scene and how he approaches prospective commitments are laid out in his clear and cerebral fashion in the Q&A that follows.
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BARRON’S: Seth, why don’t we start with the usual boiler plate: What attracted you to the investment business?
Klarman: I’ve always been interested in the market.
Q: The first words out of your infant mouth were: “Buy at the market.”
A: I noticed a column of numbers in the papers, and I was always mathematically inclined. So I was interested. I traded my first stock when I was 10.
Q: What was the stock?
A: Johnson & Johnson.
Q: You should have held it.
A: I did pretty well. I bought one share. Completely as a surprise, it split 3-for-1 the next day.
Q: Don’t tell us. You had inside information.
A: My first real education in investing came when I took a summer job in my junior year at college with Max Heine and Mike Price at Mutual Shares. They invited me back to join them in January of ’79. I worked there about 20 months until I left for business school. Just before graduation, I was offered the opportunity to join with several individuals who had decided to pool their assets and helped to form the Baupost Group to steward those assets. That was 9 1/2 years ago.
A: These people are all still involved. They were never active day to day.
Q: The best kind.
A: They are wonderful partners.
Q: Daily inactives is the way we refer to them.
Q: Are your partners still around?