Baupost Group Increases Translate Bio Stake

Seth Klarman's investment firm Baupost Group has filed a 13G with the SEC regarding its position in Translate Bio (TBIO).  Per the filing, Baupost now owns 24.06% of the company with over 12.27 million shares as of August 31st.  This is up from the 8.84 million shares they disclosed as of the end of June.

Per Yahoo Finance, Translate Bio is "a clinical-stage messenger RNA (mRNA) therapeutics company, develops medicines to treat diseases caused by protein or gene dysfunction. The company is developing MRT5005, which is in Phase I/II clinical trial for the treatment of cystic fibrosis; and MRT5201 to treat ornithine transcarbamylase deficiency. It has a collaboration and license agreement with Sanofi Pasteur Inc. to develop mRNA vaccines for up to five infectious disease pathogens. The company was formerly known as RaNA Therapeutics, Inc. and changed its name to Translate Bio, Inc. in June 2017. Translate Bio, Inc. was founded in 2011 and is headquartered in Lexington, Massachusetts."

Seth Klarman's Baupost Group Year-End Letter Excerpts 2018

Seth Klarman has released Baupost Group's 2018 year-end letter and it's already received some media coverage which we linked to yesterday regarding his thoughts on rising global uncertainty, rising division in America, and growing global debt.  As always, he seems to have a cautious stance.  Below are further excerpts from the letter that are more investment-focused.  For 2018, Baupost's funds finished between flat and down less than 1% for the year. 

"Today’s markets feel strange and enigmatic. We will not complain about this; indeed, we see it as an opportunity. While the indices remain historically expensive, many stocks – of growing, not cyclical or declining firms – recently hit 52-week lows and trade at single-digit P/Es. These are levels that traditionally occur closer to market bottoms than tops. The recent selloff likely presented a buying opportunity – you can go years without seeing such valuations – but not across the board and not one for the faint of heart."

Klarman also postulated that private equity might have been the most over-extended asset class last year and wondered if the trend could continue as their tailwinds of low interest rates starts and a growing economy start fading away.

The Baupost founder also expressed another area of concern:

"Moreover, we have been increasingly worried that the U.S. financial markets are very highly leveraged not only with copious direct borrowings but also in less obvious ways – psychologically, algorithmically, and structurally – with investors vulnerable to exactly the same sort of urgent pressures that actual portfolio leverage can give rise to. As with a margin call, those pressures can include an intensely short- term orientation, extreme loss resistance, and an inability to stand apart from a panicky crowd."

As it pertains to psychological leverage, he notes that complacency has risen with the reduction of volatility.  And this complacency can then violently swing the other direction once volatility picks up (as the market showed in its recent sell-off).

Regarding algorithmic trading, his point is that with as much as 85% of all trading being done by machines, it's really hard to predict how these algorithms might react to new and/or unexpected conditions.

Lastly, index funds hold the lion's share of stocks these days and liquidity and ownership have become more concentrated, he notes.  This could cause a sharp impact on small cap companies.

Klarman then finishes up by touching on balancing risk-taking with risk aversion.  Baupost's strategy is to "forgo some upside in order to truncate the downside."  

"We believe another key element in portfolio management is curtailing the duration (the weighted average life) of one’s portfolio through exposure to investments with catalysts for the realization of underlying value. Catalytic events shift the outcome of investments from a reliance on future market multiples and macroeconomic developments (which are not at all under your control) to a dependence on your assessment of the outcomes, probabilities, and implications of announced or anticipated corporate events, including mergers and acquisitions, bond maturities, debt restructurings, bankruptcies, major corporate asset sales, spinoffs, and tender offers. No strategy can avoid all risk of loss. But we believe our approach should increase the likelihood of achieving sustainable gains with limited downside risk over the long- run. To put it differently, a portfolio of near infinite duration (such as an all equity portfolio without catalysts) can trade just about anywhere. With such exposures, if stock prices plummet, the odds go up that an investor will feel pressure to do the wrong thing and sell into market weakness. A limited duration portfolio, both because of the hopefully truncated downside in a bad market as well as the beneficial cash inflows (buying power) that catalysts usually generate, is hugely advantageous in navigating through turmoil."

Baupost saw the recent sell-off as an opportunity in some equities, establishing new stakes, while also increasing and decreasing other stakes. 

That said, he is certainly concerned about growing global uncertainty, rising division in America, as well as rising global debt.

Baupost Group Files 13D on Viasat, Joins Board

Seth Klarman's investment firm Baupost Group has filed a 13D with the SEC regarding its stake in Viasat (VSAT).  Per the filing, Baupost owns 23.06% of the company with over 13.73 million shares.  This ownership stake amount is unchanged from the end of the second quarter.

In the filing, Baupost notes they recently were invited to join the company's board in a non-voting capacity.

In a press release issued by the company, they noted: 

“As a decade-long investor in Viasat, we remain excited about the Company’s growth potential in both its defense and commercial businesses,” said Greg Ciongoli, partner, The Baupost Group. “We appreciate this opportunity to contribute to boardroom discussions.”

“Baupost has a successful long-term philosophy of value investing,” said Mark Dankberg, chairman and CEO, Viasat. “Inviting Baupost to participate as a Board observer provides us with an opportunity to capitalize on their strategic insight, as well as their valuable financial and investment expertise.”

Baupost Group Sells PBF Energy, FIles 13G on Colony NorthStar

Seth Klarman's hedge fund firm Baupost Group has filed a couple of 13G's with the SEC regarding shares of both PBF Energy (PBF) and Colony NorthStar (CLNS).


Baupost Sells PBF Energy

Per a 13G filing, Baupost Group no longer owns shares of PBF Energy (PBF).  The filing notes they sold the stake on May 31st.  They had previously owned a $268 million stake in the company as of the end of the first quarter.

Per Yahoo Finance, PBF Energy is "together with its subsidiaries, engages in the refining and supply of petroleum products. The company operates through two segments, Refining and Logistics. It produces gasoline, ultra-low-sulfur diesel, heating oil, diesel fuel, jet fuel, lubricants, petrochemicals, and asphalt, as well as unbranded transportation fuels, petrochemical feedstocks, blending components, and other petroleum products. The company sells its products in Northeast, Midwest, Gulf Coast, and West Coast of the United State, as well as in other regions of the United States and Canada. It also offers various rail, truck, and marine terminaling services, as well as pipeline transportation and storage services. PBF Energy Inc. was founded in 2008 and is based in Parsippany, New Jersey."


Baupost Files 13G on Colony NorthStar

Per a separate 13G, Baupost also now shows a 10.02% ownership stake in Colony NorthStar (CLNS) with over 49.68 million shares.  The number of shares they own is unchanged from the end of the first quarter, and so the percentage ownership of the company is likely what triggered the filing.

Per Yahoo Finance, Colony NorthStar, Inc. (NYSE:CLNS) "is a leading global real estate and investment management firm. The Company resulted from the January 2017 merger between Colony Capital, Inc., NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. The Company has significant property holdings in the healthcare, industrial and hospitality sectors, other equity and debt investments and an embedded institutional and retail investment management business. The Company currently has assets under management of $43 billion and manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, non-traded and traded real estate investment trusts and registered investment companies. In addition, the Company owns NorthStar Securities, LLC, a captive broker-dealer platform which raises capital in the retail market. The firm maintains principal offices in Los Angeles and New York, with more than 500 employees in offices located across 18 cities in ten countries. The Company will elect to be taxed as a REIT for U.S. federal income tax purposes. For additional information regarding the Company and its management and business, please refer to www.clns.com."

Baupost Group Slightly Increases Veritiv Stake

Seth Klarman's investment firm Baupost Group has filed a 13G with the SEC regarding its position in Veritiv (VRTV).  Per the filing, Baupost now owns 19.45% of the company with over 3.05 million shares.

This means they've increased their position size by 9,339 shares since the end of the second quarter.  The filing was made due to portfolio activity on September 30th.

Per Google Finance, Veritiv is "a business-to-business distributor of print, publishing, packaging and facility solutions. The Company also provides logistics and supply chain management solutions to its customers. The Company's segments are Print, Publishing & Print Management (Publishing), Packaging, Facility Solutions, and Corporate & Other. The Print segment sells and distributes commercial printing, writing, copying, digital, wide format and specialty paper products, graphics consumables and graphics equipment. The Publishing segment sells and distributes coated and uncoated commercial printing papers. The Packaging segment provides standard, as well as custom and packaging solutions. The Facility Solutions segment sources and sells cleaning, break-room and other supplies such as towels, tissues, wipers and dispensers, can liners, commercial cleaning chemicals, soaps and sanitizers, sanitary maintenance supplies and equipment, safety and hazard supplies, and shampoos and amenities."

Baupost Group Sells Vast Majority of Innoviva Shares

Seth Klarman's investment firm Baupost Group has filed an amended 13G with the SEC regarding its position in Innoviva (INVA).  Per the filing, Baupost now owns 0.92% of INVA with just over 1 million shares.

This is a sizable decrease from the previous 14.93 million shares they owned at the end of 2016 per their most recent 13F filing.  This latest filing was made due to portfolio activity on April 30th.

For more from this manager be sure to check out Seth Klarman's recommended reading list.

Per Google Finance, Innoviva "formerly Theravance, Inc., is engaged in the development, commercialization and financial management of bio-pharmaceuticals. It focuses on the respiratory assets partnered with Glaxo Group Limited (GSK), including RELVAR/BREO ELLIPTA (fluticasone furoate (FF)/vilanterol (VI)) and ANORO ELLIPTA (umeclidinium bromide/vilanterol (UMEC/VI)). Under the Long-Acting Beta2 Agonist (LABA) Collaboration Agreement and the Strategic Alliance Agreement with GSK, the Company is eligible to receive the annual royalties from GSK on sales of RELVAR/BREO ELLIPTA. For other products combined with a LABA from the LABA collaboration, such as ANORO ELLIPTA, royalties are upward tiering and range from 6.5% to 10%. RELVAR/BREO is a once-a-day combination inhaled respiratory medicine consisting of a LABA (VI) and an inhaled corticosteroid (ICS), FF. ANORO ELLIPTA a once-daily medicine combining a long-acting muscarinic antagonist (LAMA), umeclidinium bromide (UMEC), with a LABA."

Baupost Group Trims Kindred Biosciences, Exits ChipMOS

Seth Klarman's investment firm Baupost Group has filed with the SEC regarding its positions in Kindred Biosciences (KIN) and ChipMOS Technologies (IMOS).


Trims Kindred Biosciences Stake

First, per a separately filed 13G, Baupost Group has also revealed they now own 4.85% of Kindred Biosciences (KIN) with 965,484 shares.

This is a decrease from their previous position of 3 million shares at the end of the second quarter.  The filing was made due to activity on October 31st.

We've previously highlighted other portfolio activity from Baupost Group here.

Per Google Finance, Kindred Biosciences is "a development-stage biopharmaceutical company. The Company is focused on developing therapies for pets. The Company's product pipeline consists of small molecules and biologics for a range of indications in dogs, cats and horses. The Company is developing product candidates for over 20 indications and focused on small molecule products and canine and feline biologics products. The Company is developing antibodies that targets canine Interleukin 17A (IL-17a), Interleukin 4A (IL-4Ra), Interleukin 3 (IL-3), CD-20, Immunoglobulin E (IgE), tumor necrosis factors (TNF) and other validated targets. The Company's lead product candidates are Zimeta, which is indicated for the treatment of fever in horses, and KIND-010 for management of weight loss in cats. The Company's other product candidates include KIND-010, KIND-014, KIND-015, KIND-510, KIND-502, KIND-0888, KIND-509, and several antibodies that target cytokines involved in atopic dermatitis."

Exits ChipMOS (Merger Closed)

Second, per an amended 13G, Klarman no longer owns any shares of ChipMOS (IMOS) as of October 31st.  A merger involving the company's shares recently closed.  Baupost previously owned 3.75 million shares at the end of the second quarter.

Per Google Finance, ChipMOS is "a provider of semiconductor assembly and test services. The Company provides testing and assembly services for liquid crystal display (LCD) and other flat-panel display driver semiconductors in Taiwan, and for memory and logic/mixed-signal products in Taiwan and Mainland China. The Company's business segments are testing services for memory and logic/mixed-signal semiconductors; assembly services for memory and logic/mixed-signal semiconductors; LCD and other flat-panel display driver semiconductor testing and assembly services, and bumping services for memory, logic/mixed-signal and LCD and other flat-panel display driver semiconductors. The Company provides testing services for a range of memory semiconductors, such as Static Random Access Memory (SRAM), Dynamic Random Access Memory (DRAM) and Flash memory. Its production facilities are located in Hsinchu and Tainan, Taiwan and Shanghai, Mainland China."

Baupost Group Exits SunEdison Semiconductor Shares

Seth Klarman's investment firm Baupost Group has filed a 13G with the SEC regarding shares of SunEdison Semiconductor (SEMI).  Per the filing, Baupost now owns 0% of SEMI with 0 shares.

This is down from the previous 8.37 million SEMI shares Baupost owned at the end of the second quarter.  They no longer hold common stock and the filing was made due to activity on September 30th.

We've also highlighted other recent portfolio activity from Baupost Group here.

Per Google Finance, SunEdison Semiconductor is "engaged in the development, manufacture and sale of silicon wafers to the semiconductor industry. The Company also develops advanced substrates, such as epitaxial (EPI) wafers and wafers for the silicon-on-insulator (SOI) market, which enable computing and communications applications. Its products include polished wafers, EPI wafers and SOI wafers. The Company sells its products to the semiconductor manufacturers around the world, including integrated device manufacturers, pure-play semiconductor foundries and companies that specialize in wafer customization. It operates facilities in semiconductor manufacturing regions throughout the world, including Taiwan, Malaysia, South Korea, Italy, Japan, and the United States. Its wafers are used as the base substrate for the manufacture of various types of semiconductor devices, including microprocessors, memory, analog, mixed-signal and radio frequency (RF) integrated circuits, discrete and image sensors."

Baupost Group Adds To PBF Energy, Trims SunEdison Semiconductor & Innoviva

Seth Klarman's investment firm Baupost Group has filed three 13G's with the SEC recently.  Here's the summary:

Baupost Group Adds To PBF Energy Stake

First, Seth Klarman's firm has filed with the SEC indicating they now own 16.07% of PBF Energy (PBF) with over 15.72 million shares.

This is an increase of over 5 million shares as they previously owned 8.37 million shares at the end of the second quarter.  The filing was made due to activity on August 31st.

To see the rest of Baupost's equity portfolio, check out the brand new issue of our newsletter.

Per Google Finance, PBF Energy is " is an independent petroleum refiner and supplier of unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants and other petroleum products in the United States. The Company operates through two segments: Refining and Logistics. The Refining segment produces a range of products at each of its refineries, including gasoline, ultra-low-sulfur diesel (ULSD), heating oil, jet fuel, lubricants, petrochemicals and asphalt. The Logistics segment includes PBF Logistics LP (PBFX), which engages in the receiving, handling and transferring of crude oil and the receipt, storage and delivery of crude oil, refined products and intermediates. It sells its products throughout the Northeast, Midwest and Gulf Coast of the United States, as well as in other regions of the United States and Canada, and ships products to other international destinations."


Trims SunEdison Semiconductor Stake

Second, Baupost Group has also disclosed a reduction in its SunEdison Semiconductor (SEMI) stake.  They now own 5.6% of the company with over 2.37 million shares

This is a decrease of 6 million shares as they previously owned 8.37 million shares at the end of the second quarter.  The filing was made due to activity on August 31st.

Per Google Finance, SunEdison Semiconductor is "engaged in the development, manufacture and sale of silicon wafers to the semiconductor industry. The Company also develops advanced substrates, such as epitaxial (EPI) wafers and wafers for the silicon-on-insulator (SOI) market, which enable computing and communications applications. Its products include polished wafers, EPI wafers and SOI wafers. The Company sells its products to the semiconductor manufacturers around the world, including integrated device manufacturers, pure-play semiconductor foundries and companies that specialize in wafer customization. It operates facilities in semiconductor manufacturing regions throughout the world, including Taiwan, Malaysia, South Korea, Italy, Japan, and the United States. Its wafers are used as the base substrate for the manufacture of various types of semiconductor devices, including microprocessors, memory, analog, mixed-signal and radio frequency (RF) integrated circuits, discrete and image sensors."


Also Reduces Innoviva Position

Lastly, Baupost Group has also disclosed a reduction in their Innoviva (INVA) position.  They now own 15.29% of the company with 17.37 million shares.

This is down from the 17.61 million shares they previously owned at the end of the second quarter.  The filing was made due to activity on August 31st.

Per Google Finance, Innoviva "focuses on bringing new medicines to patients in areas of unmet need. The Company is engaged in the development, commercialization and financial management of bio-pharmaceuticals. Its portfolio focuses on the respiratory assets partnered with Glaxo Group Limited (GSK), including RELVAR/BREO ELLIPTA (fluticasone furoate/vilanterol (FF/VI)) and ANORO ELLIPTA (umeclidinium bromide/vilanterol (UMEC/VI)). It operates in providing capital return to stockholders by maximizing the potential value of its respiratory assets partnered with GSK segment. RELVAR/BREO is a once-a-day combination inhaled respiratory medicine consisting of VI, a LABA and FF, an inhaled corticosteroid (FF/VI) delivered via the ELLIPTA dry powder inhaler. ANORO ELLIPTA is a dual bronchodilator consisting of UMEC, a long-acting muscarinic antagonist (LAMA) and VI, a LABA for the treatment of chronic obstructive pulmonary diseases (COPD)."

Seth Klarman's Value Investing Lessons

Back in 2009, Baupost Group's Seth Klarman talked with the Ben Graham Center for Value Investing and the Richard Ivey School of Business.  In it, Klarman talks about his approach to investing and the timing of the talk (right after the financial crisis) leads to a few interesting tidbits.


Seth Klarman's Value Investing Lessons


Klarman says that, "All people are risk averse, it's a human tendency to be risk averse." He focuses on how the pain people feel from losing money is so much worse than the joy they receive from gaining money.

He gives the example of flipping a coin where heads you double your money, tails you lose everything you have.  Klarman argues almost everyone wouldn't take that trade for the fear of losing everything is so big.

Klarman then outlines Baupost's approach:

"What can go wrong?  How much can you lose?  We don't think of risk in an academic sense of beta, which doesn't make any sense to us at all.  Volatility's not risk, volatility is volatility.  Volatility creates opportunities and isn't necessarily risk at all, unless you absolutely needed to sell the day that prices are really low.  Rather, risk is the probability of losing and how much you can lose if you lose.  So we focus on risk before we focus on return."

He also notes that, "Long term orientation is critically important."

Klarman then goes on to focus on an aspect of the business that's not talked about as much but is just as important:

"Relationships are incredibly important.  In the buyside part of Wall Street, we work really hard to have the best brokers and be really good clients for them.  We don't want to be somebody's 50th biggest client.  Because we'll never get a phone call that says 'we've got a big block of this for sale, are you interested?'  But if we're somebody's first or second client, they're going to call."

On where Baupost looks for ideas:

"We think there are a lot of smart people out there.  We don't think we're the world's best analysts of businesses, we think we're good at that.  We think we're very good at complicated situations, the messier, the better.  We like situations with a catalyst where there's some reason that a pricing irregularity will correct.  But at a discount and something will cause it to correct.  That leads us into interesting places.  One of our favorite areas is distressed debt."

and

"Spinoffs are an interesting place to look because there's a natural constituency of sellers and there's not a natural constituency of buyers."

On the mental approach needed:

"This business is largely about psychology.  If you're down a huge amount, you're not thinking straight.  If the markets do something that completely surprises you, you can be a deer in the headlights.  It's a huge benefit to not have your own psychology get interrupted."

Lastly, Klarman had an excellent quote on trying to figure out who you'd be buying from and why they're selling:

"Inevitably, you want to buy from people that don't know what they're doing.  Warren Buffett has this saying that if you're playing poker and you look to your left and look to your right and you can't figure out who the patsy is, it's you.  Investing is the same way.  If you are buying something and there's a chance that the person knows more than you, there's a chance you're a sucker.  If you're buying and management is selling, you might want to think twice if you can figure that out.  If you're buying and Steve Mandel at Lone Pine Capital is selling, that's a really bad thing, because Steve Mandel does great analysis and probably knows more than you do."

Klarman is also the author of Margin of Safety, a hard to find book that's no longer in print.  It's revered by many value investors as a prime source of wisdom.

Embedded below is the video of Seth Klarman's talk:



For more from this respected investor, head to Seth Klarman's recommended reading list.

Baupost Group Files Amended 13D on Keryx Biopharmaceuticals

Seth Klarman's investment firm Baupost Group has filed an amended 13D with the SEC regarding shares of Keryx Biopharmaceuticals (KERX).  Per the filing, Baupost now has ownership of 42.53% of Keryx with over 59.21 million shares.

The filing was made due to activity on May 27th.  At the end of the first quarter, Baupost previously disclosed a position of only 25.79 million shares.

In the purpose of transaction section of the 13D, Baupost notes that:

"On May 27, 2016, the Issuer announced that at the Issuer’s Annual Meeting of Stockholders held on May 25, 2016 its stockholders approved an amendment to the Issuer’s Certificate of Incorporation to increase its authorized share capital by 50,000,000 shares of Common Stock. As a result of the increase in the authorized share capital, the Notes became convertible only into shares of the Issuer’s Common Stock. Based on the initial conversion rate, the $125 million aggregate principal amount of Notes is now convertible into 33,422,459 shares of Common Stock."

For more from this firm, we've highlighted previous Baupost Group portfolio activity here.

Per Google Finance, Keryx Biopharmaceuticals "is a biopharmaceutical company. The Company is focused on the development of products for the treatment of renal diseases. The Company's product Auryxia (ferric citrate), also known as Riona in Japan and Fexeric in Europe, is an oral, absorbable iron-based compound, which is indicated for the control of serum phosphorus levels in patients with chronic kidney disease (CKD), on dialysis. The Company operates through the products segment. Auryxia can bind to phosphate in the gastrointestinal tract and form non-absorbable complexes to reduce intestinal absorption and aid in the management of hyperphosphatemia in patients with CKD. The adverse events for Auryxia treated patients were gastrointestinal-related, including diarrhea, nausea, constipation, vomiting and cough. The Company focuses on Keryx Patient Plus program to assist with patient accessibility to Auryxia. ."

Baupost Group Reduces Bellatrix Exploration Exposure

Seth Klarman's investment firm Baupost Group has filed an amended 13G with the SEC regarding its stake in Bellatrix Exploration (BXE).  Per the filing, Baupost now owns 4.51% of the company with over 8.65 million shares.

This is down from the 23.99 million shares Baupost reported owning at the end of 2015.  The latest filing was made due to activity on March 31st.  Shares are down 17% thus far in 2016, and down over 62% over the past year.

Per Google Finance, Bellatrix Exploration is "an intermediate energy producer focused on exploration and development of light oil and liquids-rich natural gas opportunities in the Western Canada Sedimentary Basin. The Company develops its two core resource plays, the Cardium and the Notikewin/Falher intervals in Western Canada. The Company has a joint venture (the Daewoo and Devonian Partnership) with Daewoo International Corporation (Daewoo) and Devonian Natural Resources Private Equity Fund (Devonian) in the Baptiste area of West-Central 3 Alberta. The Company also has a joint venture (the Troika Joint Venture) with TCA Energy Ltd. (TCA) in the Ferrier Cardium area of West-Central Alberta. "

Notes From Berkshire Hathaway 50th Anniversary Symposium: Klarman, Ackman & More

The Berkshire Hathaway 50th Anniversary symposium just took place and featured conversations with the likes of Seth Klarman, Bill Ackman, Tom Gayner, Byron Trott, Carol Loomis, Roger Lowenstein, Tom Russo, John Phelan, and Whitney Tilson.  The notes were compiled by Jacques Romano, MD.


Notes From Berkshire Hathaway 50th Anniversary Symposium

Carol Loomis (CL) and Byron Trott's (BT) Conversation

Warren Buffett (WB) was invited but he graciously declined explaining his presence would change the nature of the discussions. BT met WB because the GS partner that had handled his account, Tom Murphy, Jr., had retired.  Hank Paulsen told Warren that BT was the only guy for him.  Initial one hour meeting lasted about three hours.  This was in early 2002.

WB created through GS a negative coupon convertible bond of about $300 million called SQUARZ in April 2002, whereby he was paid to borrow money and the institutional holder of the security was able to purchase Berkshire Hathaway (BRK) stock in the future at a higher price.  Charlie didn’t like the idea.

BT represented Pritzker in the Marmon deal and was involved with MacLeans and Pampered Chef transactions.  BT also involved in Wrigley and Mars deal.

BT describes WB as a perfect ten times two.  He has an incredible mind and able to do math in his head and his discipline is incredible.  On the human side, he is humble and has the best sense of humor.  He is someone you want to be with and is always positive about anyone.

Regarding discipline, he cited some KKR transaction that WB could have done for 10-15% more in price while having a cheaper cost of capital but WB felt he could use that cash more effectively at another time.  He waits for his pitch.  “You should see the stuff he turns down over the years”.

WB looks at cash on cash returns and doesn’t factor in leverage.  He looks for durable long lasting cash flow stream businesses.  He realizes that sometimes to get great businesses you have to reach but he is incredibly disciplined and completely unemotional.

WB told BT that CL started as a reporter but is great in accounting and finance and is a stickler for details.  She’s from Missouri.  CL expanded on a vignette about her dating Ty Cobb.  She had come to NYC in 1950s and was on the quiz show Tic Tac Dough where she did well and was subsequently contacted by Ty’s nephew for an invite by Ty to the 21 Club.  “How could a baseball fan turn that down?”  She was his subsequent “date” to Yankee Stadium during an Old Timer’s Game where she was presented with a Mantle, Maris, Whitey Ford autographed baseball.  That’s about where it went.  She was in her late 20s and he was in his late 60s.

In 2008, Goldman Sachs was experiencing a small but daily run on the bank and wanted to raise capital.  BT said it was about a 20 minute negotiation with WB.  In addition to making his BRK investment, WB wanted to make a big statement about being confident in that investing climate.  He subsequently made his GE investment and wrote his Oct. 2008 NY Times op-ed.  One of his points was that markets go up first and that there is reasonable cause to regain confidence.

WB is an American icon.  The world doesn’t understand how important WB was to the solutions during the financial crisis of 2008.  I would describe him as a “pragmatic optimist grounded in reality”.  

Hank Paulson told BT that during a late night phone call, it was Warren’s idea to make TARP capital attractive to banks and for it not to be stigmatized so all the banks should receive it and none look particularly weak or strong.  But he also wanted to make it more expensive for the banks if they kept this capital for a longer period.  

WB was doing this to help the country.  Some may be cynical about this because he owned Wells but Hank knew and everyone else who knows WB knew that he was creatively playing a constructive role.

Warren is disciplined, opportunistic and long term.   Charlie is not my number two; he is my equal and has kept us on the straight and narrow. Warren doesn’t want to do small deals but will do minority deals as long as it is big.

Warren’s the greatest, nicest and most accessible person.  He’s a great teacher and a great student of investing and business.  He provides a safe home for business owners that want liquidity and still passionately want to run their businesses. Warren is one of a kind and will be the best investor of all time and his record will not be beaten. 

He thinks very long term and Berkshire will still be intact a century from now. “Warren, you can’t control things from below the ground.” “Maybe not, but I can try.” The term “investor” is not quite expansive enough to describe Warren.  He’s also a great acquirer, manager and owner of businesses. Matt Rose of Burlington Northern told me that Warren knows more about the railroad now than I do.  And he can interconnect it to everything else.  He makes the complex seem simple.  When I talk to Warren, I feel like I’m 2 steps behind him.

They discussed how Andrew Carnegie is known more now as a philanthropist than as a businessman and Warren may have similar impact and be known more expansively.


Seth Klarman (SK), Bill Ackman (BA), and Roger Lowenstein's (RL) Conversation

Bill went to Larry Cunningham’s Cardoza symposium in 1996 and fortuitously sat next to Suzzie Buffett who invited him to sit next to Warren at lunch!  When he went to HBS, there were not any classes in investing although there were classes in investment management.  There were no investment clubs at that time either.  He read Graham’s Intelligent Investor and then Warren’s annual reports.

Seth Klarman took a job at Mutual Shares after college and “Warren” was common parlance once I got into the business.  He thought Warren’s Superinvestor article was very logical.  SK feels that there must be some type of gene that makes people have an affinity for value and value investing.  He told a story about a friend of his whom enthusiastically tried value investing full time but three months later ended up quitting:  “It doesn’t work”.  

BA says some of the things he tries to emulate are Buffett’s focus on quality, durability and concentration.  Although given “my” experience in Valeant, perhaps I should change one of his aphorisms to “be fearful when others are fearful”.  

Making good investments is not about performing discounted cash flow analyses or reading footnotes but more about assessing the moat in our dynamic world. Many of Buffett’s investments in the 1970s like encyclopedias and newspapers did not hold their advantages.  You can’t “just buy and hold”.  The world has changed rapidly.

The difficulty is the qualitative assessment and the implementation. Railroads now seem to pass the 100 year test but how many businesses can pass that test? Lowenstein made the point that Wall Street loves those 99:1 bets but not WB.

SK said that the maxim of “don’t lose money” does not mean at every time and in every instance but to the extent that it puts you out of business.  Sometimes you can bet or invest in favorable expected value situations where you lose the bet.  This is similar to an insurance operation.  Some investments in a portfolio will lose but you don’t put the operation at risk.  

SK: In the 1980s you could actually buy quality inexpensively; you didn’t have to pay up.  I remember Nabisco selling for 7 times after tax earnings.   You can’t just kneel at the temple of Graham and Dodd, you and the world will change.  We will evolve and ought to evolve because the world requires us to.  WB teaches us how to make our own map.

I don’t know WB well enough to know how he feels, but I suspect that he feels that him being held as an investing demigod is a bit silly.  WB isn’t about that. WB is not about giving you a formula.  “Business is hard.  Everything is overlaid with judgment”. WB has been fortuitous to invest at a time when you could get quality inexpensively.  He has built on certain advantages.  No one else gets the calls that he gets. Some people are overly focused on him as opposed to understanding how he thinks.

BA: Buffett has made more people rich than anyone else in history.  And he gives it all away.  He’s one of the great educators. I believe in response to a questioner, BA went into a diatribe about Coca Cola (KO).  It does enormous damage to society and people consume too much sugar contributing to obesity and diabetes.  He wouldn’t be against supermarkets that sell coke.  And he owns Mondelez: all things in moderation.  But Coke doesn’t seem to have had a bad effect on Buffett.  I believe he has said WB hasn’t had water since the 1950s!  He thinks Coke has great distribution and marketing but it is not good for children to get too much sugar water.

There was some discussion that the BRK model with insurance, concentrated positions and possible illiquidity may have problems in future.  You need to be a fortress and inspire confidence and trust with regulators.  Will that survive Buffett? Conglomerates do not have a great history.

Buffett is a fabulous communicator.  He has stayed on the right side of politics and has avoided becoming a target of Washington.  It is not automatic that the next CEO will be able to tell the story of the company as well. SK said he stole the idea of writing meaningful partner letters from WB.  And he feels that the overall quality of fund letters in general has improved because of Buffett’s lead.  Consistency, reassurance, and transparency give shareholders comfort.

BRK can be a Warren centric model.  He is uninvolved in the management of the businesses and there may be an opportunity for “optimization”.  With 3G he is “outsourcing” the less attractive aspects of the business. Catastrophic risks can destroy enormous amounts of value.

SK: excessively raising prices on drugs may not be illegal but there are social costs.  Capitalism may face a more constrained environment as a result of bad behavior. WB has conducted himself generally beyond reproach.  He has not become a target.  The next CEO may not get a pass so easily. Value investing is nuanced but we will always have it.  “Human nature will not yield”.  Greed, fear and lack of intellectual honesty will result in bargains from time to time. There is always going to be a share of the investment business that is following the crowd.  There are those watching over their shoulder and who have misalignment of goals.  They may be forced to do things they may not want to do for human reasons.

Someone asked SK if he wanted to be an investment manager at BRK or if he had any discussions about this with WB.  He said he was never a candidate and loves his job. He said he was surprised on the upside with WB’s decisions about investment managers.  It was hard to do and it has gone incredibly well.  


Berkshire Shareholder Panel: Tom Russo, Paul Lountzis, Whitney Tilson

“Only WB can fill a room without even being in it”.

Whitney Tilson has been adding to his BRK position.  It is safe, cheap and with decent growth.  He puts fair value about $267,000 give or take 10%.  You can find his slide presentation on the Internet (there were no slides at this conference).

Tom Russo said there are no agency costs and an extraordinary alignment of interests.  WB owns 30% of the stock and makes $100,000 for managing. The corporate form allows for tax efficiency with respect to capital allocation.   He has the willingness to do anything if it makes sense and the capacity to do absolutely nothing if conditions warrant.  Great businesses can find a home at BRK where they will be protected.

Paul Lountzis tries to understand BRK broadly and deeply.  There is embedded optionality in BRK.  Regarding Berkshire, he is reminded of the Ralph Waldo Emerson quote: “Every institution is the length and shadow of one man.”  We try to understand it now and in the future. He mentioned that Geico is on the books for $2-3B but is worth 10-15 times that.

WT told WB that he is his role model in Jan. 1999 and he tries to emulate how he runs the business.  Given how WB communicates, BRK is the opposite of a black box.  He has incredible humility and even looks for ways to self-flagellate.

PL:  WB is a wonderful human being and exemplifies consistency and loyalty to a high degree.  He focuses on permanence over the long term and looks out 10-20 years. His example impacts everything you do both personally and professionally.  BRK values permeate seamlessly and consistently throughout its business. Despite the fact that BRK has gone down by 50% several times it has still been extraordinarily rewarding.

Few businesses have great reinvestment opportunities.  If you can defer taxes on unrealized gains, this is a great advantage. The problem with many public companies is their inability to take advantage of some of their potential opportunities, unlike family controlled companies.  Public companies may need to make earnings estimates as opposed to investing in opportunities that may penalize current earnings.  They may worry about activists.

BRK is a unique public marriage between private and public investments.  BRK gets $1.5B month in free cash.  It is effectively a source of permanent capital and a robust re-investment engine. During times of stunning market drops, WB was never forced to sell. Permanent capital is very valuable. The ability to do nothing is valuable in the investment business. Operationally, they can turn down the noise of Wall St. Buffett has the flexibility to do nothing.  He is unique and special and combines analytical strengths with strong people skills to a degree that is very rare. He has unique qualitative insights. You don’t see the 99% of opportunities he says “no” to.  

Buffett plays a very important cheerleading role.  Many company CEOs are rich and old and feel personally loyal to Buffett.  Are they going to be as loyal to the next CEO? There is somewhat limited corporate governance but Buffett holds it all together.  

What is the next BRK? The best BRK is BRK. One interesting point that was made: investors that held the S&P 500 going into the financial crisis more than likely sold when everyone was running for the hills.  But given their understanding of and loyalty toward BRK, shareholders were much more likely to garner the full return of the company and not otherwise sell low and buy high.  This is a point that can be missed when one compares BRK returns to the index.  The index’s returns are more likely illusory and less likely realized. Other companies “wave people in at the peak”. 


Partnership Session With Markel's Tom Gayner and John Phelan

John Phelan.  We don’t take 1% or more positions without visiting the company. Should you locate far from Wall St?  Mindset trumps location.   We think we have semi-permanent capital.  There is always a balance between the short term and long term. Our benchmark is not the S&P 500.  Our benchmark is to make money.  The risk free rate is your benchmark. We have the luxury of not being invested all the time. Simplicity is a virtue and we have fewer problems that way. If you hire someone that is not from a top school, they are less likely to think, “You’re lucky to get me”.  Some of our best hires are from the military.  They know how to get things done. We currently have 18% cash which is on the high side. We are company focused and not market focused.

Tom Gayner: “Good meat priced right is better than poor meat priced cheap”. JP worries about the credit markets.  Now a $250M 10 year Treasury trade moves the market whereas before $1B wouldn’t make it blink. We are defensively positioned but not bearish on the US economy.  We are seeing wage pressure in our companies.   The best hedge is a great attractively priced business. Paying up for a business is counter-intuitive.  It costs more but may be worth a lot more.

Lawrence Cunningham: Buffett’s presence here would steal the stage and by electing not to come, he is letting us have the conversation. LC organized a conference at Cardoza Law School in 1996.  One questioner asked what happens to the shareholders when Buffett dies.  Buffett said, “it won’t be as bad for you as it will for me!” BRK looks a lot different today than it did then but the core values have stayed the same.  He has created an institution that goes beyond him in the quality of the people, businesses and values and that is the best succession plan possible.

BRK gets funds from internal generation and insurance float versus the cost of borrowing to make acquisitions.  The float is currently $85B with no due dates, covenants or banker negotiations.

The Board is not there to monitor management but to partner with it.  They have no options, liability insurance and bought stock with their own cash. Company CEOs have clear and simple mandates.  Called out Bruce Whitman, CEO of Flight Safety who was at the conference. He has never sold a subsidiary and sometimes business sellers accept a discount compared with offers from other business buyers. We would rather bear the visible costs of a few bad decisions than suffer under stifling bureaucracy.

GenRe would have gone bankrupt after 9/11 without BRK! Dexter Shoe was another “mistake”. BRK sometimes is a juicy target for journalists-recently Clayton Homes and National Indemnity.

He spoke about a recent acquisition called Detlev Louis from Germany that sells motorcycle gear.  Similar to See’s being a small deal but defining the future of the company, he sees this company as a possible harbinger of future deals in Europe.  He points out that it only has about $40M in earnings which is less than WB’s minimum size but he made an exception to get a toehold in Germany and Europe.

He made mention that Pampered Chef’s sales have considerably decreased and that there is some turmoil in the capital intensive business of NetJets.

Don’t focus on beating the market but in finding the greatest discrepancy between price and value.

Baupost Group Exits Alliance One Position

Seth Klarman's investment firm Baupost Group has filed a 13G with the SEC regarding shares of Alliance One International (AOI).  Per the filing, Baupost no longer owns an equity position in the company.

This is down from the 638,364 shares they owned back at the end of the second quarter. The latest filing was made due to activity on October 31st.

For more from this manager, be sure to check out the collected wisdom of Seth Klarman.

Per Google Finance, Alliance One is "a leaf tobacco merchant. The Company is engaged in purchasing, processing, packing, storing and shipping tobacco to manufacturers of cigarettes and other consumer tobacco products globally. The Company deals primarily in flue-cured, burley, and oriental tobaccos that is used in international brand cigarettes. The Company’s revenues are primarily comprised of sales of processed tobacco and fees charged for processing and related services to these manufacturers of tobacco products. The Company does not manufacture cigarettes or other consumer tobacco products. The Company has classified its business into three segments for reporting purposes: South America segment, Value Added Services segment and Other Regions segment. Value Added Services is comprised of the Company's crushed rolled expanded stem (CRES), cut rag, toasted burley and other specialty products and services."

The Collected Wisdom of Seth Klarman ~ Compilation By Santangel's Review

Santangel's Review has recently compiled an excellent resource on Baupost Group's Seth Klarman.  They've gone through and compiled quotes from letters, articles, interviews, transcripts and more to highlight Klarman's views on various investing topics.

Given that Klarman is considered one of the best investors of our time, this is certainly well worth your time.

Embedded below is The Collected Wisdom of Seth Klarman:



You can download a copy here.

Thanks to Santangel's Review for compiling such an excellent resource.

Baupost Group Discloses Orexigen Therapeutics Stake

Seth Klarman's investment firm Baupost Group has filed a 13G with the SEC regarding shares of Orexigen Therapeutics (OREX).  Per the filing, Baupost now owns 17.17% of the company with over 25.82 million shares.

This is a newly disclosed equity stake for the firm as they did not show one at the end of the second quarter.  The filing was made due to activity on September 30th.

Shares of OREX are down over 69% over the past six months, so this certainly fits Baupost's preference to buy beaten down names.

You can view other portfolio activity from Baupost Group here.

Per Google Finance, Orexigen Therapeutics is "a biopharmaceutical company. The Company is focused on the development of pharmaceutical product candidates for the treatment of obesity. The Company's product is Contrave, a fixed dose combination of bupropion hydrochloride (HCl) extended release (ER) and naltrexone HCl ER. The Company's product Contrave, is approved in the United States by the United States Food and Drug Administration (FDA) as an adjunct to a reduced-calorie diet and increased physical activity for chronic weight management in adults with an initial body mass index (BMI), of around 30 kilograms per square meter (kg/m2) or greater (obese), or around 27 kilograms per square meter or greater (overweight) in the presence of at least one weight-related comorbid condition. The Company also submitted an application for marketing authorization with the European Medicines Agency (EMA) for Contrave under the name Mysimba.."

Baupost Group Discloses Biotie Therapies Stake

Seth Klarman's investment firm Baupost Group has filed a 13G with the SEC regarding shares of Biotie Therapies (BITI).  Per the filing, Baupost now owns 12.92% of the company with over 130.68 million shares.

This is a newly disclosed position for the firm as they did not show a stake at the end of the first quarter.  The filing was made due to activity on June 30th.

We've highlighted some other portfolio activity from Baupost Group here.

Per Google Finance, Biotie Therapies is "a Finland-based biopharmaceutical company, which specializes in the field of neurodegenerative and psychiatric disorders. Its product portfolio comprises six drugs: Selincro (nalmefene), an orally administered opioid receptor ligand applied in the alcohol dependence therapy; Tozadenant (SYN115), a is an oral, potent and selective adenosine 2a (A2a) receptor antagonist for the Parkinson’s disease treatment; NRL-1, a intranasal formulation of diazepam for patients with epilepsy; Nepicastat (SYN117), an orally administered, potent and selective inhibitor of dopamine beta hydroxylase (DBH) for the cocaine dependence treatment; BTT-1023, a monoclonal antibody targeting Vascular Adhesion Protein 1 (VAP-1) used in inflammation and fibrosis treatment; and SYN120, an oral, potent and dual antagonist of the 5-HT6 and 5HT2a receptors used in Alzheimer’s disease and other cognitive disorders, such as schizophrenia. It is a parent of Biotie Therapies GmbH, among others."

Baupost Group Starts Bellatrix Exploration Stake, Adds to SunEdison, Reduces Syneron Medical

Seth Klarman's hedge fund firm Baupost Group has filed three 13G's with the SEC.


New Position in Bellatrix Exploration

First, Baupost Group has disclosed a new equity position in Bellatrix Exploration (BXE) and they now own 11.38% of the company with over 21.8 million shares.  The filing was made due to activity on January 31st.

Per Google Finance, Bellatrix Exploration is "a Canada-based company engaged in exploration and production of oil and gas. The Company is focusing on developing its two core resource plays, the Cardium and the Notikewin/Falher intervals. The Cardium is into accumulation of light oil in the Western Canadian Sedimentary Basin with approximately 20,000 square miles and 1.38 Billion barrels produced to date. Notikewin/Falher is located in a regional stacked Upper Mannville Channel. The main type of reservoir is incised channel fill sandstones cutting finer-grained non-marine deposits."


Increases SunEdison Semiconductor Position

Second, Seth Klarman's firm has increased its position in SunEdison Semiconductor (SEMI).  They now own 19.03% of the company with over 7.89 million shares.  This is an increase of over 3.75 million shares since the end of the third quarter and the filing was due to activity on January 31st.

Per Google Finance, SunEdison Semi "is engaged in the development, manufacture and sale of silicon wafers to the semiconductor industry. The Company’s products include polished, epitaxial (EPI), silicon on insulator (SOI), perfect silicon and magic denuded zone (MDZ) wafers ranging in diameter from 100 millimeter (mm) to 300 mm. The Company sells its products to semiconductor manufacturers, including integrated device manufacturers and pure-play semiconductor foundries, and to a lesser extent, companies that specialize in wafer customization."


Decreases Syneron Medical Exposure

Third, Baupost has disclosed a 3.07% ownership stake in Syneron Medical (ELOS) with over 1.12 million shares.  This is a decrease of over 1.86 million shares from their previous stake at the end of the third quarter.  The filing was required due to portfolio moves on January 31st.

Per Google Finance, Syneron Medical "designs, develops and markets aesthetic medical products based on its various technologies including its Electro-Optical Synergy (ELOS), technology, which uses the synergy between electrical energy, including radiofrequency (RF) energy, and optical energy to provide aesthetic medical treatments. The Company’s products, which it sells primarily to physicians and other practitioners, target a range of non-invasive aesthetic medical procedures, including hair removal, wrinkle reduction, rejuvenation of the skin’s appearance through the treatment of superficial benign vascular and pigmented lesions, acne treatment, treatment of leg veins, treatment for the temporary reduction in the appearance of cellulite and thigh circumference and laser-assisted lipolysis."

You can view additional recent portfolio activity from Baupost Group here.

Baupost Group Discloses Paratek Pharmaceuticals Stake

Seth Klarman's hedge fund firm Baupost Group has filed a 13G with the SEC regarding shares of Paratek Pharmaceuticals (PRTK).  Per the filing, Baupost now owns 12.04% of the company with over 1.7 million shares.

This is a newly disclosed equity position for the firm and the filing was required due to activity on October 31st.


The firm has been active in that sector recently.  Back in early November, Baupost also disclosed new positions in Atara Biotherapeutics (ATRA) and Forward Pharma (FWP), per 13G's filed with the SEC.

Per Google Finance, Paratek Pharmaceuticals is "a specialty pharmaceutical company focused on the development and commercialization of products that address therapeutic needs in the field of neuroscience."

Baupost Group Boosts Keryx Biopharmaceuticals Stake

Seth Klarman's investment firm Baupost Group has filed an amended 13G regarding their position in Keryx Biopharmaceuticals (KERX).  Per the filing, Baupost now owns 19.93% of the company with 18.3 million shares.

They've boosted their position size by over 7.76 million shares since the end of the second quarter.  The filing was required due to portfolio activity on September 30th.

You can view other portfolio activity from Baupost here.

Per Google Finance, Keryx Biopharmaceuticals "is focused on the acquisition, development, and commercialization of pharmaceutical products for the treatment of renal disease. The Company is developing KRX-0502, an investigational, ferric citrate, oral compound that binds to phosphate. Under the name Zerenex, KRX-0502 has completed a United States-based Phase III clinical program for the treatment of hyperphosphatemia in patients with chronic kidney disease (CKD) on dialysis."