Seth Klarman And The Myth Of Wall Street

When Seth Klarman first began value investing for the Baupost Group, he encountered the frequent Wall Street wisdom that value investing would be dead in a short period of time because (1) the rise of computer trading mixed with (2) a significant influx of new investment professionals would lead to a perfectly efficient market where all new information would be instantly known and accurately priced into the stock.

One of the character traits that makes Seth Klarman such a remarkable investor is that he has an uncanny ability to recognize the situations in which news about a company is instantly known but not necessarily accurately priced into the value of the stock. There are two reasons for this—one, frankly, it’s hard to accurately predict the future cash flows for a majority of American companies once you get beyond soda, cereal, toothpaste, and other products that aren’t subject to technological disruption or big shifts in market share among the competitors.

Continue Reading!

“Feeding The Beast” Investing

All my talk about oil stocks here on the site bring in lots of oil stock investors from the search engines, who woulda thought?

In the past couple of days, I had been talking to a reader that decided to make BP and Royal Dutch Shell the starter positions in her stock portfolio by putting $400 per month into each Royal Dutch Shell and BP since 2011. I didn’t inquire into the specifics, but a very rough calculation that takes into account the capital appreciation of those companies could indicate that she is sitting on about $40,000 worth of stock in the two oil giants that is generating around $1,800 in current income, averaging out to $34 per week that makes its way to her in passive cash.

Continue Reading!