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Value Investor: The stock market is still too expensive

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Seth Klarman, head of hedge fund Baupost Group and a well-known value investor, has become a billionaire with his investment decisions. The book “Margin of Safety”, in which Klarman explains his investment philosophy, has been out of print for a long time and continues to change hands for several thousand dollars.

Klarman has now spoken to a current market valuation that makes you sit back and take notice: Despite the recent price drop, stock valuations are still higher than ever. “We have one of the most expensive stock markets ever,” Klarman said in an interview with Harvard Business School professor Das Narayandas last Friday.

To support the view that stock market valuations remain high, there is a look at the Shiller P / E, developed by Nobel laureate Robert Shiller, which compares stock prices to inflation-adjusted average corporate earnings in the S&P 500. over a period of 10 years. According to this key figure, the US stock market is still fundamentally expensive after falling prices as it was only in three phases before: around the global economic crisis in 1929, during the Internet bubble at the turn of the millennium, and in the past five years. .

Source: edited from http://www.econ.yale.edu/~shiller/data.htm

After decades of benefiting from falling interest rates, Klarman now fears the opposite trend. “Interest rates are starting to go up and they should go up because they have been kept artificially low for a long time. I think it will shake some people and even the system when they start to go up.”

According to Klarman, the phase of low interest rates has also led to excesses and unwanted developments, which can then be corrected again in periods of higher interest rates and could lead to losses. “It’s been a 35-year bull market for bonds, so it’s going to be a big shock that I think will test the hedged financial institutions, who have written derivatives they shouldn’t have written, who have gone much further to take more risks in the their wallet, ”Klarman said. Inflation is particularly problematic because, in real terms, it leads to safe losses in the bond portion of a portfolio traditionally considered safe.

In addition to the war in Ukraine, Klarman also views the growing division within US society as highly problematic. “I’m also concerned about the major divisions in American society. It’s not just the north and the south, the big cities, the suburbs and the rural areas, it’s not just the red either. [Republikaner] it’s blue [Demokraten]. The cracks [in der Gesellschaft] they are really huge and they also have to do with technological changes and the question of who benefits and who does not. “Der Spiegel magazine which also considers possible a civil war in the US due to the great social divide.

At the same time, Sethman also pointed out that the United States had already survived the most difficult phases in its history, such as the Great Depression, World War II and the lack of civil rights.

When it comes to alternative investments, Klarman is betting on gold. It is true that gold does not produce any current income (such as interest or dividends). However, the precious metal has a long history behind it and is difficult to win. On the other hand, he couldn’t earn anything from cryptocurrencies, Klarman said.


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