I don't like the term value investing. Applying a name to investing implies that there are various ways to invest, and this is a notion I disagree with. By definition, an investment is as asset that is purchased with the intent of having that asset grow in value over time. Ben Graham crystallized investing as a process involving three traits -- analysis and research, a margin of safety, and a satisfactory return. If these three conditions are not met, then the process is speculation, not investing.
That being said, "value" investing has become a genre and as such, has numerous principles associated with it. For example, if you buy a cheap asset and the price goes lower, you should buy more. Also, if asset prices are overvalued, holding cash, even at no return, is a prudent approach. Everyone who is a value guy will nod their head at these two concepts, but in reality, very few actually do it.
So it should come as no surprise then that one of the most successful investors, Seth Klarman of the Baupost Fund, is one of the rare ones who actually do what they preach. Last week, Baupost submitted its quarterly 13F filing, showing its stock market activity for the third quarter of 2015. Although Baupost is slightly down for the year due to its energy and biopharmaceutical bets, the firm took advantage of the volatility in August and September to buy more at better prices.
During the third quarter, Baupost added to energy holdings Bellatrix Exploration (BXE) and Sanchez Energy (SN). Baupost also added significantly to it largest holding, Cheniere Energy (LNG), as prices of this liquefied gas exporter fell hard over the past few months.
Baupost bet big on additional shares of Keryx Biopharmaceuticals (KERX), by lending the company money that could be convertible in equity in the future. Baupost also bought more shares of Atara (ATRA) during the quarter.
To be sure, all these energy and biopharmaceutical names continue to experience selling pressure and all face strong headwinds: Congress is taking a close look at drug companies, and energy stockpiles seem to indicate low oil prices for quite some time.
Yet Baupost's moves remind of a period in 2001 when it began picking up beaten-down tech stocks that were trading very cheaply after the tech bubble burst. Baupost had to wait some time for these positions to pay off, but they did, in a very big way.
Klarman is not perfect, but his batting average has beaten just about everybody over the past 30 years. I suspect he will be correct again, and investors should take note that this is an investor who does what he preaches -- and it works.