Seth Klarman – Value Opportunities In Firms Being Attacked By The Likes Of Amazon

Seth Klarman – Value Opportunities In Firms Being Attacked By The Likes Of Amazon

Good news for value investors as the WSJ reports that Seth Klarman at Baupost is still finding value opportunities in firms being attacked by the likes of Amazon, saying:

“Increasing technological disruption is already pushing some securities well below our assessment of underlying value,” writes Mr. Klarman, “as legitimate concerns are, in some cases, carried to excess.”

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Klarman also sees potential value in so-called unicorns, private companies with billion-dollar-plus valuations, that collapse on disappointment. In the thin markets for such private companies, it may be possible for Baupost to step in on preferential terms when promising companies stumble, says the letter.

Here is an excerpt from the WSJ:

How can value investors, who seek to buy stocks at depressed prices, prevail in a financial world dominated by market-matching index funds?

That’s the main question posed by Seth Klarman, chief executive of the Baupost Group, the $32 billion hedge-fund group, in his 2017 year-end letter to shareholders.

“Could Baupost itself be disrupted?” asks Mr. Klarman in a copy of the letter reviewed by The Wall Street Journal.

He cites companies like Amazon posing an existential threat to existing businesses. “Today, taxi medallion owners, traditional newspapers, shopping malls and department-store chains are gravely threatened,” he writes.

“Discussions in the Baupost conference rooms are increasingly likely to include an assessment of what Amazon executives are discussing in their conference rooms.”

He suggests that Baupost, which historically has shied away from most rapidly-growing industries, could venture into investing in “the new firms that are seeking to displace the older incumbents.” The firm is exploring ways to put a value on raw data, researching top technology firms and attending more tech conferences, writes Mr. Klarman.

“Disruptive change is already driving differences in the assumptions we are comfortable making and the cash flow projections that underpin our financial models,” he says in the letter.

You can read the original letter at the WSJ here.

For more articles like this, check out our recent articles here.

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”

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