• FinChat
  • Posts
  • 🗞️ 7 Lessons from a hedge fund legend

🗞️ 7 Lessons from a hedge fund legend

Seth Klarman's words of wisdom, and Lululemon's surprise quarter.

Written by: Ryan Henderson & Braden Dennis

Happy Sunday!

This week we’re we’re digging into Texas’ new stock exchange, Lululemon’s better-than-expected quarter, and 7 lessons from one of the greatest hedge fund managers alive.

Let’s dig in.

News Roundup
  • BlackRock and Citadel to Help Launch Texas Stock Exchange: This week, two financial behemoths announced that they are backing efforts to disrupt the decades old stock exchange duopoly between the NYSE and NASDAQ. The Texas Stock Exchange (TXSE) has received $120 million in funding from investors including BlackRock and Citadel, and aims to start facilitating trades in 2025. The excitement around an alternative stock exchange seems high as companies are growing increasingly frustrated with the compliance costs required to list on the NYSE or NASDAQ.

  • Spotify Price Increases: News came out this week that audio streaming giant Spotify is set to increase prices on its US plans for the 2nd time in less than 2 years. The US Individual Plan will be raised to $11.99/month from the current $10.99/month. This is quite the shift in strategy as Spotify somewhat famously kept the price of its US individual plan at $10 a month for more than a decade. Last quarter, Spotify’s interim CFO Ben Kung stated “our data shows that historical price increases have had minimal impacts on growth.”

    With these recent price increases and a heightened focus on cost management, Spotify has begun to see an inflection in its profit margins. Spotify’s stock is up 108% over the last year.

  • Alphabet Hires new CFO: This week, Google’s parent company Alphabet, announced their next Chief Financial Officer, Anat Ashkenazi. Ashkenazi has spent the last 23 years in various roles at pharmaceutical giant Eli Lilly, with her last ~3 years in the CFO seat. During her CFO tenure, Eli Lilly’s stock jumped by more than 300%. Ashkenazi will be replacing long-time Alphabet CFO Ruth Porat, and will likely be tasked with implementing a company reorganization that was announced earlier this year.

  • Lululemon: Athleisure company Lululemon reported earnings this week that surpassed Wall Street’s expectations. The company which saw its stock drop more than 40% this year, delivered 10% revenue growth across the overall business, led by strength in its international markets. With the stock trading near its cheapest valuation in a decade, Lululemon’s board also authorized an additional $1 billion to its share repurchase program. The total authorization currently stands at $1.7 billion, or ~4% of Lululemon’s total market cap.

  • DollarTree: Retailer DollarTree, which is home to more than 16,000 discount stores across North America, reported 1st quarter earnings on Wednesday that were in line with investors expectations. During the quarterly report, the company also announced that it is going to “conduct a thorough review of strategic alternatives for the Family Dollar business”. DollarTree acquired Family Dollar for ~$9 billion in 2015 and today it accounts for 48% of DollarTree’s total store count. However, like its closest competitor Dollar General, the Family Dollar banner has struggled to keep up with the growth of its DollarTree counterpart and management has stated that it has “unique needs” at the moment. DollarTree’s stock closed down 5% this week.

  • CrowdStrike Holdings: Crowdstrike, a leading endpoint security software provider, reported strong earnings on Tuesday that sent the stock up more than 9% for the week. Crowdstrike grew its annual recurring revenue figure to $3.65 billion, which is up 33% from a year ago and operating margins expanded 4 percentage points year-over-year.

    Crowdstrike’s growth rate is astounding for a company of its size. With a 5-year revenue CAGR of ~62%, Crowdstrike is the fastest growing software company above a $10 billion market cap.

Investor Profile

Seth Klarman

Seth Klarman is the CEO and President of Baupost Group, the hedge fund he founded in 1982, which is now home to $25 billion in assets under management.

While Baupost Group is only available to private investors and doesn’t publish its returns to the public each year, it has been reported that since inception, Klarman generated roughly 20% annual returns for more than 30 years! That puts him well-within the top 1% of hedge fund managers over the last 4 decades.

In addition to his staggering returns, Klarman is also famous for writing one of the rarest books in the world of investing, Margin of Safety. First edition copies can cost as much as $10,000!

Fortunately, we’ve combed through dozens of Klarman’s speeches over the years and curated some of the most valuable advice he’s given investors.

Here are 7 investing lessons from Seth Klarman:

Lesson 1: Don’t Chase the Hottest Thing

"People who chase growth, who chase highfliers, inevitably lose because they paid a premium price. They lose to the people who have more patience and more discipline."

Lesson 2: Find Forced Sellers

"My experience is that when people want to give something away at a ridiculous price because they have to, not because they want to, that's a good time to buy."

Lesson 3: It doesn’t matter what price you paid

"After you buy something you paid for, it doesn't matter. People cling to the idea that at least they should get their money back; maybe there is bad news, and you should sell before it goes lower; maybe put it into something else where you get your money back, but people prefer to make it back where they lost it."

Lesson 4: Embrace Imprecision

"No matter how much research is performed, some information always remains elusive…Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices."

Lesson 5: Being Contrarian Isn’t Comfortable

"It is always easiest to run with the herd; at times, it can take a deep reservoir of courage and conviction to stand apart from it. Yet distancing yourself from the crowd is an essential component of long-term investment success."

Lesson 6: It’s a marathon, not a sprint.

"Warren Buffett never tried to make the most money. He never tried to get rich quickly. He tried to get rich slow, and I feel like that’s what value investing is; it's a philosophy that stays away from the hot flashy trendy investments and focuses more on never losing big."

Lesson 7: Margin of safety protects against uncertainty

"A margin of safety is necessary because valuation is an imprecise art, the future is unpredictable, and investors are human and do make mistakes. It is adherence to the concept of a margin of safety that best distinguishes value investors from all others, who are not as concerned about loss.”

Product Improvements

Introducing Investment Conferences 📢 

The FinChat team is hard at work every day building the best stock research platform on the internet.

And this week, FinChat got a little bit better.

FinChat users can now access the audio and transcripts of investment conferences for the companies they follow.

Simply click on the “Investor Relations” tab within the company page and check for the most recent events.

Meme of The Week

On Friday, Keith Gill (aka Roaring Kitty), hosted a livestream on YouTube that attracted more than half a million viewers.

However, Gill, who recently revealed a several hundred million dollar position in Gamestop, looked to be in rough shape with a broken arm and bandaids all over his body.