What this covers
Seth Klarman is a legendary value investor and CEO and Portfolio Manager of The Baupost Group, an investment firm founded in 1982 that manages $27 billion. Seth authored the very out-of-print Margin of Safety and edited the recently released 7th edition of Graham and Dodd’s value investing classic, Security Analysis.
Our conversation covers Seth’s early experience in business and investing, path to Baupost, timeless value investing principles and those that have changed over time. We discuss Baupost’s application of value investing across sourcing, diligence, portfolio construction, and risk management. We then turn to Seth’s thoughts illiquidity, international investing, the weird current environment, positioning portfolios for it, alignment with clients, succession at Baupost, and his updated perspectives on Securities Analysis and Margin of Safety. We close discussing Seth’s personal investments in the Boston Red Sox, horse racing, and philanthropy.
Seth generally stays away from the public eye, so I was particularly grateful to share this conversation some twenty-five years after we first met.
Subscribe to the mailing list: https://capitalallocators.com/ Access Transcript with Premium Membership: https://capitalallocators.com/signup/ Subscribe on Apple Podcast: https://podcasts.apple.com/us/podcast/capital-allocators-inside-the-institutional/id1223764016 Follow Ted on Twitter: https://twitter.com/tseides Follow Ted on LinkedIn: https://www.linkedin.com/in/tedseides/
Original Publish Date: 07/17/2023
Show Notes 05:05 Early experience in business and investing 17:43 Path to Baupost 20:18 Value investing principles over time 34:39 Sourcing 42:47 Diligence 49:07 Portfolio construction 52:49 Risk management 56:04 Illiquidity 58:46 International investing 1:00:50 Current environment 1:09:13 Alignment with clients 1:12:23 Succession at Baupost 1:14:33 Perspectives on Securities Analysis and Margin of Safety 1:21:47 Boston Red Sox 1:23:59 Horse Racing 1:25:53 Philanthropy
Source description (no synthesized summary yet).
Seth Klarman argues that value investing principles from Graham and Dodd remain fundamentally sound across changing market conditions, but successful application requires opportunistic sourcing across multiple asset classes, deep pattern recognition to identify mispricings, and long-term client alignment rather than mechanical formula application.
- Markets remain inefficient despite theoretical arguments for efficiency because human psychology and behavioral constraints create recurring mispricings that compound across asset classes
- The shift from cyclical to secular disruption risk requires value investors to dig deeper than Graham's era but the search for bargains below intrinsic value remains viable
- Catalyst identification, position sizing discipline, and portfolio-level hedging convert temporary mispricings into profitable outcomes over multi-year holding periods
This asset isn't compiled yet
You're seeing its claims, ranked. Compile it to build the argument threads, weight them, and check each claim against your library — the full view.
The hardest aspect of value investing is managing the psychological pressure when markets signal you are wrong; the market may decline an investment further after you purchase it, and success requires interpreting this as a better bargain rather than validation of your error.
“the hard thing about investing in general is the market tells you you're wrong all the time that the very reason that you can find a mispricing the very reason that you can find a market inefficiency that causes the stock to go to a discount might well still apply after you own it and it might go to a bigger discount and that's not lost on gram and Dodd that's right there in security analysis”
Markets are inefficient because human psychology creates recurring patterns of exuberance and depression, and constraints on investors (such as dividend requirements, market cap minimums, or index inclusion rules) lead to persistent mispricings that value investors can exploit.
“what's still applicable is that despite all the changes the general principles which are essentially dependent on humans and their psychological Tendencies to get overly exuberant and to get overly depressed and to have constraints on the humans you must buy a highly rated Bond you can only own a stock that pays a dividend you cannot own a stock below a certain market cap or below a certain share price and those kinds of rules and constraints can lead to inefficiencies”
Buying stocks based only on knowing what a company does (like knowing Johnson & Johnson makes bandages) provides no rational basis for price decisions; an investor needs a philosophy connecting company fundamentals to valuation and understanding market mechanics like liquidity constraints and trading halts.
“picking stocks yourself you knew what the companies did I knew that Johnson Johnson made bandages which I apparently was an extensive user of when I was a small kid but I didn't really know how to connect that to anything tangible about why would I pay a particular price or what would make that stock go up or down”
Stocks removed from an index face forced selling and depressed valuations in the short term, but over longer periods they often outperform because if they remain outside the index they are purchased at a permanent discount to equivalent companies inside the index, and if they are eventually reincluded they produce significant gains from the step-up.
“when it's off the exchange and out of an index there might be a lot of people that have to sell it and there might be a lot of people that quasi follow that index that don't hold it anymore and so all of us sudden you've got a chance that stock price just falls into some kind of black hole...if it ever included in the index now you have significant gain from the step up”
Client alignment is one of the most important success factors for long-term investing because short-term thinking clients cannot support long-term investments, and Bowpost systematically screens for long-term oriented clients through a courtship period and explicit communication of philosophy.
“the alignment is one of the most important success factors for any investor if you don't have long-term oriented clients you can't make long-term Investments and since I have no idea how to make short-term Investments that work I don't know how people without long-term money can invest”
The efficient markets hypothesis is flawed because academic theory fails to account for practical market realities; academics can theorize about markets sitting in institutions, but practitioners at trading desks observe significant inefficiencies that would be apparent if theorists actually engaged in real trading.
“had they chosen instead to sit down at the trading desk of mutual shares they might have seen what really inefficient markets look like and realize that what's true in theory isn't true in practice in every case”
Value investing is like an inoculation where exposure to the philosophy either makes sense to you or it doesn't, and those who grasp it fundamentally tend to remain committed to it, whereas external argument rarely converts skeptics.
“Buffett also in that article makes the observation that value investing is something not everybody is comfortable with but that it's like an inoculation when you get introduced to the approach either it makes sense and you get it or you don't”
Credit markets often become inefficient when bonds are downgraded below investment grade, forcing natural constituency holders to sell, creating pricing dislocations that value investors can exploit; distressed credit and bankrupt debt are attractive playing grounds when available.
“Credit often is misunderstood lends itself to inefficiencies when a bond gets downgraded below investment grade there can be a natural constituency of holders who want to churn out of that and that can lead to pricing inefficiencies as well so we like to look at credit we like distress credit we like bankrupt debt”
The current environment combines unprecedented challenges: a 35-year bond bull market ended in 2022, creating bond portfolio losses; financial institutions took excessive duration risk because yields were too low to compensate for credit risk; the full impact of the 12-year credit bubble has not yet surfaced, particularly in private credit intermediation.
“we've had a 35-year bond bull market up till 2022 that what were financial institutions supposed to do during that time frame they couldn't get paid by taking credit risk it still wasn't much they couldn't get paid by going out in duration the yield curve was decently flat at least part of the time and so we've seen some financial institutions do what like Silicon Valley Bank did and end up with significant mismatches of assets to deposits”
Investors should not assume a stock's 20% decline in a few days occurred without reason; steep price drops typically reflect new information or changed fundamentals that sellers understand, requiring disciplined buyers to conduct deep due diligence rather than assuming panic has created an obvious opportunity.
“I like to say that a big enough discount maybe offsets a lack of the deepest possible knowledge sometimes there's chaos in the markets and you want to move quickly on the other hand anybody that looks at the price and says wow that stock has fallen 20 in the last couple of days to think that happened for no reason would also be incredibly naive so I think that investors need to move with the degree of alacrity because opportunities don't last forever but they also need to do everything with a great deal of humility because the market doesn't just give away free money”
Klarman's biggest professional frustration is short-term investing orientation, which he believes is pernicious and causes investors to fall into a trap that undermines long-term investment success; fighting this temptation is essential to value investing discipline.
“in investing I get frustrated at the short-term orientation I think it's so pernicious it's easy to fall into that trap and to have investment success you have to fight that successfully”
In the 1970s (1973-1975 era), stocks traded at single-digit earnings multiples not because companies were failing but because people needed to raise cash to meet commitments, creating genuine liquidation pressure that hasn't occurred significantly since.
“you'd have to look that far back people could look back to 74 5 or 73 4 many many stocks trading at single-digit earnings multiples that weren't going out of business but people needed to sell stocks to pay the bills and to meet their commitments you had a genuine liquidation you really haven't had much of that for a really long time”
Having people stay at a firm for 20, 25, 30 year careers creates institutional knowledge, stability, and cultural continuity that is valuable for long-term investing, and Baum Post celebrates these long tenures.
“we're very proud to say we have people that have been here not just five or ten years but many people 20 25 30 year anniversaries which we enthusiastically celebrate”
Warren Buffett was correct to write in 1973-74 that investors should not own common stocks unless comfortable with 50% declines, yet this warning has been forgotten as Americans own more stocks than ever, creating vulnerability to bear markets.
“Warren Buffett wrote in the 7374 time frame and fortune that no one should own Common Stocks who's not comfortable with a 50 drop in the market I could tell you almost nobody's comfortable the 50 drop of the market yet Americans own more stocks than ever before and so I think people have forgotten that kind of admonition”
Studying financial history is essential because finance moves cyclically (not progressively like science), most crises have precedent in past episodes, and historical study prepares investors psychologically for severe downturns and helps calibrate what constitutes a true panic versus normal market stress.
“if I had to give one piece of advice to people I'd just remind them study Financial history that Jim Grant likes to say science progresses securely but Finance addresses cyclically and that most ideas have been around before and we repeat the same mistakes”
The moral hazard from repeated government rescues has become very high; investors have been conditioned to expect government intervention in crises, but Powell may attempt to break this pattern, and the sustainability of this policy shift is uncertain.
“we've become incredibly dependent on the government rescuing everything the irony of this moment is that while you had a Greenspan put in a Bernanke put and a yell input now Powell is breaking it I don't know if he can break it and provide the put right afterwards on the other hand with svb we did we changed all the rules around Deposit Insurance in order to not let some splatter and so these are really complicated questions I don't feel like I know the answer for sure but I think the moral hazard is very high”
Endowment-style client relationships (long-term, trust-based partnerships with deep organizational integration) are superior to transactional relationships because they allow managers to pursue truly long-term strategies without fear of asset flight during underperformance.
“the endowment World following you're in my mentors wisdom Dave Swenson over a lot of years has worked hard to form long-term Partnerships with managers and those long-term Partnerships are ones of trust and Trust being concretized through actions and performance teams getting to know each other not top person a top person but deeply enmeshed throughout organizations”
The private credit industry and private equity debt leverage have grown substantially but are stress-tested in a limited way, and when stress testing occurs (as it did in 2008-2009), results may differ from expectations unless the Fed provides rescue through rate cuts and stimulus.
“the nature of most Wall Street Innovation is it's never stress tested for a rainy day because that wouldn't be any fun it's fun to sell a lot of bonds sell out of stock sell a lot of Partnerships and rake in the investment banking fees but when the rainy day comes mortgage-backed Securities can blow up and wouldn't surprise me to see pockets of private credit blow up private Equity Funds has been and rescued historically so in the 0809 period I always thought there should be an asterisk on private Equity because those guys got rescued by the FED rushing in cutting rates and congress's stimulus plans as well which a lot of private Equity debt was trading down to 50 cents on the dollar and yet all those deals ended up working out had that rescue not happened when it did you might see very very different numbers out of private Equity”
The SVB deposit insurance expansion showed that governments still prefer rescue to default, changing the terms of the 'no rescue' regime and demonstrating that political cost of financial instability may override policy commitments to let failures occur.
“with svb we did we changed all the rules around Deposit Insurance in order to not let some splatter”
The period 2009-2022 was a 'bubble that became an everything bubble' driven by near-zero interest rates that made capital easily available and cheap, leading to startup manias, SPACs, meme stocks, and crypto speculation, and the aftermath and sorting of this bubble may still be unfolding despite the 2022 bear market and 2023 recovery.
“you had a bubble it was really a credit bubble that became an everything bubble super low interest rates at Time Zero rates made Capital easily available and Incredibly cheap and that led to Startup manias and specs and meme stocks and crypto all kinds of speculative activity I'm not convinced that we've even begun to sort out that bubble”
Catalyst identification is central to value investing because it shortens duration and creates a defined path to returns; without catalysts, an investor can be early and wrong for many years and the psychological experience of being early and being wrong look identical, causing confusion among team members and clients.
“the hardest thing about value investing without catalysts is you can own something that's out of favor for an incredibly long time and over five or ten or longer year period looking being early and being wrong look exactly the same and you can start to get confused and your people can start to get confusing your clients can start to get confused”
Complexity in corporate structures and transaction mechanics can be an investor's friend because it creates mispricing; when a company undergoes a complex liquidation (such as Telecore spinning out Electro Rent while also receiving liquidation proceeds), most investors avoid it, creating arbitrage opportunities for those willing to unravel the details.
“complexity can be an Investor's friend that if a person wanted to buy electron previously they couldn't the only way to get it was this way that most of the time you wouldn't want to pay eight dollars and change to create a share of something that is only worth sense in that most of the money you were just going to get back from the liquidation payment end of the licensing deal with telecore nevertheless it was a great lesson that there are Arbitrage opportunities that the complexity leads sometimes to opportunity”
Bowpost's competitive advantage comes from sourcing efficiency: the firm systematically identifies supply-demand imbalances by recognizing patterns (delisting, liquidation pressure, covenant violations) that force selling regardless of fundamental value, whereas competitors focus deeply on industries without being alert to what is actually mispriced.
“we go miles wide to look for opportunity and then when we think we found it then we drill miles deep maybe the contrast is that other people are going miles deep first so they know everything about every industry they know deeply Pharma and auto and finance and whatever else but they're not as focused on why might any of this be particularly mispriced”
Illiquidity itself does not generate returns; rather, investors receive returns from illiquidity when counterparties with illiquid assets need to monetize them quickly, forcing discounted prices; many investors incorrectly conflate liquidity discount with illiquidity premium, leading to poor allocation decisions.
“there's been I think a great misunderstanding in recent years among some people who run money that illiquidity itself delivers degree of return that if you take the liquidity you automatically get the return I don't think anything could be be weirder than that idea that the reason you make money from illiquidity is when you have people on the other side of the trade who have an illiquid asset and they suddenly need to monetize it”
Artificial intelligence trained on historical data will struggle with novel situations and low-sample-size transactions because it cannot easily extrapolate from unique restructuring scenarios, bankruptcy distributions, or complex spinoff mechanics where there is minimal historical precedent.
“how will a computer figure out the next telecore and Electro rent electron hasn't been public there are no published financials yet...I don't know how they'd know what telecore shareholders would get or how to think about the contingencies around those kind of liquidation distributions and that's not the most complicated thing that could come along how will they think about what a bankrupt or near bankrupt Bond might get into restructuring again I just don't know”
Graham and Dodd were too literal in their original approach regarding book value as a valuation anchor; excessive reliance on book value multiples misses the deeper principle that cyclical downturns cause prices to deviate from intrinsic value regardless of balance sheet metrics.
“I was probably too literal in my earliest understanding of gram and Dodd...I think what I was applying was not gram and Dodd value investing but Mutual shares value investing”
The founding team of Bowpost discovered that money managers were not investing their own capital in the same products they were recommending to clients, revealing a fundamental misalignment problem; this observation led to the decision to manage capital internally rather than allocate to external managers.
“how few of the managers of money actually put their own money in the same product that they were expecting their clients to be in and how important that alignment is it's one of the main reasons valpost didn't invest with any of those managers would have realized that people talked a good game but they didn't put their money where their mouth is”
The decision-making process at Bowpost involves iterative review and reconvening: investments are pitched to partners and traders, a decision is often reached quickly, but Klarman frequently reconvenes the next day after new thoughts emerge, because protecting client capital is more important than operational convenience.
“part of my nature is these things thrown in my head so sometimes I'll wake up after a meeting the next morning and think I forgot to ask one question or there's a risk I hadn't thought about that now I'm thinking about and so we'll reconvene it probably drives my people a little crazy but I always think protecting the client's capital is more important than whether I drive somebody a little crazy”
Bowpost's risk management strategy emphasizes portfolio-level hedging and diversification rather than limiting individual position size; the firm uses macro hedges, commodity hedges, interest rate hedges, and put options on the market to manage downside when valuations are extended, and has only lost money in 5 of 41 years with losses typically in single-digit percentages.
“we tend to Overlay macro Hedges and commodity type Hedges interest rate Hedges as appropriate based on each individual investment and they may be a layer of portfolio Hedges that look like essentially puts on the market”
Position sizing should be determined by conviction and catalysts rather than mechanically limiting all positions to small percentages; large positions in high-conviction ideas with catalysts are more profitable than many small positions of equal total capital, and a portfolio can sustain losses on individual large positions if they have defined catalysts.
“if you can establish that an idea is good versus one that's bad then why can't you understand that there might be one that's great rather than just good and why would that not be bigger”
Bow Post invests internationally but mainly in Western Europe and selective cases globally where geopolitical risk is priced at a significant enough discount; most emerging and frontier markets offer insufficient premium to compensate for the local disadvantage of not having on-the-ground networks and relationship capital.
“we invest internationally we have stocks in Europe we have debt in Europe that we sometimes buy we own real estate globally although mostly it's U.S and Western Europe our mandate is Broad and flexible which lets us move where the opportunity is... I don't have a view about emergent markets about the frontier markets we're humble enough and cautious enough to know that if you don't live in a country if you don't have people that are active in that country you're at a real disadvantage”
Succession planning at Bowpost requires Klarman to continue delegating responsibility and pulling back from day-to-day decision-making; the firm now has deeper partnerships and middle-level talent than ever, creating conditions for sustainability beyond Klarman's tenure.
“I'm very cognizant that I can't and shouldn't be doing this forever...I think Warren Charlie are great exemplars that you can still be doing this into your 90s but I don't think I should be running bow post more than another 15 or so years”
Bow Post has rebalanced from private market emphasis (2010-2021 when distressed credit was scarce) into corporate credit as rates have risen and credit spreads have widened, targeting approximately 15% of portfolio in credit and growing, based on bottom-up opportunities rather than top-down asset allocation.
“we've rebalanced into credit everything we do is bottom up it's not top-down asset allocation but we found enough debt to make that about 15 percent of our portfolio and that's been pretty steadily growing this is not anything like Peak opportunity but I think could continue to increase depending on what happens with inflation and what happens with the economy”
Margin of Safety (Klarman's 1991 book) borrowed its title from The Intelligent Investor and captured the essence of value investing: an investor should leave room for being wrong because markets may move against them, but with patience, a margin of safety provides insurance against significant losses.
“I still love that I stole the title blatantly from intelligent investor because it's such a great expression and it really captures what a value and investor tries to do you need to leave room because you might be wrong markets might go against you but if you're patient you can find a margin of safety and having one means you're likely not to be in tears when a lot of other investors are”
Diversification in philanthropy addressing both national (democracy/voting rights) and international (medical research in Israel, workforce diversity) issues reflects Klarman's belief that democracy is foundational to human flourishing and worth defending through organized giving.
“democracy has been the most important thing in my life that I can't imagine what my life would have been like if I didn't grow up in the United States or Britain or Canada...I don't want that for them and a lot of the trends are disturbing...it's those stocks that don't make it into the index that are actually the attractive ones”
Klarman's parents' philanthropy (giving to colleges and organizations they valued) was inspirational and shaped his own commitment to giving back; this teaching has been foundational to his approach to wealth.
“philanthropy mom and dad got divorced when I was young but each of them wrote checks to their colleges for checks to various organizations that were on their near and dear list and I found that motivational and inspiring that I realized that it's also important to me the same way to give back to repay organizations that have benefited you in your life”
Klarman identifies his biggest personal pet peeve as people who take each other for granted; he believes it is important to consciously care about people you care about and avoid autopilot in relationships.
“I think as an individual I don't like people who take each other for granted I think that it's easy to get busy it's easy to go on autopilot but I think it's really important to stop and ask the extra question especially care about the people that you care about and live that way”
An investor should never be afraid to bet on themselves; Klarman practiced this in his career and wishes he'd had more confidence earlier to recognize the uniqueness of the opportunities he was finding.
“something a famous investor said to me once which is to never be afraid to bet on yourself obviously my career path was a bet on myself but I also probably would have done even better if I had had more confidence about the uniqueness of the kinds of opportunities I was Finding earlier in my career”
Investors get frustrated at stock valuations being priced to the penny (e.g., price targets of $52.50) because it ignores the legitimate range of uncertainty around intrinsic value; a range such as $50-$60 is more honest and defensible than false precision.
“I also get stuck on the idea that stocks can be valued to the penny that I believe in the concept of a range of value that there's no exact price for a business when you read Wall Street reports they see you know our price Target is 52.50 why don't we save between 50 and 60. but if you buy it at 35 you're okay”
Max Heine advised Klarman to take a Dale Carnegie public speaking course nearly 40 years ago; Klarman credits this advice as among the best he ever received because the ability to communicate ideas clearly is essential for professional success.
“Max Heine told me that I ought to take a Dale Carnegie course on public speaking and I didn't know what was behind that but when I reflect Back Being able to communicate your ideas being good public speaker being comfortable with that are just so important Max saw in me that was an area that wasn't as strong as it could be and so almost 40 years ago I give him enormous credit I'm glad that I took his advice it was so spot-on”
Klarman has pledged all royalties from the updated Security Analysis and recent MasterClass to three organizations working on diversity in investment management: SEO, Lighted Pathways, and Girls Who Invest.
“I pledged all the proceeds and royalties from this book and as well as a master class I recently did to increase diversity in the investment field so I'm giving all of the money to three organizations SEO something called lighted Pathways and girls who invest all of whom are bringing people that are underrepresented in the investment business into the business”
Baum Post employs people across IT, HR, Communications, and other functions in addition to investment staff, with three Girls Who Invest interns and about a dozen total interns spread across the organization, reflecting commitment to diverse team development.
“about a dozen interns total spread out across the organization from I.T and HR and Communications we have interns pretty much up and down the organization”
Graham and Dodd's observation about cyclical downturns was prescient, but they lacked the ability to predict when depressions would end or whether they would worsen; modern investors face the same uncertainty about timing despite better information.
“they wrote that it would not be reasonable to assume that depression will always be the circumstance and yet they couldn't know when it would end or if it would get worse before it got better that also by the way resonates with me because I think the idea of financial rating you can write a newsletter I suppose and try to be right for the next two weeks or you can try to write something down and say to yourself what is the essence of this that's going to matter not just months from now but years and decades”
Bowpost's internal process includes analyst meetings without partners present, allowing junior analysts to share ideas without fear of judgment; this creates a safe space for learning and development.
“we have our analysts meet once a week at lunch anybody who's around and wants to meet the partners don't attend that so it's a free space for analysts to be running things by each other and not feel like Partners going to hear them or they might judge them for being naive or having a silly idea so I think that's really important for people's development”
An early investment mistake: Klarman held a dividend-arrears closed-end fund that announced it would clean up arrears and pay a large dividend, causing the stock to rise to full value; he sold it, but then realized he was two weeks away from long-term capital gains treatment, creating a large tax bill.
“in the earliest days about post we had this great idea there was a closed end publicly traded mutual fund that had omitted some dividends and it was in arrears and as you know they have to clean those up before they can pay common dividends and this company had announced that they were going to be cleaning them up and paying a giant dividend and the stock went up a lot to what I thought was full value so I sold it and then I realized I was two weeks away from going long term so giant mistake just from sloppiness”
The Boston Red Sox investment, made at 30x current cash flow, turned into an excellent investment because operational management (Sam Kennedy) has grown business value substantially, but the real return has been emotional/experiential value (fun and enjoyment).
“it turned out to be a way better investment that I would have thought as good as any investment one could have made that was a fractional interest in a team...it turned out to be a value investment I didn't know it was but the real return has still been the fun it's just been enormously fun”
Horse handicapping shares analytical similarities with investing because both require integrating disparate information sources (horse, trainer, jockey, track conditions, pace scenario, race composition) to make probabilistic forecasts, making it intellectually appealing even though it rarely produces positive investment returns.
“it's not the same as investing but it has commonality you take an enormous amounts of information it's highly disparate you need to factor in so many different considerations of the horse and the trainer and the jockey and the track condition and the distance and the who else is in the race and likely Pace scenario the race you need to factor in a lot lot and I love that analysis”
The seventh edition of Security Analysis includes new chapters on international investing, private assets, and endowment management because Graham and Dodd did not address these domains, yet the same principles apply across all asset classes and geographies.
“the most important thing I think we realized is that Grandma Dodd wrote about equities they wrote about credit they did not write about International and so we have a section on International investing what's different about it they didn't write about private asset classes which are really important”
The act of writing a book (Margin of Safety) is difficult and time-consuming alongside a full-time job, but 'it is good to have written a book'; Klarman remains open to bringing back Margin of Safety in a new form but would need to address major evolutions in thinking about intangible assets and distressed debt.
“there's an old saying somebody told me after I wrote that book the saying is it's good to have written a book and it is good to have written a book it's not good to be writing a book and especially when you've got a day job...it was hard enough when I wrote that book that I had two small kids”
Bill Ackman's quip that value investing is like 'watching paint dry' but he brings a 'hair dryer' captures activism—the idea that patience combined with active intervention (catalysts) can accelerate returns.
“Bill Ackman once said to me that value investing in a classic senses like watching paint dry but I bring a hair blower I I thought well that's a good definition of activism”
Three individuals had the greatest influence on Klarman's professional life: Max Heine (from whom he learned kindness), Michael Price (from whom he learned to keep pulling threads), and his wife (who supported the family while he worked and wrote).
“I think there are three but they're in different categories the two are Max Heinen Michael price for Mutual shares from Max I learned to be kind to people and from Mike I learned to never stop pulling threats but the third is my wife who's been so supportive that without her and everything she did to organize our family and take care of the kids when I was unavailable writing my book or working or on a business trip I couldn't have done it”
Klarman has been fortunate to win the Preakness (the middle jewel of horse racing's Triple Crown) twice with horses he owned, an outcome particularly meaningful because the Preakness is run in Baltimore, his childhood hometown.
“we'd love to have you share a little bit about that experience and horse handicapping as it relates to investing... I have horses and have been incredibly fortunate in the last couple of decades to win the Preakness twice it's a race that for me it's as good as winning the Derby it's the middle Jewel of the Triple Crown well it's not the Kentucky Derby it's really special and to do it on my home field three blocks from where I grew up is very special”