While lofty valuations present risk for investors, extended valuations alone aren’t predictive of imminent collapse. This content is exclusively for paying members. Since mid-2017, the performance gap has actually widened, with value returning 9.5% a year compared to 18.5% for growth. Often, it is not the risks we can identify but the threats that cannot be anticipated that hold the greatest peril for investors and for society. One must be willing to hold cash, but also positioned to move quickly to take advantage of opportunities that develop. Seth Klarman: Investors Can No Longer Rely On Mean Reversion Rupert Hargreaves 2020-08-11T22:07:22-04:00 "For most of the last century," Seth Klarman noted in his second-quarter letter to Baupost's investors, "a reasonable approach to assessing … With great patience and strict discipline. In their landmark book “Security Analysis,” Benjamin Graham and David Dodd argued that in the short-term, the stock market plays the role of a voting machine, while in the longer-term, it’s a weighing machine. Founded in 1983, The Baupost Group now manages $7 billion, and has averaged returns of nearly 20% annually since their inception. NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption, Registration on or use of this site constitutes acceptance of our, Visit Business Insider's homepage for more stories, record $128 billion in cash at the end of September, A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption, Aurora Cannabis soars 13% as Biden's election lead grows, pointing to a major boost for marijuana stocks », Airbnb plans to file for its more than $30 billion IPO as early as next week despite pandemic headwinds, according to report ». "The rocket fuel that has propelled markets in 2019 will run out," Seth Klarman wrote in his annual letter to investors last week, according to Bloomberg, which reviewed a copy. Companies we own are generally delivering on our expectations regarding their bottom-line results. Seth Klarman, a hedge fund billionaire some call the next Warren Buffett, wrote a sobering letter warning his investors of global tensions, rising debt levels and political divides. Prudent portfolio diversification is necessary, but there must also be a willingness to concentrate in the best opportunities. All Rights Reserved. Rupert holds qualifications from the Chartered Institute For Securities & Investment and the CFA Society of the UK. Mr. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors. This often leaves us behaving in contrary fashion to market forces, buying when the herd is selling, and vice versa. Seth Klarman’s 13F portfolio value increased from $6.77B to $8.01B this quarter. Cash balances at December 31 totaled roughly 31% of the portfolio. At other times, the convergence is more gradual as the earnings power of the business proves out the company’s intrinsic value, or as share buybacks at undervalued levels prove accretive to per share value.