Monday, March 10, 2014

Seth Klarman Cries Wolf, Talks Up Own Book

Seth Klarman, a truly great investor who thinks markets are complacent about 90% of the time! is warning in his most recent quarterly letter of how crazy valuations are for risk assets and how a crash is inevitable. The FT chooses to make this "front page" news today. Only one thing - Seth has been saying the same thing in every quarterly letter for the last four years. Worse, Klarman's Baupost fund generates essentially all it's great long term performance during and after market crashes. Yes, signs of excess are growing and yes, stocks don't look cheap but Klarman is the last guy to listen to for asset allocation advice.

One of the world’s most respected investors has raised the alarm over a looming asset price bubble, calling out “nosebleed valuations” in technology shares like Netflix and Tesla Motors and warning of the potential for a brutal correction across financial markets.

Seth Klarman, the publicity-shy head of the $27bn Baupost Group whose investment opinions have attracted almost a cult-like following, said that investors were underplaying risk and were not prepared for an end to central banks reversing a five-year experiment in ultra-loose money.

While noting that he could not predict exactly when a significant market correction would occur, Mr Klarman wrote in a private letter to clients: “When the markets reverse, everything investors thought they knew will be turned upside down and inside out. ‘Buy the dips’ will be replaced with ‘what was I thinking?’ . . .  Anyone who is poorly positioned and ill-prepared will find there’s a long way to fall. Few, if any, will escape unscathed.”

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