“This discussion would not be complete without noting that while we remain value investors to the core at Baupost, our definition of value is not the one often taught in business schools. The academic view of investing divides the equity universe into ‘value stocks’ and ‘growth stocks.’ Value stocks are then defined as the low-multiple part of the market: low price-earnings multiples, low price-to-cash-flow multiples, and low price-to-book value multiples. But, as mentioned, even very-low-multiple stocks may fail to represent value if the underlying business is quickly eroding, turnaround seems unlikely, and management is squandering corporate cash. Our definition of value is more expansive and includes any investment, whether growing or not, whose current price is materially below its underlying value.”
—Seth Klarman.
