We can do this successfully because we have a culture of patience. Even though we work hard every day trying to uncover the next great investment, we only deploy our capital when we have real conviction that we have found one. When we don’t find interesting ideas, we do nothing and hold cash. For this reason, I’ve often joked that I’m 97% unproductive. While this means I better be damn productive the other 3% of the time, it also means exercising patience often and waiting for great opportunities. On the flip side, when an idea has been analyzed and is fully baked, we drop whatever else we are doing, discuss the investment, and make a decision. Our portfolio decision process must be incredibly efficient, as we recognize that good ideas are scarce and may prove fleeting.
Warren Buffett said, 'Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble.' When a great opportunity comes around, it is imperative to size it correctly.
One of the most common misconceptions regarding Baupost is that most outsiders think we have generated good risk-adjusted returns despite holding cash. Most insiders, on the other hand, believe we have generated those returns BECAUSE of that cash. Without that cash, it would be impossible to deploy capital when we enter a tide market and great opportunities become widespread. Seth has said on a number of occasions in both types of markets, 'If you have great ideas, you will have capital to deploy.' This is incredibly motivating to our investment team.
The video of Michael Mauboussin interviewing Daniel Kahneman from last month (LINK)
More videos from the Fortune Global Forum are starting to be put online (LINK) [Such as Jamie Dimon, Sheryl Sandberg and Marc Andreessen, Paul Tudor Jones, How biology and big data converge in the medicine world, a VC panel on future growth opportunities, a panel on 100-year-old companies, Peter Diamandis on What You Can Learn From Kodak’s Demise, etc.]
Wells Fargo and the Incredible Predictability of Deposit Growth (LINK)
Wall Street is starting to believe what Jim Chanos has been saying about Valeant all along (LINK)
Back in May of 2014, Chanos went on CNBC and said: "We're short [Valeant] because it's a roll-up. And roll-ups present a unique set of problems."
Chanos added: "Roll-ups are generally accounting-driven, and we certainly think that's the case in [Valeant]. We think [Valeant] is playing some very aggressive accounting games when they buy companies, write down the assets, and also engaged in what we call spring-loading." Spring loading is a practice in which a company grants investors options before it knows good news is about to come out.
Valeant 'Witch Hunt' Going Too Far for Brave Warrior's Greenberg (LINK)
Collection of old Enron sell-side research (LINK)
Conspiracy of Fools (a Charlie Munger recommendation as well)LINK)
Book of the day (recommended by Marc Andreessen): Tricky Dick and the Pink Lady