Klarman Holding 50 Percent Cash

[indythinker85]

Klarman Holding 50 Percent Cash http://www.valuewalk.com/2014/01/klarman-cash-letters-to-investors-2013/ anyone have other notes from Grant's Conference, this is the first iv seen?

[APG12]

I attended the conference and Klarman specifically noted that no one should read into his cash position too much. After all, if he believed a correction was imminent why would he give the cash back to his investors?

[oldye]

Isn't he usually about 34% in cash, could be that he's just bullish on $usd. 

 

 

All this domestic production is great for reducing the U.S trade deficit- even Hoisington thinks we'll have 3% gdp growth - should bode well for Canadian companies selling products in $USD

 

 

[stahleyp]

I attended the conference and Klarman specifically noted that no one should read into his cash position too much. After all, if he believed a correction was imminent why would he give the cash back to his investors?

 

Thanks for the clarification, agaglio. Anything else noteworthy?

[APG12]

I attended the conference and Klarman specifically noted that no one should read into his cash position too much. After all, if he believed a correction was imminent why would he give the cash back to his investors?

 

Thanks for the clarification, agaglio. Anything else noteworthy?

 

I thought Paul Singer's presentation on risk parity was very interesting. I attached my notes from Klarman's discussion.

Grants-Klarman.pdf

[racemize]

I attended the conference and Klarman specifically noted that no one should read into his cash position too much. After all, if he believed a correction was imminent why would he give the cash back to his investors?

 

Thanks for the clarification, agaglio. Anything else noteworthy?

 

I thought Paul Singer's presentation on risk parity was very interesting. I attached my notes from Klarman's discussion.

 

Would you mind putting some color around "Value Investors feel like they should be invested all the time"?  What was he implying about that mindset?

[dcollon]

Thanks for sharing agaglio.

 

 

[APG12]

Would you mind putting some color around "Value Investors feel like they should be invested all the time"?  What was he implying about that mindset?

 

I wish I had more to say but he was just defending large cash balances. The quote in the value walk article above was about all that was said, IIRC: "To assume the investment opportunity sets that are available to you today are as good (or better) than those that will present themselves next week, next month, next quarter is naive and you need to have cash to take advantage of those new investment opportunity sets."

 

It's funny that Michael Burry has the exact opposite philosophy and likes to be invested at all times. If you're running a small amount of money, there are almost always great opportunities to deploy capital. Passing on those opportunities amounts to market timing. I imagine that the reduced opportunity set that comes with managing billions would necessitate large cash balances as you wait for opportunities to appear. I don't think Burry/Klarman's views are necessarily contradictory.

 

Thanks for sharing agaglio.

 

Fasho. ;)

[alpha231616967560]

I attended the conference and Klarman specifically noted that no one should read into his cash position too much. After all, if he believed a correction was imminent why would he give the cash back to his investors?

 

Thanks for the clarification, agaglio. Anything else noteworthy?

 

I thought Paul Singer's presentation on risk parity was very interesting. I attached my notes from Klarman's discussion.

 

Thank you for taking the time to share your interesting notes.

 

[original mungerville]

Thanks for the notes. And here I thought I was the only idiot buying far out of the money LEAPs on precious metals. I am sure Klarman was able to arrange a better bespoke contract relative to what is available to me, but I am glad to see I am not the only idiot thinking this is the only real hedge for what the Fed is doing.

[stahleyp]

Thanks for sharing agaglio.

 

 

+1

[indythinker85]

Here is some more http://www.valuewalk.com/2014/01/klarman-returns-cash/

[original mungerville]

Thanks for the link, provided more much needed background on his thinking on gold. 

[bskptkl]

One of his gold "options" is a big position in SWD (on TSX) which trades for roughly cash but has an 11 million ounce gold deposit in Columbia. The deposit would need cap ex of billions to develop and is not economic at current gold prices. Of course Baupost is in at much higher prices.

 

For the rest of us the hedge is pretty cheap at these prices.

[fareastwarriors]

http://www.bloomberg.com/news/2014-02-13/klarman-s-baupost-sells-off-oracle-while-trimming-micron.html

 

Klarman’s Baupost Sells Off Oracle While Trimming Micron

[bskptkl]

One of his gold "options" is a big position in SWD (on TSX) which trades for roughly cash but has an 11 million ounce gold deposit in Columbia. The deposit would need cap ex of billions to develop and is not economic at current gold prices. Of course Baupost is in at much higher prices.

 

For the rest of us the hedge is pretty cheap at these prices.

SWD traded .29-32 today. I just talked to someone who knows Columbia gold companies and he was not complimentary about the SWD property - low grade, expensive to hold, never be built etc...I am going to sell my SWD at 30...big loss for me.

[indythinker85]

http://www.valuewalk.com/2014/03/seth-klarman-2013-letter/ Seth Klarman: Fed Created Truman Show Style Faux Economy

[MrB]

Thanks for sharing!

[indythinker85]

Here is more but not much on gold as someone requested http://www.valuewalk.com/2014/03/seth-klarman-baupost-letters/

[fareastwarriors]

Are you guys actively reducing positions and sitting on more cash?

 

Personally, I'm still nearly fully-invested.

[stahleyp]

Klarman has been saying the same things since 2010. I read some of his letters around 1996 and his was very bearish then. Four years later he was right. We shall see if he's right 4 years after the fact this time.

 

Let's say he is right and the market has a bloodbath (it doesn't sound like he's just expecting a 10% correction or anything - like most people are).

 

If the bear market last 2 years, that would put us in the "secular" bear from 2000-2016/17 - which matches Buffett's idea of 17 year cycles.

 

For what it's worth, I'm still mostly fully invested, but have been toning it down a bit. With the gains I've had the past few years, I'd figured it's prudent to do so.

[Palantir]

I feel klarman is bearish for two separate reasons, first is from a professional point of view, where a fast rising market will make life difficult for any value investor, even one as skilled as mr klarman. The other reason is that simply he is a political conservative, where he is strongly against the government interfering in the economy and debasing the dollar. Note the comment on how bit coin is about as legitimate as the US dollar!

[james22]

The other reason is that simply he is a political conservative, where he is strongly against the government interfering in the economy and debasing the dollar.

 

If you hold what Thomas Sowell's A Conflict of Visions defined as a constrained view of the world (believing human reason limited and so preferring spontaneous order to central planning), you are probably constitutionally unable to have faith (like those with an unconstrained view) in the Fed.

 

 

[ni-co]

I'd love to question Klarman about his remarks. Two questions I'd ask him:

[*]

When doing it deliberately, why does he keep such large cash positions around? Is it merely a liquidity reserve to meet investor redemptions in the worst possible times? Or does he think rebalancing is going to improve his returns in the long run (without taking redemptions and other external factors into account)? "Don't lose money" is not the answer to this because you can provide for it with your security selection and a reasonable degree of diversification. After all, you are guaranteed to loose money on your cash positions, that's why you want to invest into productive assets in the first place.

 

There is such a large opportunity cost for keeping 30 percent of your portfolio in cash knowing that, in real terms, you'll lose money on it most of the time. In the long run, it becomes significantly more difficult to beat the market with a large cash position. You can easily see this by looking at mutual funds. Holding a cash position is the second most important reason (cost beeing the most important one) why the average fund underperforms the indices.

 

If you invest your personal portfolio with a 20, 30, 40 year horizon, without selling pressure and you can live with an intermediate 50% downturn in your personal wealth is it really worth it keeping a cash position around?

 

 

 

[*]

Klarman seems to think that the FED actions have a destabilizing and not a stabilizing effect. My second question would, therefore, be what he makes of Ray Dalio's argument that there has to be a balance between money supply and credit supply. Dalio argues that the FED has done a great job so far to avoid a depression scenario because they balanced the credit contraction by increasing the money supply. He argues further that as long as credit supply is heavily contracting central banks are not only able to increase money supply without causing inflation they have to do it to avoid a depression scenario. Dalio says that his biggest worries are whether the FED is able to keep this balance once the economy "hits an air pocket" because it might run out of tools to counterbalance it.

 

[ni-co]

The answer to no. 1 might simply be a matter of size:

 

It's funny that Michael Burry has the exact opposite philosophy and likes to be invested at all times. If you're running a small amount of money, there are almost always great opportunities to deploy capital. Passing on those opportunities amounts to market timing. I imagine that the reduced opportunity set that comes with managing billions would necessitate large cash balances as you wait for opportunities to appear. I don't think Burry/Klarman's views are necessarily contradictory.