Guru investor Seth Klarman of the Baupost Group runs a tight ship. A relatively small percentage of his investments are common stock (sometimes as little as 5% but typically 10-15%). He is among the pickiest of investors and is widely known for earning high returns while holding large amounts of cash. For example, Klarman was content to keep 50-60% of his portfolio in cash throughout most of 2005 and 2006.
The author of "Margin of Safety" also shows discipline by practicing what he preaches. An analysis of his holdings shows that there is a very low likelihood of permanent capital impairment at the prices at which he buys. Indeed, Klarman may do a better job of following Buffett's two investment rules: First, don't lose money. Second, don't break rule number one. Consistent with that philosophy, Klarman returned approximately 5% of the Baupost Group funds to its investors after noting in his November letter to shareholders that “[t]oday, Baupost's opportunity set is smaller than it has been in some years.”
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