Baupost Group's 2010 Letter

Every one gotto agree that Seth Klarman is an exceptional investor. I suppose the only other guy after Warren Buffett will be him. Recently Baupost came out with their 2010 annual shareholders letter. Though its a bit lengthy, but worth reading.

In this post I will mention some of the points which I liked form the letter (Excerpt). 

"The less you understand valuation, the more that overvaluation seems like a free lunch – which of course it isn't."

When investing, "Where to best apply your focus and skills depends partially on where others are applying theirs."

"When observing your competitors, your focus should be on their approach and process, not their results. Short-term performance envy causes many of the shortcomings that lock most investors into a perpetual cycle of underachievement. You should watch your competitors not out of jealousy, but out of respect, and focus your efforts not on replicating others' portfolios, but on looking for opportunities where they are not."

"Price is perhaps the single most important criterion in sound investment decision making. Every security or asset is a "buy" at one price, a “hold” at a higher price, and a "sell" at some still higher price. Yet most investors in all asset classes love simplicity, rosy outlooks, and the prospect of smooth sailing. They prefer what is performing well to what has recently lagged, often regardless of price. They prefer full buildings and trophy properties to fixer-uppers that need to be filled, even though empty or unloved buildings may be the far more compelling, and even safer, investments. Because investors are not usually penalized for adhering to conventional practices, doing so is the less professionally risky strategy, even though it virtually guarantees against superior performance."

"Everyone can ask questions, but not everyone can identify the right questions to ask."

"Most investors take comfort from calm, steadily rising markets; roiling markets can drive investor panic. But these conventional reactions are inverted. When all feels calm and prices surge, the markets may feel safe; but, in fact, they are dangerous because few investors are focusing on risk. When one feels in the pit of one's stomach the fear that accompanies plunging market prices, risk-taking becomes considerably less risky, because risk is often priced into an asset's lower market valuation. Investment success requires standing apart from the frenzy – the short-term, relative performance game played by most investors." VERY IMPORTANT POINT. 

"When market and economic excesses are finally corrected, there is a tendency to over-shoot, creating low-risk opportunities for value investors who have remained patient and disciplined."

Happy Investing!!!