The Oracle of Boston

Baupost-Group

IMG_0086
Old South Chruch 645 Boylston Street Taken by R.W.N II

The-Oracle-of-Boston

Seth-Klarman-on-the-Painful-Decision-to-Hold-Cash

Baupost 2Q 2017 Letter

Over the Newswire this morning, we hear from the East Coast Oracle of Boston, Mr. Keth Klarman, of the Baupost Group.

As he see’s markets today, individuals are asking the wrong question regarding markets perched at such lofty heights. Investors are asking “Why sell?” when they should be asking “How can I afford not to?”– Business Insider’s Rachael Levey writes.

Ms. Levey goes on to write about The Baupost Group’s plan to return around 6% of investors capital by the end of Septemeber 2017. Returning shareholders confirmed by reports from a person close to the firm saying 40% of Baupost’s assets allocated to cash.

 

Screenshot 2017-10-24 08.42.05
The Beaupost Group’s Historical Asset Allocation                                                                                      Via WhaleWisdom.com

Interestingly, Baupost made this allocation decision once before back in 2005, citing the 2004 Year End Letter to Investor’s entitled, Seth Klarman on the Painful Decision to Hold Cash. Here is an excerpt from the letter, which may sound all too familiar to today’s circumstances.

” Investors must choose between two alternatives. One is to hold stocks and bonds at historically high prices that prevail in today’s markets, locking in what would traditionally have sub-par returns. If prices never drop, causing returns to revert to more normal levels, this will have been the right decision. However, if prices decline, raising prospective returns on securities, investors will experience potentially substantial mark to market losses, thereby faring considerably worse than if they had been more patient.” 

Just as Mr. Klarman has labored away in modest obscurity so to did the work of Hyman Minsky, an American Economist, go relatively unnoticed until the sub-prime mortgage meltdown, when everyone knew what a Minsky moment meant.

 

quote-stability-leads-to-instability-the-more-stable-things-become-and-the-longer-things-are-hyman-minsky-114-23-02

Klarman writes at the end of his Q2 ’17 Letter to shareholders, If there is anything to be taken from Hyman Minsky’s words, it is that no one should be lulled into a false sense of comfort by the illusion of stability which surrounds us. We, most assuredly, are not. 

Below I’ve included a few of my favorite charts from GSAM because I’m a visual person and these are good reference points to stay grounded in the reality of such things.

 

Goldman-Sachs-MArket-Returns

gs gfc

goldman_ism

bd9c49ab7c4ec0073acaea80a8bd32eb--bloomberg-business-goldman-sachs

Advertisements

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.