““I’ve tried hard to understand the arguments for crypto and figure out why people are so excited. I can’t find value there.””
That’s Seth Klarman, co-founder of Boston-based hedge-fund Baupost Group, one of the world’s largest hedge funds with nearly $30 billion under management, according to the latest Securities and Exchange Commission filings.
Klarman rarely gives interviews but on Tuesday he had something to promote: he recently penned the introduction to the seventh edition of the seminal value-investing text “Security Analysis” first published by Benjamin Graham and David Dodd in 1934.
So he joined CNBC to discuss his investing process and potential opportunities he sees in contemporary markets, while also sharing some thoughts about what investors can learn from Security Analysis’s authors.
“The book has some important reminders for people about the dangers of speculation and the importance of remembering what kind of environment you’re in,” he said.
“Every investor has that challenge. You have to look at the moment you’re in and say ‘what of this is real’?”
The Baupost Group chief is a self-described “bitcoin skeptic.” He believes cryptocurrency is a “seductive idea” with little substance behind it. Like SPACs (Special Purpose Acquisition Companies) and meme stocks, cryptocurrencies benefited from the speculative fever brought about in part by low interest rates.
“We’ve been in an everything bubble, I think. A lot of money has flowed into everything…and low interest rates have precipitated that,” Klarman said. “You’ve had speculation during that bubble in all kinds of things from crypto to meme stocks to SPACs.”
To be sure, Klarman’s crypto skepticism didn’t stop Baupost from investing in convertible bonds issued by cryptocurrency exchange Coinbase Global Inc.
COIN,
Although he clarified that his firm decided to buy the bonds based on an opportunity it saw in Coinbase’s financials.
“The company is sitting on $5 billion in cash and has less than that in debt. We think the company is doing some smart things, and it’s cash-flow positive. But this is not a
bullish bet on Coinbase,” Klarman said.
Times are tough for investors looking to ferret out market-beating opportunities, Klarman said. Asked how he would rate contemporary markets on a scale of 1 to 10 based on how many actionable ideas are out there, Klarman said he would give it a “4.”
But he does see opportunities in the troubled real estate space.
“I think there are hunting grounds where one would want to look. We think real estate is an area that’s full of so many fundamental challenges…there might be opportunities to buy,” he said.
The game of investing is all about finding an edge, which has become more difficult over the last couple of decades, Klarman said. Still, investors can outshine their competition by simply being more focused and more disciplined.
“You can find an edge in how you incentivize your team, how you lead your team. You can find opportunities around the edges of what other people are doing,” he said.
Stocks were higher at midday Tuesday, with the Dow Jones Industrial Average
DJIA,
up 150 points, or 0.4%, while the S&P 500
SPX,
rose 0.8% and the Nasdaq Composite
COMP,
advanced 1.1%.
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