The co-founder of Boston-based hedge-fund Baupost Group, Seth Klarman, known for his rare interviews, recently shared his thoughts on the cryptocurrency market. According to the latest Securities and Exchange Commission filings, Baupost Group has nearly $30 billion under management.
Klarman is a self-described skeptic of the crypto market. He has made it clear that he cannot find value in the market, saying “I’ve tried hard to understand the arguments for crypto and figure out why people are so excited. I can’t find value there.” This statement does not come as a surprise for someone who believes in traditional investment methods, like value-investing.
However, he did discuss his investing approach with CNBC and shared some potential opportunities he sees in contemporary markets. Klarman recently penned the introduction to the 7th edition of the seminal value-investing text “Security Analysis.” Furthermore, he also shared his thoughts from the book and what investors could learn from it.
The book reminds investors about the dangers of speculation and importance of remembering the current investing environment. Klarman explained that every investor faces the challenge of reviewing their situation and questioning the reality of everything at hand. “You have to look at the moment you’re in and say ‘what of this is real’?” Klarman commented during his interview.
Although he is skeptical about cryptocurrencies like Bitcoin, he believes that cryptocurrency is a seductive idea with little substance behind it. Cryptocurrencies are seen as benefiting from current conditions like Special Purpose Acquisition Companies (SPACs) and meme stocks caused by low-interest rates.
In summary, while Klarman doesn’t see value in cryptocurrencies, he still suggests looking at the current investing landscape with a critical eye to determine which investment opportunities are truly valid.
Investing in the Bubble
According to Klarman, the world has been in an “everything bubble”. An enormous amount of money has flooded into various sectors, fueled by low-interest rates. The bubble has led to speculation in crypto, meme stocks, and SPACs.
Klarman is skeptical about crypto investments but has invested in convertible bonds issued by Coinbase Global Inc. He notes that his firm’s decision to buy the bonds was based on the opportunity they saw in Coinbase’s financials instead of a bullish bet on the company.
Tough Market Conditions
Klarman believes that it’s a difficult time for investors to find market-beating opportunities. He rates contemporary markets as “4” on a scale of 1 to 10 due to the low number of actionable ideas available.
Real Estate Opportunities
Klarman sees potential in the troubled real-estate market. He thinks that this sector is full of fundamental challenges, creating opportunities to buy undervalued assets.
Finding Your Edge
The game of investing revolves around finding an edge, which has become more difficult over the years. Klarman believes that investors can do this by being more disciplined and focused, finding unique incentives for their teams and scouting opportunities on the edges of what others are doing.