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The Thesis
Klarman's Baupost Group, known for extreme patience and holding cash for years, deployed billions into distressed debt at the depths of the crisis, buying assets for pennies on the dollar.
The Story
Seth Klarman, the reclusive author of "Margin of Safety" and founder of the Baupost Group, had spent years holding large cash positions — often 30-50% of his fund — while peers criticized him for leaving money on the table. That patience proved prophetic in 2008. When credit markets froze and distressed assets were being dumped at fire-sale prices, Baupost had the cash and the courage to buy aggressively. The fund purchased corporate bonds, mortgage securities, and other distressed assets at deep discounts to their intrinsic value.
Baupost's 2009 returns were approximately 27%, and the investments made during the crisis continued to pay off for years afterward. Klarman's approach — maintaining the discipline to hold cash when opportunities are scarce and deploying it aggressively when panic creates genuine bargains — validated the value investing philosophy in its most extreme form. His willingness to endure years of underperformance relative to a rising market, knowing that the cash would eventually find a purpose, is a lesson in the power of patience and discipline.
Key Insight
Holding cash when nothing is cheap isn't laziness — it's ammunition. The investor who has cash during a panic has the ultimate competitive advantage.
“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.”
Seth Klarman
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