Seth Klarman Portfolio Analysis: Achieving Long-Term Success in Investing

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Jacob Wolinsky
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Seth Klarman is a well-known name in the investing world. In 2008 he was introduced into the Institutional Investor Hall of Fame. He showed an interest in investing at an early age and founded his hedge fund - the Baupost Group in 1982. In 2017 he was listed as 15th highest earning hedge fund manager. Seth Klarman's portfolio currently consists of 26 holdings.

Klarman’s biggest holding is in Liberty Global (LBTYK) where he acquired Class C stocks. A new holding, Clarivate Plc (CLVT) takes second place, while a conglomerate international company Alphabet takes third place. Other notable holdings include Fidelity National Information Services (FIS) and Willis Towers Watson Plc (WTW).

Klarman is often compared to Graham and Buffett due to the value investing principles that he uses. He has averaged an annual return of 20% over the last 30 years, which is a rare accomplishment. His Baupost Group is considered to hold over $5 billion in assets under management. Stay with us for more information on Klarman’s investment approach and portfolio.

Seth Klarman Portfolio Analysis

Key Holdings

Seth Klarman was busy in Q3 2023 and his portfolio underwent a solid restructuring. Currently, the key holdings in his portfolio are:

  • Liberty Global Ltd Class C (NASDAQ:LBTYK) with 18.7% of the portfolio

Klarman started investing in this holding in Q3 2018 and was one of the biggest stakeholders in the company. In Q2 2021 he started trimming down this position. Just during 2023, he sold more than 5 million stocks. Currently, he owns 42.3 million stocks valued at $886 million. Klarman’s total investment in the company was $1.03 billion, which ended up with a loss of 14%.

  • Clarivate Plc (NYSE:CLVT) with 13.72% of the portfolio

Baupost Group added this company to their portfolio in Q3 2023 when they bought 22.5 million shares. They own 11% of all outstanding Clarivate stocks which are currently valued at $651 million.

  • Alphabet Inc Class C Stocks (NASDAQ:GOOG) with 11.45% of the portfolio

Klarman’s has been trading Alphabet stocks for four years. He currently owns 3.83 million Class C shares, and in 2023 he bought 1.86 million and sold 2 million shares. His total investment in this holding is $331 million, while now it is valued at $543 million, resulting in a 64% gain.

  • Fidelity National Information Services (NYSE:FIS) with 9.13% of the portfolio

Another newer holding dating to Q3 2022. Since then Klarman has been piling up Fidelity stocks reaching its current peak with 6.96 million stocks. Klarman invested in these stocks a total of $459 million, while their current value is $433 million. This can be translated into a current loss of 5.5% for this holding.

  • Willis Towers Watson (NASDAQ:WTW) with 7.59% of the portfolio

At the start of 2023 Klarman trimmed down this holding, and by the end of the year substantially increased his stake. Klarman is the 2nd biggest holder of WTW stocks and the value of this holding is at a reported $360 million. Klarman invested a total of $342 million, resulting in a gain of 5.4%.

  • Viasat Inc. (NASDAQ:VSAT) with 7.58% of the portfolio

A long-term holding dating back to Q2 2008 is currently the 8th largest Klarman holding. He owns an outstanding 12.55% of all Viasat stocks. In numbers that is 16.2 million stocks, and in Q3 2023 he did a minor sale of 114 thousand stocks. His total investment into Viasat stocks is $613 million, while his current stake is valued at $360 million, resulting in a loss of 41%.

  • Warner Bros Discovery Inc (NASDAQ:WBD) with 5.33% of the portfolio

Klarman bought 18 million shares in Q2 2022 for an average of $17.92, and an additional 11 million shares in Q3 2022 for $13.59. He increased the stake one more time reaching a maximum of 31 million shares. In Q1 2023 he sold 5.76 million shares for an average price of $14.23. When looking at the whole trade history Klarman invested $403 million, and his current stake is valued at $253 million resulting in a loss of 37%.

Sector Diversification in Klarman's Portfolio

Klarman’s portfolio is highly diversified amongst several sectors, with the majority of holdings being in the tech businesses. His current sector allocation is:

  1. Technology sector with 49.9% of the portfolio valued at $2.37 billion
  2. Telecommunications sector with 27.7% of the portfolio valued at $1.32 billion
  3. Finance sector with 7.6% of the portfolio valued at $360 million
  4. Consumer Discretionary sector with 6.3% of the portfolio valued at $238 million
  5. Materials with 3.8% of the portfolio valued at $180 million
  6. Healthcare sector with 3.4% of the portfolio valued at $159 million
  7. Industrials with 1.4% of the portfolio valued at $65.7 million

Investment Philosophy of Seth Klarman

Core Tenets of Klarman's Investment Strategy

Klarman’s 4 decades-long investment career is an inspiration for many investors, particularly those who prefer a value investing approach. In 1991 Klarman wrote a book “A Margin Of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor” which is considered a classic among other value investors, including Warren Buffett.

He is managing both his hedge fund the Baupost Group, and Klarman’s Family Foundation. From his investment strategy and extensive experience we can pull out several valuable lessons.

  • Aiming for the margin of safety. It is calculated as a difference between the market price of a security and your estimation of its intrinsic value when the market price is below that value estimate. Klarman points out several reasons for the importance of margin of safety. The crucial importance of the margin of safety is in the imperfect art of valuation, and when you combine it with the unpredictable future and a chance for human error, it is easy to see why it is necessary to chase it. The margin of safety also works as a hedge that protects investors from major market downturns.
  • He considers investing in index funds as mindless investing. He is not hiding his distrust in both ETFs and mutual funds. The core reason is that he doesn’t believe that managers of these funds have read the financial statements of the companies they invest in. He also notes that although indexing is predicated on efficient markets when the number of investors in these funds increases, that lowers the overall efficiency of the market.
  • Klarman sets a clear distinction between an investor and a speculator. While investors base their decisions on business analysis and the fundamentals of the companies, speculators follow the opinions and predictions of other people. Investors tend to aim for long-term returns based on the good fundamentals of the companies, whilst speculators buy and sell stocks based on their prediction of their future price.
  • He discourages investors from looking for investment shortcuts and perfect formulas. Although many investors tried to find a perfect approach that would always bring results, it is in practice impossible. The market is too complex to be incorporated into one formula.
  • If you are thinking of adopting value investing principles do not forget discipline, and thinking outside the box. To be a successful value investor you must have patience in searching for bargain investments. Another issue is withstanding frequent market shifts and avoiding selling when the stock price falls. To be a value investor you must adopt an approach that will set you apart from the crowd and challenge conventional investment thinking.
  • Klarman has three risk management principles that he follows - diversification, hedging, and margin of safety. Although value investors often prefer concentrated portfolios, Klarman recommends limited diversification. He aims to lower the risk by investing in different sectors and companies. That way if the industry or the market goes through a rough patch, that would have an impact on the whole portfolio. For a major market downturn, he chooses hedging as a preferred risk management strategy. But he often points out that hedging can be tricky, and before you start doing it, know your plan.

Take A Look At Seth Klarman interview on Value Investing,Philosophy and Margin of Safety: 

Comparative Analysis: Klarman's Approach vs. Other Investment Gurus

Comparing Klarman to gurus with completely different approaches would not do as much good, so we will focus on comparing him to other value investors.

Klarman VS Pabrai

They are both known as value investors that have a contrarian approach and focus on identifying undervalued businesses. They share some elements in their strategies, but also they incorporate their unique elements into their approaches.

When looking at the similarities, we can say they both value companies with strong fundamentals. Also, they prefer long-term investing horizons, because they want to wait out their often unpopular investment choices. They avoid picking companies that are popular amongst top investors and are looking for an outsider who can deliver massive returns in the long run.

The first, and crucial difference is the type of business they choose. Although Pabrai is looking for underdogs, he is also looking for large-cap companies with a successful history, and a widely known product or service. On the other hand, Klarman is investing in a wider range of assets. Those include distressed assets that are often illiquid and into private equity.

They also use different valuation methodologies. Klarman focuses on a more flexible approach that includes future growth prospects, hidden assets, and competitive dynamics. Pabrai prioritizes a reverse P/E approach identifying companies with high cash flow generation.

Their protection against risk is also fundamentally different. Klarman is a more conservative investor, and he focuses on downside protection and diversification. Pabrai is often willing to take on concentration risks with a few selected companies.

Klarman VS Buffett

Both Klarman and Buffett follow the core principles of value investing. Those include following the margin of safety, focusing on quality business, and aiming for long-term investments. But, also they have certain differences that set them apart.

The biggest difference is in their risk tolerance. Klarman is leaning toward a more conservative approach seeking heavily discounted companies regarded as underdogs. He is patient and looking for perfect opportunities.

Buffet on the other hand is open to investing in established high-quality companies. He is usually trading at modest premiums looking for long-term growth.

While Buffett primarily invests in publicly traded companies, Klarman also invests in distressed assets, special situations, and private equity.

Historical Performance and Notable Investments

From his current acquisitions, we can see that Klarman is still focused on diversification. He bought stakes in media, construction, semiconductors, and software companies. Although the majority of his portfolio is based around tech companies, he sold his stakes in giants Meta and Amazon.

He also reduced his stake in different biotech companies like Atara Biotherapeutics Inc (NASDAQ:ATRA), Finch Therapeutics Group Inc (NASDAQ:FNCH), and Theravance Biopharma Inc (NASDAQ:TBPH).

Recent Shifts and Adjustments in Klarman's Portfolio

During 2023 Klarman’s portfolio underwent a major reshape. He left several major tech companies like Meta, Amazon, and Micron Technologies. He also completely exited Liberty Media Corp (NASDAQ:LSXMA). Other major exits are Union Pacific Corp (NYSE:UNP) and Fiserv Inc. (NYSE:FI).

He was criticized for exiting Meta and Amazon because in the past some pointed out that those investments could be speculative. But, as time passes by some experts point out that these companies could be legitimate for a long-term investment.

His biggest increases include Willis Tower Watson (NASDAQ:WTW), Dollar General Corp (NYSE:DG), and Tower Semiconductor Ltd. (TLV:TSEM).

Predictions and Potential Moves in Klarman's Future Portfolio

Seth Klarman recently addressed the issue of “firehose” of information coming to investors at all times. He tries to focus on stocks and bonds, and avoid meddling into a business that the answer is hard to determine.

He saw tech companies and crypto, with a focus on understanding the new trends so he could avoid being in the wrong. For example, he cannot comprehend all the commotion about crypto, and he doesn’t see it as a potential investment in the future.

Also, companies like Meta, where stock prices quickly moved up and down, which are now the market favorites, he doesn’t identify as long-term potential investments that can bring positive returns.

Klarman is still solely focused on keeping up with his approach and identifying companies with characteristics that are comparable with the rest of his portfolio. He emphasizes this by pointing out the importance of knowable information about the companies. He likes to know the financial situation of the company, the future of its industry, and the quality of management.


What Stocks Is Seth Klarman Buying?

When we look at the recent turbulent trading window we can identify current Set Klarman buying preferences:

  • Clarivate Plc (CLVT) - new holding
  • CRH Plc (CRH) - new holding
  • Willis Tower Wilson (WTS) - a 72.4% increase in holding
  • Dollar General Corp (DG) - a 283% increase in holding
  • Tower Semiconductor (TSEM) - a new holding
  • Jacobs Solutions (J) - a new holding.

Is Seth Klarman a Good Investor?

When we look at the historical performance of the Baupost Group we can find that Klarman is a very successful investor. The fund has generated an annual return of 20% since its inception in 1982. Its compound annual growth rate is at 11.7%. Baupost Group outperformed the S&P 500 every year with only down in 2020 when it delivered about 5%.

What Are the Largest Holdings of Baupost?

The largest holdings of the Baupost fund are:

  • Liberty Global Ltd Class C with 18.7% of the portfolio
  • Clarivate Plc with 13.72% of the portfolio
  • Alphabet Inc Class C Stocks with 11.45% of the portfolio
  • Fidelity National Information Services with 9.13% of the portfolio
  • Willis Towers Watson with 7.59% of the portfolio.

How to Invest Like Seth Klarman?

To follow the investment path of Seth Klarman you need to use these investment principles:

  • Look for undervalued and disregarded companies
  • Conduct a deep and fundamental analysis to predict its potential
  • Do not stop analyzing quantitative metrics, but also pay attention to qualitative elements like company culture, and brand strength
  • Think outside the box and go against the tide
  • Diversify the portfolio among different industry sectors to mitigate risk
  • Be patient and do not fall into the temptation to sell early when the market turns on you in the short term.

Final Thoughts

Seth Klarman had a busy 2023. He exited from several major positions, including big tech players. But he also invested in new holdings from different sectors, including finance, and mining.

When looking at the last three years, investors annualized a total of -2.7% returns. It did underperform when compared to the overall market, but it did make a couple of interesting acquisitions in the last year. We will witness how it will play out, but if we look at the history performance, we think that this is just a bump in the road for this investment guru.

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Jacob Wolinsky is the founder of HedgeFundAlpha (formerly ValueWalk Premium), a popular value investing and hedge fund focused intelligence service. Prior to founding the company, Jacob worked as an equity analyst focused on small caps. Jacob lives with his wife and five kids in Passaic NJ. - Email: jacob(at) FD: I do not purchase any equities to avoid conflict of interest and any insider information. I only purchase broad-based ETFs and mutual funds.