Seth Klarman's Best Ideas (for Now)

by: The Manual of Ideas

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.