"Little Buffett" Speaks Rarely: I Don't Invest in AI, the Bubble Is Obvious, and My Biggest Regret Is Missing Out on Early Palantir, Costing Me Tens of Billions in Potential Profits
Seth Klarman, the founder of Baupost Group and a Wall Street veteran, recently had an in - depth interview with Sarah Eisen, a well - known host of CNBC. This legendary figure, known as the "Buffett of Boston," managed Baupost for 44 years with only 5 losing years. In this conversation, he issued a stern warning about the current AI frenzy.
Klarman believes that the current tech boom has shown obvious bubble characteristics. Facing the extremely stretched market valuations, value investors should stay true to their original intentions, stay away from the " melting ice cubes" whose value is constantly shrinking, and even be willing to hold cash when there is no absolute certainty until the perfect " Fat Pitch" comes.
Meanwhile, Klarman expressed deep concerns about the soaring US debt problem and the undigested geopolitical risks.
Wall Street Insights has summarized the key points as follows:
1) The current AI boom has bubble characteristics. Resolutely avoid blindly investing in large - model companies: The market valuation is extremely stretched. People make overly optimistic promises and assumptions about the extremely distant future to cater to the "new - era thinking."
Klarman clearly stated that Baupost is completely uninvolved in trillion - parameter LLM (Large Language Model) companies such as OpenAI and Anthropic, which have extremely high valuations and are in the stage of burning money crazily.
1) Self - disclosure of the biggest pain point in the investment career: Regretting missing out on tens of billions of profits from Palantir: Klarman revealed that he had the opportunity to buy Palantir at a low price through venture - capital shares 15 to 20 years ago. The team had done sufficient research and was ready to make an offer, but the seller changed their mind at the last minute, forcing them to miss out. This "slipped - away deal" made them miss out on subsequent returns of up to tens of billions of dollars.
3) Value investing is not a rigid formula. Stay away from the "melting ice cubes": Value investing is not simply looking for stocks with low price - to - earnings ratios or low price - to - book ratios. Instead, it is necessary to evaluate the actual intrinsic value of a company. In the AI era, the intrinsic value of many traditional companies with business flaws is accelerating its demise (i.e., the "melting ice cubes"). Even if the valuation is very low, one must resolutely stay away.
4) Bullish on the commercial real estate "burned" by the market: With the downturn and liquidation of commercial real estate in the past decade, the Klarman team is looking from the bottom - up for opportunities to deploy funds in commercial real estate (especially assisted living communities) and land options for data centers, where the price is lower than the replacement cost and there is a significant margin of safety.
5) The US debt crisis and geopolitical risks are seriously underestimated: The US national debt as a percentage of GDP has reached 100%. The traditional " risk - free asset" is becoming increasingly dangerous. Meanwhile, the market has not fully digested the potential impact of the Middle - East war (such as the closure of the Strait of Hormuz) on international oil prices (which may soar above $150) and secondary inflation.
The secret of only 5 losses in 44 years: Extreme paranoia about downside protection
Taking advantage of the sale of the shares of Boston TV channel 5 and the computer consulting business, Baupost was initially founded as an "expanded family office" with $27 million.
Klarman pointed out that Baupost never blindly pursues the expansion of investment scale. Its core driving force is to provide good returns for clients while limiting the downside risk.
To achieve this goal, the buyer has shown extreme focus on downside protection: conducting rigorous fundamental research on each company, resolutely not leveraging the investment portfolio, buying senior securities with structural seniority in the private market, and being willing to hold a large amount of cash when there are no immediate high - probability opportunities.
Klarman emphasized that it is this ability to endure loneliness during market frenzies that allows the team to have sufficient ammunition to buy at the bottom and lock in high - returns for many years in the worst crisis environment.
Dissecting the value thinking in the AI era: Avoid the "melting ice cubes" and refuse to follow the trend to invest in large - model companies
In response to the misunderstanding in academia and traditional concepts that equate value investing with "buying cheap stocks with low valuations," Klarman corrected it: The real value is to measure how much a company is worth. A growing company is obviously more valuable.
In today's era of non - linear technological disruption, the intrinsic value of traditional companies with business flaws is accelerating its demise like " Melting Ice Cubes." Klarman said bluntly that no matter how low the cash - flow multiple of these companies seems (even if it is only 4 times), since their underlying value cannot be truly grasped, value investors must resolutely stay away.
Facing the AI large - model giants with valuation multiples of 40 times or even infinitely large, Klarman is very cautious, believing that this requires blind faith in the unknowable distant future.
He reiterated that Baupost is completely uninvolved in the large - model field. Companies like OpenAI and Anthropic need to consume an extremely large amount of cash to maintain model training and updates. Once they fall behind in technology, they will face a catastrophic disaster, which does not meet the definition of a great company. Instead of taking huge valuation risks to chase the "AI winners," the team is more willing to focus on the AI Agnostics whose valuations have been wrongly killed.
Missing out on Palantir is the biggest regret. Never swing the bat casually before the "Fat Pitch" comes
When talking about the "missed opportunities" in his career, Klarman admitted that every investor has a story that makes them beat their chests in frustration.
For Baupost, the biggest regret is missing the investment in the big - data analytics giant Palantir 15 to 20 years ago. At that time, the team got a tip through an operating partner and had the opportunity to acquire $40 million to $50 million in venture - capital shares. Although Baupost quickly completed extremely detailed research and was ready to make an offer, the seller changed their mind at the last minute. Klarman said regretfully that if the deal had been successful back then, it would have brought tens of billions of dollars in huge returns to Baupost today.
Although this miss was due to force majeure, Klarman emphasized that as a value investor, the core is not to miss the "Fat Pitch" when it comes. This means that even if some technology stocks are missed, one must stay focused within their cognitive boundaries. Before an opportunity with absolute certainty appears, it is better to let the funds "idle" in the account than to blindly take action to follow the trend.
Digging for specific distressed assets: Buying at the bottom of the completely liquidated real - estate desert
Klarman said bluntly that since the Global Financial Crisis (GFC) in 2008, the market has been in a strange environment without significant downward fluctuations for more than a decade.
But in recent months, troubles such as debt defaults and bankruptcy liquidations have been quietly rising in both the corporate - bond and private - credit fields. Klarman pointed out that the most attractive thing about the credit market is the huge mispricing caused by "ownership transfer." When bonds are panic - sold due to default or downgrade, it often creates an attractive bargain.
Baupost is closely tracking the distressed - debt opportunities brought by specific risks such as the restructuring of Brazilian companies and the debt replacement of large - scale private - equity firms.
In terms of physical assets, Klarman revealed that the commercial real estate that has been "completely burned" by the market and is being ignored across the United States is exactly what Baupost loves to allocate funds to from the bottom - up. Especially the assisted living communities that have been severely hit by the pandemic and have undergone large - scale bankruptcies and liquidations are currently in the very early stage of an industry - fundamental reversal.
Baupost is using its hidden advantages outside the radar range of the big players to deploy funds confidently in this field and the land for data - center supporting facilities with high option value at a discounted price significantly lower than the replacement cost.
Dangerous "risk - free assets" and undigested macro - level gloom
On the macro and geopolitical levels, Klarman poured cold water. He said bluntly that the market has developed a lazy habit over the years of "not having to pay too much attention to the macro and politics, just focusing on corporate earnings and the Federal Reserve," but this logic is facing challenges.
The ratio of the US debt to GDP has just reached the historical red line of 100%, which means that the traditional risk - free asset is actually becoming more and more dangerous every day.
With a structural deficit of more than $2 trillion per year, overseas creditors are gradually seeing through the "lack of seriousness" in the US fiscal policy.
In addition, the risk of secondary inflation caused by geopolitics is sky - high. If the Strait of Hormuz is closed for several months due to the Middle - East conflict, international oil prices may soar directly to $150 or even higher. If the gasoline price in the United States breaks through $6, it will trigger a devastating political and economic chain reaction. Klarman warned that the market has not fully digested these imminent gray - rhino risks.
This article does not constitute personal investment advice and does not represent the views of the platform. The market is risky, and investment requires caution. Please make independent judgments and decisions.
This article is from the WeChat official account "Wall Street Insights," written by Xu Chao and published by 36Kr with authorization.