Action by governments and central bankers has convinced investors that risk “has simply vanished”, says value investor Seth Klarman, founder of the Baupost hedge fund, in his latest letter to investors, quoted in the Financial Times.
Klarman has long been a critic of the Federal Reserve’s loose monetary policies, which he believes have badly undermined “the market’s usual role in price discovery... With so much stimulus being deployed, trying to figure out if the economy is in recession is like trying to assess if you had a fever after you just took a large dose of aspirin”.
Klarman points to electric-car maker Tesla as one of the most egregious examples. The group’s share price has risen “seemingly beyond all reason”. He blames low interest rates, which drive up the value of the estimated future cash flows used by analysts to calculate the present value (see box) of a company. “The more distant the eventual pay-off, the more the present value rises. When it comes to the value of cash flows, the vast and limitless future, yet to unfold, has gained considerable ground on the more firmly anchored present.”
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
That said, while Klarman may feel that the investment environment is hostile, his fund has still been putting money to work. In the third quarter of 2020, Baupost invested $400m in a “special purpose acquisition vehicle” (a cash shell, effectively) launched by fellow hedge-fund manager Bill Ackman, with the goal of investing in “mature unicorns” – private companies valued at between $10bn and $15bn.
-
Adidas, Nike or Jordans - could collectable trainers make you rich?The right pair of trainers can fetch six figures. Here's how you can start collecting vintage Adidas, Nike or Jordans now
-
Early bird ISA investors flock to global funds, India and the USThere’s been an increase in investors maxing out their ISA at the start of the new tax year. But where are they putting their cash and why does it make sense to be an early bird investor?
-
Adidas, Nike or Jordans - could collectable trainers make you rich?
The right pair of trainers can fetch six figures. Here's how you can start collecting vintage Adidas, Nike or Jordans now
-
The industry at the heart of global technologyThe semiconductor industry powers key trends such as artificial intelligence, says Rupert Hargreaves
-
Three emerging Asian markets to invest inProfessional investor Chetan Sehgal of Templeton Emerging Markets Investment Trust tells us where he’d put his money
-
What to consider before investing in small-cap indexesSmall-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
-
Why space investments are the way to go for investorsSpace investments will change our world beyond recognition, UK investors should take note
-
Time to tap into Africa’s mobile money boomFavourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
-
M&S is back in fashion: but how long can this success last?M&S has exceeded expectations in the past few years, but can it keep up the momentum?
-
The end of China’s boomLike the US, China too got fat on fake money. Now, China's doom is not far away.
