The Baupost story

Imagine making over 20% a year since 1983. Safely. $10,000 invested then would be worth about $1m now, but the original investors had $27m, and they have made over 6,100% after fees.

Sounds like the sort of place you’d like to put your money right? Especially as Baupost boss Seth Klarman’s mantra is “Don’t lose money”.

Sadly the fund has been closed to new investors for years, as Baupost wanted to keep itself and the number of investors relatively cosy. With growth figures like that, that small fund part is hard to do, but the firm itself does remain a small one.

There is, however, one way you can invest in Baupost, and that is to become an employee. I got close – interviewing with Seth and several others back in 1997/1998, over two or three rounds. Their interview process was really quite excellent – at one stage I was placed in a room, given an annual report and not enough time, and asked for an investment recommendation. I guess I passed that stage because shortly after I was asked to investigate a couple of NZ companies when I was out in NZ a few weeks later.

Sadly I screwed that up – I did manage to get in front of a couple of people, but I didn’t manage to acquire enough information to form a decent opinion, I didn’t spend enough time analysing what I had and then I made a tentative buy call on one of the companies. The companies were BIL and TranzRail and they both had good reason to go down in value, which they did. I fell into the trap of wanting to make a recommendation, rather than just saying “not enough value, move along”

Regardless, the role that they were considering for me was no longer an option after some internal shuffling, and so the offer wasn’t to be. It would have been a very interesting decision between McKinsey and Baupost, and in a way I was pretty glad that I didn’t have to make it.

Why am I mentioning all this? Well via Bert Fresno I see that Alex Bossert has posted excerpts from a Seth Klarman speech at Colombia Business School. Seth pops into the occasional business school class and is entertaining and incredibly informative when he does so. I was lucky enough to see him at Yale (that’s how the interview process got going), and I recommend that if you invest money, especially your own, then you should read that post.

If you have no time for that, but are somehow still reading this (clearly you are related to me), then the essence is simple – don’t lose money, invest in stuff that is wildly mis-priced and look for something that is going to make that mis-pricing revert to the norm

Published by Lance Wiggs


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