lindley (1)

Business Insider

Lindley Estes is a business writer for The Free Lance-Star and This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

RSS feed of this blog

This week’s (5/30) investing column

GOVERNMENT intervention is making it harder for investors to find safe havens in the markets, legendary investor Seth Klarman told a crowd of financial analysts earlier this month.

Klarman, president of Boston-based Baupost Group investment firm, has earned his private partnership investors 17 percent annually over the past decade while stocks gained no ground. His rare book, “Margin of Safety,” goes for thousands of dollars on the Internet.

Klarman spoke earlier this month to the annual meeting of the CFA Institute in Boston. Wall Street Journal columnist Jason Zweig interviewed him at the meeting and wrote his “The Intelligent Investor” column in the May 22-23 Wall Street Journal about it.

A quick aside: Zweig is one of the best personal finance writers that I know of. He edited Benjamin Graham’s classic investment book that bears the same name as his WSJ column. Zweig also wrote the highly recommended books “Your Money and Your Brain” and “The Little Book of Safe Money.” He generally advises a strategy of buying low-cost index funds.

The title of Zweig’s column on Klarman’s remarks–”Why One Legendary Investor Is More Worried Than Ever“–sums up the tone of the message.

Klarman isn’t buying into the federal government’s techniques to stabilize the markets. Its efforts to keep interest rates at zero are penalizing savers, who earn next to nothing on their money. That pushes people into taking on more risk than they’d like in order to get some kind of return.

Klarman also opined that governments around the world have been too fixated on alleviating short-term pain at the expense of long-term problems. When times have gotten tough, governments have flooded markets with money, an action that Klarman says is sure to erode purchasing power.

In response, Klarman has been buying options that have no value unless U.S. Treasury bonds plummet. He said most of the traditional hedges–including commodities, foreign currencies and gold–are already expensive. His advice is to patiently wait to buy until markets “get so cheap that they turn most investors’ stomachs.”

My own 2 cents: As I wrote last week, stocks that pay dividends and have the ability to increase the payments provide a decent hedge against the type of inflationary pressures that Klarman warns about. Companies that make money all around the world, in all types of currencies, would seem to be the safest play.