Tuesday, November 22, 2011

Seth Klarman Buys Hewlett Packard?

Seth Klarman is definitely one of the all time great investors so people should definitely pay attention to what he does.  He has a great track record over a long period of time and has written one of the great books on investing ("Margin of Safety", which is out of print).

He is also a hard core value investor and is the real deal (versus many value investors who look more like closet index funds).

Anyway, it looks like Seth Klarman's Baupost Group bought a large stake in Hewlett Packard (they already own a bunch of Microsoft). 

This is interesting on many fronts, one of which is that this comes right after news that Warren Buffett has taken a huge stake in IBM in one of the biggest stock market purchases by Berkshire Hathaway ever (in a sector that Buffett has said for years that he has no interest in investing in!).

Contrast this with what the public is doing.  I'm not going to dig up and post figures here, but it seems that retail investors have been redeeming out of stock mutual funds over the past few years since the crisis; I think there was another stampede OUT of them in the last couple of months.

I have also talked about how the private equity and alternative asset managers are seeing a lot of inflows and interest in investing in their investment 'alternatives' because stocks and bonds just don't meet the return needs of these institutions (pensions not being able to achieve their 8%/year return goals etc...).

So it makes me go, hmmm....    Retail investors are rushing out of stocks.  Pensions and other institutional investors are piling out of stocks and into alternative assets.

And then old, boring guys like Buffett and Klarman move into stocks like IBM, HPQ and MSFT.  (In fact, Buffett's purchases of stocks this year are huge.  I don't know if they are record levels, but they are pretty big).

Neither of these guys are traders or market-timers, so their actions tell nothing of what the market or stocks they own may do in a week, month or even a year (Klarman too says that one must look at what a company can earn in five years in a more normal environment and see what it might be worth by then and then buy the stock at a significant discount to that), but they do tell you that there are very good valuations and opportunities out there now.

Anyway, I think it does serve as a hint for us.

I might take a look at HPQ to see what is going on there.  It is certainly cheap and unloved.  Negative sentiment is pretty unanimous.  I don't think I've read anything positive about HPQ in years (except for a brief period when Hurd was cleaning up the business).  Meg Whitman's selection as CEO was also pretty much unanimously panned; it was received very, very poorly by the business community.  PC's are dead and will never recover and that is pretty unanimously agreed to too.  The board of directors are incredibly incompetent; the worst board in the history of corporate America etc...

There is not one thing positive that I can think of anyone saying about HPQ.

As I type this out, it becomes clearer and clearer why Klarman would be interested in this, and now I am a bit more motivated to take a look at this thing.  Of course, being hated and being cheap isn't enough.  Sometimes things stay cheap forever, or eventually go away (like Eastman Kodak).  But maybe HPQ generates so much cash that all it needs is a bit more rational capital allocation to give it a boost.

If I find anything interesting, I may write a post about it.  Otherwise, I may just conclude that it's a piece of crap and it trades cheap and that's all there is to it.  But maybe not.

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