On Market Opinions

This is a segment from the latest Baupost Group Q4 letter:

“…Calling us a hedge fund won’t make us act like one. We won’t usually develop opinions on the most widely owned or shorted equities; such stocks aren’t likely to be a source of opportunity for Baupost. We won’t serve up an opinion du jour on everything under the sun. Our success has never emanated from frenetic trading of macro bets, quarterly earnings forecasts, or momentum strategies. We can’t afford such distraction. The effort required to develop and maintain necessarily imperfect views on every currency, economy, sovereign, commodity, and market would distract us beyond ruin. So forgive us for not having much of a perspective on things where our view is unlikely to add value; we simply can’t afford to spend the time.”

We won’t serve up an opinion du jour on everything under the sun. I love that part, well because I can relate to it. People often ask me “Brian what do you think about the market?” or while I was on vacation a guy I had a beer with asked me “Brian, with what’s happening in Ukraine what should I do with my investments?” Of course I have an informed educated opinion about the “market” and it’s probably worth as much as the next one you will hear. But let me ask you this: How is my opinion going to affect your next investment decision?

In the investment business people seem obsess with big speculative opinion. I get it. It sounds smart and it responds to our intellectual affinity. It’s way more interesting talking about the “market” and the latest hot stock than the book value of a boring insurance company. My suggestion is develop your own opinion. Instead of spending your time on guessing where the interest rate will go next quarter (and let’s say you knew how would that affect your next investment decision????) spend your time doing business valuation. Develop an opinion of the intrinsic value of a company, apply a margin of safety, and what’s the value in comparison to its current price. If it’s below, than you might have a bargain. You will have way more success under that method. Way more. In the investment business, hard work, boring, and patience beats hot and sexy. There’s other places for hot and sexy.

For more on the Baupost Group letter which I highly suggest you read, here’s the link: Via ValueWalk


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