Seth Klarman's Best Ideas (for Now)

Why follow Seth Klarman?

Seth Klarman, Founder and President of The Baupost Group, is the author of Security Analysis and one of the most widely respected value-oriented investors. From inception in February 1983 through December 2008, The Baupost Group has delivered an annual compounded return of approximately 20%.

The Manual of Ideas estimates that Seth Klarman’s top three ideas are Facet Biotech (NASDAQ: FACT), News Corp (NASDAQ: NWSA) and Exterran Holdings (NYSE: EXH). Our analysis is based on Form 13F-HR filed by Baupost Group on February 13, 2009. We also consider Baupost’s past 13F-HR filings, recent 13G and 13D filings as well as the latest market prices of the portfolio holdings. Please see below for an explanation of the MOI Signal Rank™ methodology. (Click charts to enlarge.)

Selected New Positions

• Facet Biotech (NASDAQ: FACT)
• CapitalSource (NYSE: CSE)
• Liberty Media Corp (NASDAQ: LCAPA)

Selected Sold-Out Positions

• WellPoint (NYSE: WLP)
• Sapphire Industrials (NYSE: FYR)
• Atlas Pipeline Partners (NYSE: APL)
• UnitedHealth Group (NYSE: UNH))

MOI Signal Rank answers the question, “What are this investor’s top ideas right now?” Rather than simply presenting each investor’s largest holdings as of the recently filed quarter end, MOI’s proprietary methodology ranks the companies based on the investor’s current level of conviction in each holding, as judged by The Manual of Ideas.

Our proprietary methodology takes into account a number of variables, including the size of a position in an investor’s portfolio, the size of a position relative to the market value of the corresponding company, the most recent quarterly change in the number of shares owned, and the change in the stock price of a position since the most recent quarterly filing date.

For example, an investor might have the most conviction in a position that is only the tenth-largest position in such investor’s portfolio. This might be the case if an investor invests in a small company, resulting in a holding that is simply too small to rank highly based on size alone. On the other hand, such a holding might represent 19.9% of the shares outstanding of the subject company, suggesting a high level of conviction. Our estimate of the conviction level would rise further if the subject company has a 20% poison-pill threshold, thereby suggesting that the investor has bought as much of the subject company as is practically feasible.

Disclosure: None.

Comments

[PastTense:]

News Corp doesn't seem like such a great holding; in particular newspapers seem to be in very bad shape.

Could someone explain?

Feb 20 03:44 PM

[another.ana...:]

Forgive me for being suspicious, but I hope the 20% compounded annual return for 15 years (1983-2008) are not Madoff Returns!

Ayuh

Feb 20 05:01 PM

[Rebounder:]

What's the arthur smoking? does he know anything about value investing?? Security Analysis was written by Benjamin Graham, not Klarman. Klarman wrote Margin of Safety. Pls go to the library once in a while, or you can simply get your sources right from the web.

Feb 20 10:36 PM

[Wide Moat I...:]

@PastTense--NewsCorp creates and owns content. Even if a particular distribution channel wanes (e.g., newspapers), people will pay for the content via other channels. Plus, sum their wide-ranging assets and you'll see value.

@Rebounder--Klarman revised the recent 6th edition of Security Analysis. Because the original had so many case studies, and because the publishers want to make some money, they periodically revise the book with new authors and case studies.

Feb 21 12:39 AM

[Rob Viglione:]

Interesting that Basic Materials and Industrials are so lightly weighted given the flood of "stimulus" money headed towards those sectors.

Feb 21 01:39 AM

[User 361420:]

@Wide Moat / REBOUNDER

According to the book itself, Klarman "updated with new commentary" - not even the publisher would attempt to market Klarman as having 'wrote' Security Analysis. Look where the link leads - what likely happened is that the author meant to say Margin of Safety but mistakenly typed the title we all know and love (or for a some weird people, hate).

Feb 21 07:01 AM

[Dean Morel:]

While just making stuff up may be fun, a little fact checking would lend a tad more credibility. Your slip on Security Analysis was poor form, but so is touting FACT as one of Klarman's best three ideas. FACT was spun-off from PDLI which Baupost held. So they got the shares foistered on them. As FACT is a development stage biotech I'd imagine Klarman can't wait to off load his shares.

Still if you look at the share chart it is following a traditional spun-off chart and may be worth a look at. When shares are spun-off most of the larger holders can't be bothered researching or even aren't permitted to hold, so they sell.

Feb 21 05:50 PM

[Dean Morel:]

Digging deeper it appears I may be wrong as Klarman has been increasing his holding in FACT. 3,985,567 16.68% of shares as of 2009-02-09

FACT is selling for less than cash in bank, but being early stage biotech it is burning cash.

Feb 21 09:41 PM

[ValueBarbar...:]

And Klarman has a history of investing in liquidation type situations...hmmmm.

The thing about FACT is that CASH burn could be stopped entirely, cash could be distributed to shareholders, the biotech research sold to a deep pocketed drug company, and shareholders could stand to make a large profit here.

An activist investor in FACT is trying to oust the current board with a whole new board....with the stated purpose of declaring a cash dividend and then selling the pharm operations. Sadly the activist (Wong) only holds a small % of the shares, and Klarman is not able to vote the shares he bought since April 1st (about half his position).

I've got a small position in this. If the present management and directors can be ousted before too much harm is done to the underlying assets I think this is a steal.

On the bright side....who is going to vote on behalf of current management who's idea of a business plan is to spend all the money before they get fired.


On Feb 21 09:41 PM Dean Morel wrote:

> Digging deeper it appears I may be wrong as Klarman has been increasing
> his holding in FACT. 3,985,567 16.68% of shares as of 2009-02-09
>
>
> FACT is selling for less than cash in bank, but being early stage
> biotech it is burning cash.

Apr 28 10:09 AM