00:00What I would say to you is, I share your sense that this is the kind of bell that might
00:05ring
00:06at the top. It is an unprofitable company in aggregate. It is an enormous valuation.
00:13I think we both read in the paper this morning that Goldman estimates of what growth would
00:18have to be in some parts of their business, like 100X, in order to justify the current
00:23price.
00:23For a long period of time.
00:25And those projections have a way of not happening. It's not impossible, but it's hard.
00:41I think investors might be missing just how much money is being sucked out of the system
00:47between large IPOs, this won't be the last one, OpenAI, Ananthropic are coming, and there's
00:53a ton of other IPOs that are stuck in institutional investors' portfolios that also they'd love
00:59if they could get them off at any point. Then the float might be tiny today, but you have
01:05a large number of shareholders, private investments. We read again this morning that 10% or 15%
01:10of some endowments, an entire endowment is in the one named SpaceX. They're going to want
01:17to sell. Employees are going to want to monetize and go from being wealthy on paper to wealthy
01:23in a bank deposit. That's a lot of stock for sale. We have to sell that stock while apparently Google
01:31and Facebook need more money and where OpenAI and Anthropic need more money and utilities need more
01:37money to power and chip companies need to build new factories in America. There's so much demand for
01:43money, and I think we're in a vulnerable place where ultimately supply and demand for money determines the
01:50cost of capital. That's true in a bond market, and it's in effect true in the stock market. We might
01:57be looking
01:57at some supply-demand excess where prices soften just because there's so much supply of securities
02:07and the need to monetize is so great by these private companies.
02:13And that was famed value investor Seth Klarman on this week's Masters in Business podcast. Joining us
02:17now for more on that conversation is the host, Masters in Business, Barry Ritholtz. Barry, great to speak
02:22with you, and let me start with what we heard Mr. Klarman speaking about there just a moment ago. That's
02:25all the money getting sucked out. Yes, by this SpaceX IPO, but presumably what will be sucked out
02:31by the OpenAI and Anthropic IPOs here in a few weeks' time. What does that mean broadly? I think
02:36we had a long conversation on this show with Ed Ludlow, Bailey Lipschultz about, like, if SpaceX
02:41goes first, there's such enthusiasm, so much eagerness to get into that stock. What does it mean for these
02:46other two companies intending to go public that are so massive in their own rights?
02:50It's so funny, because Klarman, throughout our whole hour and change conversation,
02:56repeatedly said, I'm a bottoms-up guy. I'm not a top-down guy. Our decisions are made one by one
03:04on each specific investment decision. And yet, when we're talking about IPOs, that's very much a top-down
03:13situation. The world is complex. We go through a period where it was a year ago, a year and a
03:21half
03:21ago, everybody was complaining, gee, no IPOs, nothing's coming out, this is terrible. Now you
03:29have a lot of giant IPOs coming out, and a different group of people are unhappy. The bottom line is,
03:36for someone who's a value investor like Klarman, how expensive are the opportunities that are out
03:43there? And are we willing to sit in cash and be patient? Throughout the 40-plus year history of
03:51the Baupos Group, there have been times where he's raised 30%, 40%, 50% cash of their total investable
04:00assets, which is something like $23, $24 billion right now. They haven't done that yet, but he's
04:08starting to accumulate more cash as opportunities become either pricier or harder to find.
04:18But is there, I mean, to follow up on David's question, possibly with a dumber version of it,
04:22is there an endless amount of money here? At some point, if all these IPOs are going for these
04:27astronomical amounts, doesn't, not just interest, but don't you run out of supply? Or is this something
04:33that you think the market can sustain? Well, first, if you look at the SpaceX IPO, forget the $2.5
04:42trillion. That's make-believe, Mark, that doesn't reflect the fact that $75 billion is what's floated,
04:54which is, let's be honest, these days with so many trillion-dollar companies, $75 billion is just
05:03walking around, pocket cash in the top-central market. That's number one. Number two,
05:09Deutsche Bank did a really interesting analysis that said, let's look at the percentage of total
05:16market float of a whole market of new issuance. And this year, we're about 0.8%. We peaked somewhere
05:26in 21 during the SPAC frenzy, around 2.2, 2.3%. So there's a ways to go before this really
05:36becomes
05:37problematic. And keep in mind, now that SpaceX is public, it's going to take them a full 12 months
05:44to slowly feed out a healthier chunk of their float. I haven't read any of the docs on Anthropic
05:53or OpenAI or any of the other potential mega IPOs. But my assumption is it's going to be something
06:00similar. They'll come out with $50 to $100 billion, a tiny slice of the float, and then slowly feed that
06:07out as they judge market appetite for it. You talk to investors of all stripes, and I want you to
06:13put
06:13value investors into that pantheon. Not the sexiest kind of investing, but I'm curious, in this moment,
06:20sort of the role that they're playing, and how we should look at somebody like Seth Klarman in the
06:25context of the kind of fervor that we're seeing, the excitement, the enthusiasm we're seeing about
06:29AI and all the potential that it could bring here in the future. What is the role of value investing
06:34today in the year 2026? So, you know, the definition of value investing has changed over
06:41the years. And I think of someone like Klarman as not a straight up traditional Graham and Dodd
06:50equity value investor, but Baupost has demonstrated they're opportunistic. They look at different asset
06:58classes. They look at distressed debt. They look at credit. They look at real estate. They're not afraid
07:04to go outside of the traditional U.S. equity selling at a discount because some company ran into a
07:13hiccup. And that's part of the reason why value, why Baupost has put up numbers about 20% a year
07:21for
07:21the past 42 years. That's pretty, pretty impressive. That said, when we are in an environment where
07:28large cap growth, where momentum is dominating, value, forget not being sexy, value is going to
07:37generally underperform in that environment right up until the point when the leadership shifts. Go back
07:44to 99 and 2000. How many people said Warren Buffett is done, this value is over, just as we're about
07:53to enter a decade long period of value outperforming growth. So someone like a fund like Baupost that has
08:02a lot of different expertise and a lot of different ways of approaching opportunistic investing. Yeah,
08:10the traditional equity value approach, when that's out of favor, they look elsewhere. And again,
08:17he is not afraid to hold, you know, a chunk of stock. Now, Klarman in the interview said,
08:24hey, back in the day, there were times where I would hold 40, 50% cash. Yeah, we really don't
08:29do
08:29that anymore. We try and find some opportunity that'll generate a return while we're waiting for
08:37better opportunities. But 10, 20% cash is not unheard of. And he thinks that we're not quite at the
08:45top.
08:45He's certainly aware of, if you listen to the conversation, he is aware of the impact of AI and how
08:53it is generating a lot of activity. And that sort of momentum could push for a good couple of years.
09:01Very great to speak with you as always. Barry Ritholtz, the host of the Masters in Business Podcast,
09:04joining us on this Saturday. Be sure to check that out anywhere you get your podcasts. Barry, thanks again.
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