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    Thursday, May 14, 2009

     

    Baupost's (Seth Klarman's) Latest Thoughts on Hedging Strategy

    I wrote about Baupost's (Seth Klarman's) Hedging Strategy based on his view in 1995-1997. In a recent speach he updated his thoughts on insurance (hedging).

    "Do you overpay for insurance — or do you go uninsured?

    Klarman: In terms of our firm, I tried so hard to learn
    the lessons of 1998 in particular, which were: Don’t be
    unprepared for something out of the blue that’s really bad.
    To some extent, we were prepared this time. However,
    you can never be prepared enough. We had a lot of macro
    protection in terms of credit default protection on bonds
    where we were just betting that credit spreads would widen.
    That’s been incredibly helpful. But we’ve gotten really tired
    of buying market puts, or anything like that, because they
    inevitably are expensive and expire worthless.
    So as an investor, you have terrible trade-offs. Do
    you overpay for insurance — or do you go uninsured?
    That’s just one of those dilemmas for which there are really
    no perfect answers."
    Outstanding Investor Digest March 17,2009
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    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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