As one of the most respected hedge fund investors of our time, Seth Klarman has invested in his life and those of others in a huge way. Klarman is a billionaire whose philanthropic activities are remarkable. He told Investors Archive that the primary principal which guides his life is “Do unto others.” His firm is valued in excess of $6 billion and he has approximately 60 staff members to serve numerous clients. His management style is that he doesn’t think about leading all the time. He knows that everyone has a job to do. The company goal is to be excellent… to do the best possible job. With these values in mind, Klarman focuses on getting the best for those he works with and his clients. Over the years, the firm has acquired 20 investment analysts. He remains the gatekeeper of investments in the firm. The firm is global in scope and covers private and public investments in a broad variety. His charitable work continues because he feels “a huge obligation to give back” and he believes that all people should leave places better than when they arrived. He believes in leading by example. He encourages matching your money with your time. He is an extraordinary leader with extraordinary instincts for seeing how to best give to others.
1. Klarman owns Cloud Computing; the 2017 Preakness Stakes winner.
Though Classic Empire and Always Dreaming were the race favorites, and had the lead almost entirely throughout the race, Cloud Computing quickly took third place in the slower-speed race. Midway of the race, Cloud Computing moved to the front from the outside of the pack in the last furlong, pulling to the front past Always Dreaming to dash nose to nose to the finish with Classic Empire. Cloud Computing pulled past by a nose to win at the last moment. It was an astonishing upset for the three-year-old thoroughbred colt running in his third race. Javier Castellano, Cloud Computing’s jockey, enjoyed his second Preakness Stakes win, with a winning time of 1:55.98. Castellano was overjoyed. Chad Brown, Cloud Computing’s trainer, told CNN Sports that it was his first Triple Crown victory and part of his strategy was to Have Cloud Computing not run in the Kentucky Derby so he would be fresh for the race. In 34 years, only 4 horses have won the Preakness after not competing in the Derby. Klarman purchased the yearling Cloud Computing in 2015 for $200,000 along with his racing partner, William Lawrence. Klarman owns Klaravich Stables, and with Lawrence, purchases 50 to 60 horses annually. The friends are both hedge fund managers and name their horses using finance industry terms.
2. Klarman met his wife Beth Schultz Klarman on a Boston Harbor cruise.
The couple live in Chestnut Hill, Massachusetts and they have three children. His wife Beth is a powerhouse philanthropist herself. She told the Boston Globe that she began a giving circle as a way to expand her own “philanthropic options” beyond “quietly writing checks with her husband”. Beth’s group of about 60 women contribute a minimum of $10,000 each over a five-year span. The contributions are given to the Boston Jewish Community Women’s Fund to be distributed to organizations which focus on Jewish women and girls affected by various social issues. Beth and Seth are both devoted to quietly giving to help others.
3. New Englander Klarman was once the Republican party’s largest donor, but now donates solely to Democratic candidates.
In a 2018 New York Times article, Klarman was noted as focusing $20 million toward the Democratic candidates because he believed that Donald Trump’s “runaway presidency” needed a House and Senate check. His thinking was that “democracy is at stake”. In the past, Klarman donated more than $7 million to the Republican Party in New England. But he denounced the current president and his party in recent papers and is said to be hoping that money will change political behavior where words have “done nothing”. He’s now giving mostly to Democrats and he’s donating much more than he has ever done. As of September 2018, he had donated up to $4.9 million to about 150 or so Democrats; even though he himself is registered as an Independent.
4. Klarman and his wife give to charity through the Klarman Family Foundation.
According to Philanthropy.com, the couple’s foundation has assets valuing nearly $1 billion. In 2017, the Klarman Family Foundation gave close to $50 million in grants. Mr. and Mrs. Klarman are noted as quiet philanthropists. They signed the Giving Pledge in 2013, joining the group of about 90 others who had joined. It is a public promise made by the world’s wealthiest people to dedicate more than 50% of their wealth, either during their lifetimes or in their wills, to charitable causes. The original team creating the Giving Pledge included Warren Buffett, Bill and Melinda Gates, Michael Bloomberg, Ted Turner, Oprah Winfrey, Eli Broad, George Soros, and Charles Feeney. They met at a private dinner in 2009 in New York to discover how to share their collective net worth of about $130 billion. The Klarman’s have given $707 million to the Giving Pledge and are “Early Adopters”, or in other words, those few members of the Giving Pledge who have given a large share of their wealth to others and this is part of a public track record.
5. Klarman’s nickname is “The Oracle of Boston”.
In a recent New Yorker article, writer Evan Osnos describes the “rare interview” he shared with Klarman following up on Klarman’s absence at the annual World Economic Forum. Osnos noted that the World Economic Forum held in Davos, in the Swiss Alps, was distinguished by its lack of attendance. Though the forum provides a sort of “informal checkup” on capitalism around the world, this winter’s absences were notable: President Xi Jinping of China, President Emmanuel Macron of France, President Donald Trump, and Klarman were not in attendance. Klarman’s report circulated through Davos; read by those who look to Klarman for investing inspiration. Klarman stated simply that business as usual was impossible considering a world filled with “constant protests, riots, shutdowns, and escalating social tensions”. Osnos’ conversation with Klarman was offered because Klarman agreed to tell the world that “shortsighted business practices” are threatening to “imperil public confidence in capitalism itself” and the games of investing, business, and politics” have been taken for granted.
6. Klarman’s published a single book which is one most often claimed as lost at university libraries.
The problem is that sold only 5,000 copies and is now out of print. But it has a massive following within the finance community. It first sold for $25 a copy, but when copies do pop up for sale as used, they range anywhere from $700 to even $4,000 now. It’s titled, Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor.
7. Klarman is an alumnus of both Cornell and Harvard.
He graduated magna cum laude in economics with a minor in history in 1979 from Cornell University in Ithaca, New York and then attended Harvard Business School where he was a Baker Scholar and graduated in 1982. After that, he co-founded The Baupost Group with a starting salary of $35,000 a year.
8. Klarman’s Baupost Group owned $911 million of Puerto Rico’s bonds through Decagon Holdings entities.
According to a CNBC report in October 2017, Baupost Group’s public court filing indicated that the firm owned the bonds, which were issued by the Puerto Rico Sales Tax Financing Corp; COFINA. Klarman wrote an investor letter stating that the COFINA bonds were first purchased in the 2015 secondary market, with a subsequent purchase in 2017 before Puerto Rico was hit by Hurricane Maria. The Baupost Group investment was made based on substantial research and legal analysis of the COFINA bonds, according to Klarman’s letter. Though Puerto Rico went into a form of bankruptcy and began to negotiate with creditors, Klarman stated that debt forgiveness would ultimately eliminate Puerto Rico’s future ability to borrow money at rates which were reasonable, and this would hamper the island’s ability to rebuild. He noted that the one-third of COFINA bonds are owned by Puerto Rican community banks and citizens and eliminating the island’s debts would devastate “many Puerto Rican’s savings”.
9. Klarman thinks that people’s temperament in the business is colored by the era they entered it.
Optimism of certain market times have influenced those entering those markets. Pessimissim of certain market times have influenced entrants to the markets at those times. Entrance timing does affect you. Klarman began working at Mutual Shares. IT was a 40 million-dollar investment firm which eventually grew to be worth $30 billion. He learned the most there. He learned value investment, which is a series of principals which teach you to focus on risk aversion. This approach causes you to protect on the downside rather than make a lot and run enormous risk. Disfunctional attitudes are caused when the market goes down and money is very tight.
10. Klarman has three favorite investing books.
- The Intelligent Investor
- You Can Be a Stock Market Genius
- The Aggressive Conservative Investor
11. Klarman co-founded The Times of Israel.
Along with journalist David Horovitz, Klarman founded the online newspaper, which is based in Israel and primarily published in English. The newspaper covers “developments in Israel, around the Jewish world, and the Middle East”. In addition to the English language site, it is also published in Persian, French, and Arabic editions. A Hebrew news site named Zman Yisrael was just launched in May 2019. The newspaper publishes news analysis and hosts a multi-author blog. By 2017, the newspaper had increased readership to 3.5 million unique monthly users.
12. Klarman advised Trump to stop tweeting because it’s not for a “serious” president.
Among all the reasons Klarman noted for not tweeting, he cited behavioral psychologist Daniel Kahneman, who indicated that our first thought tends to “not be the best answer we ultimately arrive at”. Klarman said that a president is “in a job where words and nuance matter” and communicating using tweeting is “pure indulgence”.
13. Klarman Hall at Harvard was a gift from Seth and Beth Klarman to Harvard Business School.
The two-storied structure encompasses 81,000 square feet, including an additional concourse below-grade. The hall was designed by William Rawn Associates, built by Walsh Brothers Construction, and features green spaces and pathways around the structure designed by Reed Hilderbrand, LLC landscape architects. The hall includes a 1,000-seat auditorium, wide corridors and spectacular atrium. It is designed to host everything from research symposia, conferences, performances, and cultural events.
14. Klarman Hall at Cornell has the official name of Seth ’79 and Beth Klarman Humanities Building.
That’s because the Klarman Family Foundation started donations for the building project with the lead gift. Donations to Cornell provided additional funding. The project cost $61 million. Seth Klarman was a graduating member of College of Arts & Sciences in the Cornell class of 1979. One unique feature of the structure is the 10-foot by 16-foot screen composed of 16 linked monitors which fills the atrium on the east wall face the building’s café. The public space will use the technology to present panel discussions, conversation groups, and small lectures. Koetter, Kim and Associates, Boston-based firm designed the building to integrate with its surrounding historic structures.
15. Charlie Rose interviewed Klarman in 2011.
Rose asked why it wasn’t possible to get Margin of Safety except on eBay. Klarman answered that people invited him to write a book on investing, but it wasn’t well advertised and didn’t sell well. What saved it was that it developed a cult following. He hoped that he might be able to resurrect the book and raise money for charity with it selling it on Wall Street, but he doesn’t have the time or energy to do so.
16. Klarman tried to write his book Margin of Safety make it accessible.
Rose said that the book is reported to be on Warren Buffet’s bookshelf. Klarman countered that it is under a stack of papers. He wrote it to be a successor of Security Analysis and in the tradition of Intelligent Investor which was the more accessible of Ben Graham’s book. Klarman wanted to write for the lay person and professional using layman’s language. Klarman also wanted to meet Graham but was never able to do so.
17. Klarman thinks that everyone appreciates a bargain and that it’s a gene one has to try to buy things cheaper.
He says that investment is the intersection of investing and psychology. Knowing whether to buy more or sell is learned through experience, having the right psychological makeup to begin with. He thinks that his own makeup is to be able to balance arrogance (buying) with humility (but I might be wrong). The way he deals with this is different with everything.
18. Klarman knows that he’s often compared to Warren Buffet, but he believes Buffet to be the better investor.
He told Charlie Rose that Buffet is a better investor because he has an eye toward what makes a great business. Klarman noted that most businesses “don’t look so great to him”. Klarman also stated that he doesn’t care about the day to day gyrations of stock. He also doesn’t have a Blumberg on his desk. What he does have on his desk is “giant piles of paper at risk of falling on him every moment, a computer, and a phone”.
19. Klarman says he spends most of his time sitting at his trading desk thinking big thoughts.
He thinks his firm is about making medium to long term investments so that he can look forward to buying during times of volatility when people need liquidity. He doesn’t root for bad times because he loves “our country”. He worries for the times when the market goes higher and higher and the average person gets “sucked into bad transactions”. He says buying is much easier than selling. You never know when the right time is to get out of the market. The critical thing is when you realize that the dollar is no longer worth a dollar. The dilemna is not figuring out what a dollar is worth, but what it will be worth.
20. Klarman was asked what the biggest mistake he ever made was. He said he’s never screwed up a lot.
The firm has gone through tumultuous times, but they stuck to their disciplines. They’ve made mistakes where they underestimated the leverage in a particular circumstance, “getting in bed with bad people”, and losing money due to leverage. His firm has avoided perennially undervalued stock because they are generally managed by poor managers. Good managers use tools to better stock. Those are early but profound lessons that he considered he learned well.
Written by Allen Lee
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