If you remember, in the beginning of August, we grabbed some quotes from the Baupost letter from 2005. We continue with that same letter, as it provided a number of fantastic investing gems.
"...Investors operate within what is for the most part a zero-sum game. While it is true that the value of all companies usually increases over time with economic growth, market out performance by one investor is necessarily offset by another's under performance. Consequently, you keenly watch your competitors to see not only what they are doing right, but what they are doing wrong. You observe carefully to identify their investment constraints and limitations, their time horizon and liquidity requirements, areas that they ignore and areas that they avoid. It is in these areas that opportunity is often greatest; that is where bargains regularly surface, with your best competitors not only failing to compete but sometimes serving as the seller. It is here, where others panic, sell mindlessly, neglect, or fear to tread that investors have a chance to develop and sustain an edge."
"The single greatest edge an investor can have is a long-term orientation. In a world where performance comparisons are made not only annually and quarterly but even monthly and daily, it is more crucial that ever to take the long view. In order to avoid a mismatch between the time horizon of the investments and that of the investors, one's clients must share this orientation. Ours do."
"We are able and willing to concentrate our capital into our best ideas. These days, other investors' idea of "risk control" is to own literally hundreds of small positions while making no size able bets, a strategy that might also be labeled "return control". It is clearly an advantage, but by no means without risk, to be able to concentrate our exposures. We work exceptionally hard to ensure that our largest positions are indeed our most worthwhile opportunities on a risk-adjusted basis."
"The world could well be setting up for considerable upheaval and with it an avalanche of opportunity. As we have said, nearly ever investment professional is fully invested, and many are leveraged. With massive trade imbalances and huge U.S. government budget deficits, tremendous leverage everywhere you look, massive and unanalyzable exposures to untested products like credit derivatives, still low interest rates, rising inflation, a housing bubble that is starting to burst, and record and unprecedented low quality junk bond issuance, there appears to be little, if any, margin of safety in the global financial system. "