C&B Notes

Klarman on Prices

Seth Klarman offers a long-term investor’s take on the current investing environment.

While noting that he could not predict exactly when a significant market correction would occur, Mr. Klarman wrote in a private letter to clients: “When the markets reverse, everything investors thought they knew will be turned upside down and inside out.  ‘Buy the dips’ will be replaced with ‘what was I thinking?’…  Anyone who is poorly positioned and ill-prepared will find there’s a long way to fall.  Few, if any, will escape unscathed.”…

“Any year in which the S&P 500 jumps 32 per cent and the Nasdaq 40 per cent while corporate earnings barely increase should be a cause for concern, not for further exuberance,” Mr. Klarman wrote.  “On almost any metric, the U.S. equity market is historically quite expensive.  A sceptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla Motors,” he wrote.