The opportunities that happen in the worst environments can lead to returns for years afterward from deploying more capital into those markets. >> What does that translate into in this environment that we're in right now? >> This is a stretched environment, but it's an unusual circumstance. People have asked me is this a bubble? I think it has characteristics of a bubble. >> You know, at CNBC we have this debate sometimes with the producers about about how describing guests as legendary. You know, we like we we throw the word around too much. Like are they actually legendary? Um, but our next guest who you're about to hear from, I think is a legitimately legendary investor who is mentioned in the same breath as Warren Buffett and Howard Marks and Stanley Druckenmiller. Seth, thank you so much for being here and taking the time. >> here. Thank you, Sara. >> So, tell us a little bit about Baupost and and just what makes it so unique. You're now celebrating almost 44 years in the business. He's only had five down years. Um, so I think a lot of people are very interested to hear how you do that. >> So, we've I think the way we were founded probably affects how we operate day-to-day and over that whole time. We were formed as kind of an expanded family office. Several families were selling an interest in TV station Channel 5 in Boston. One another friend of theirs was selling a computer publishing and consulting business. And so that's how our founding $27 million of invested capital came together. And our mandate wasn't really to grow an investment business. It was to deliver good returns with limited downside to those clients. So, that's been kind of a driving force. The way we protect capital is we focus on downside as much as upside. We do meticulous fundamental research on every company. We um will hold cash in the absence of immediate opportunity. We don't leverage the portfolio at all. We'll buy senior securities like that um or a structured investment in the private markets so that we're structurally senior in a lot of what we do, which protects on the downside. And finally, we do macro hedges. >> So, it's cross asset. It's across assets. >> Yeah. >> Asset agnostic. >> We are in many different asset classes. Originally, we were in equities and credit, but over time we got a little bit involved in commercial real estate during some of the blips in that um business and realized that real estate's as big commercial real estate's as big a market as equities. >> So, you said something there. You said that you focus on downside protection as much as upside. And I I mean that that is something that you know, it's not as sexy. We don't talk about on CNBC as much, you know, how do you protect against the downside, but it's really important especially when you're talking about your track record and only having 5 years down and I think the worst was down 10%. >> I think that most participants in the market and understandably the media are going to go with whatever the direction of the market is. It's a downer to talk about downside. Nobody wants to hear it when the market's going up every day. But there'll be a moment when um things will correct. There'll be a lot of pain. And usually in those environments, if we've protected well, which so far we have, we'll be able to put capital to work when our competitors are maybe standing back a little bit. So, the opportunities that happen in the worst environments can lead to returns for years afterward from deploying more capital in into those markets. >> What does that translate into in this environment that we're in right now? >> This is a stretched environment, but it's an unusual circumstance, right? That people have asked me, is this a bubble? I think it has characteristics of a bubble. It's an optimistic um tone around a technology, around a new era, this kind of new era thinking. And you certainly see it in places like when all birds the shoe company added AI to their name that stock did well and that's crazy. That's reminiscent of the dot com era. But AI seems like a technology that could be so game changing that it would be hard to dismiss it or call anything in particular around it a bubble. What's hard is that it it creates uncertainty. I think none of us can know with any confidence how's it all going to pan out. Uh what are the winners today going to still be the winners? Will it be a winner take all technology or will there be room for a lot of different winners? Where's it all going? And kind of what's the right price to pay? Are these good businesses that are forming? Are they great businesses? Um what will the damage be? So I think the market is tending to think about AI winners. Everyone wants to own those. AI losers. Everyone wants to avoid those. And AI agnostic which people are also kind of not interested in because the returns are not as exciting as AI winners. So we think we're we're spending a lot of time on AI agnostic where people are just not paying attention and the price is drifting lower. We're looking for some perceived AI losers that we're not sure really will be losers. For example, in the credit market there's a lot of software related credits that are getting pretty clobbered and we're not sure I mean they're trading at very very low multiples of cash flow and through the debt layer even lower multiples. And so at least it's something as credit investors that we're taking a look at. >> Yeah, I was going to ask how I mean I think of you as a value investor. Is that Do you characterize yourself that way? >> Yes. >> So what does a value investor do when AI is the predominant theme right now? >> So I think that there's a temptation by a lot of people and especially by academics to think of value as cheap paint by numbers, right? The lowest multiple stocks. We've realized really at the beginning of Baupost that that's not the right definition. The right definition is to think about what's a business worth. Obviously, a growing business is worth more than a stagnant business. Um I think that the melting ice cubes of today's businesses are melting faster than ever. That if you've got a business problem, you may be eroding really quickly. And so, we stay away from those. We don't care how, you know, four times cash flow. We don't care because that's not ultimately going to have value that you can get your hands around. And what we want with our value approach is to think about what do we know for sure, especially at a time that's this heady that that people are thinking so many years out, right? When you're paying 40 times multiple or in some case infinite multiples, you've got to have some degree of conviction about a very distant future. And I just don't see how we can do that. We don't know if AI is going to turn into AGI. We don't know what that means for the economy, for employment, for inflation. And so, I think if if you threw this much uncertainty into a market, I think you'd say, "Maybe the market should be actually at a lower multiple to accommodate all this uncertainty." And instead, the multiple keeps going up. So, that's what makes me think there may be bubbly aspects of it even if the technology proves to be on the higher end of expectations. >> But are there any value plays as you define value in this space? Amazon, Alphabet. I mean, I know that that you've talked about some of these names before. >> Yeah, I would say about 10% of our book is probably going to benefit from the immediately benefit from the roll out of AI. Um we have some Amazon, we have some Google. And what we like about those companies is such enormous cash flow machines. Um they are they are very versatile and flexible. So, they have found ways Google is obviously making their own chips. They both are players in in various aspects of AI. The Amazon data centers are a really very quick growing much faster than people thought even a year ago. And so, if you look at those companies first of all, you don't have to buy them the second that there are blips in almost every company where you get windows of opportunity. We put on Google a few years ago. I'm not supposed to talk specific names, but it was really a below market multiple. And so, you don't have to be making heroic assumptions to like stocks like that from time to time. Um we also own some raw land that we think could be site land that could be sites for future data centers. Um it has adjacent power and we we have paid very small dollars to create valuable optionality with data center land. >> How do you pick land that's going to be data centers? >> We know that there's at the moment, and it could change, insatiable demand for data centers. The key thing is, will it get built? Will it be permitted politically? And do you have power, which is the most important thing? And we have a experienced operating partner who's finding sites and who's banking the land until we can figure out if there's a demand enough demand. So, we're not sure we're going to build any data centers, but we can make them available to people who are needing more capacity. We also own a private investment that is um non-China Asia data centers. And it was spun out by a Chinese company we have a stake in on a public basis. And participating in that private offering has given us a position at a really significant discount from where public multiples are. So, I can't vouch for whether the public multiples are right, but I think what we've created in the private market is probably a 40% um of of what you'd pay in the public markets, which seems like it might be value. >> What about the trillion-dollar LLMs that are soon coming to the market? Is that interesting? OpenAI, Anthropic. >> We're uninvolved. I I would say the question I would ask as an investor is, A, is it winner take all? Are you sure that those are the two companies, those are the only companies? Um, B, those companies seem to eat a lot of cash to keep the models trained, keep the models updated. If they ever fall behind the curve and aren't the the best model, I think those companies could have real problems. So, they have to keep investing. That's not Warren Buffett's definition of a great business. Um, and and those are enormous valuations for companies that are still years away from bottom-line profit. That said, it it I I and I'm trying to heed what Eric Schmidt said a couple of years ago, which I think is largely true, probably, which is don't make the mistake of underestimating AI, that it could be a bigger winner than anybody's discounting. And if it is, though, you still want to think it through. Like, is the right way to play it through the model companies, or is the right way to play it through agents, or some ancillary businesses that are selling into it? And I think that's still yet to be seen. >> But and you also said you like AI-agnostic companies. What does that mean? >> AI-agnostic would be a company you think that just isn't going to be disrupted, that AI will not have much effect at all on their business. Um, so maybe they'll have some chance to cut costs. >> Like roofing? Like like roofing, housing supplies? >> Sure. Yeah, I mean, there may be companies I mean, I I think travel largely. There may be ways for people to cut costs, but that's not the primary benefit of AI. If AI is able to actually help you discover drugs with higher certainty, with with um, much faster than ever before, that's going to change mankind. That's that could make all of us survive diseases that would kill us right now. So, the highest end uses of AI are not cutting costs. They're figure out things humans can't figure out. And reading our our x-rays more accurately. So, I think that and and there there are obviously uses that we can imagine even better than that. So, I'm not this is not how I'm preoccupying most of my time. I I decided early on in this A, I'm not going to be at the cutting edge of AI. I'm not a tech guy, not at the cutting edge. B, I think that there are are going to be I have to know about it. I can't be at an information disadvantage even though I'm not at the cutting edge of the whole thing. And C, that that I need to stay focused. And what I really don't want to do is whiff when a fat pitch comes right down the plate. So, whether that's a stock that's not related to AI, whether that's a distressed debt deal, there's more distressed debt all of a sudden in the last few months, and we're seeing more to do there, or whether it's a private investment like like commercial real estate that we think that right now the logjam is starting to break. Fundamentals are starting to improve in a lot of real estate markets. And we're seeing opportunities to deploy capital at significant discounts to replacement cost at very attractive returns without heroic assumptions. And so, that's one of our favorite areas right now. >> Real estate. >> Why do you think that's happening now? >> I think people are burned on real estate. I think most people that have exposure to real estate are like, I have enough. People haven't done well in real estate for a decade or more. And I also think it's a lot of work to go find an individual building that you'd like to buy at a price where you can't deploy that much capital. So, I love being below the radar of the big gorilla firms, and I love being able to find individual investments that are 50 million, 100 million, whatever it is, that I can put to work with confidence to get returns that are disproportionate to any risk we're taking. >> And you mentioned more opportunities in distress. Are you talking software? What what does that look like? >> The largest areas of distress I'd say are idiosyncratic. We're seeing a company in Brazil that has been forced to do a restructuring. We have a position. They just announced what the restructuring looks like, and I think there're going to be securities coming out of that restructuring that probably will trade reasonably poorly making them a potential source of further opportunity. We saw a large private equity deal um where the debt um was impaired. They did an exchange offer. And again, there're securities that have come out of that that we think have a chance of being quite mispriced. And the business probably is They probably kitchen sinked it and took all the write-downs they're going to take, and it's probably about to turn. And so those securities also preferred and and equity securities could be quite interesting. So the there's credit is inherently interesting because of the transition of ownership that bonds are bought to get paid at par and earn your coupon. When they're not going to do that, people dump. When they get downgraded, people dump. When they file for bankruptcy, people dump. But then there are even when the distress guys swoop in, they maybe don't stick around for the last dollar cuz they're moving onto the next distress situation. And new capital's needed to absorb the securities to wait for the turnaround of the business. So there's always something to do. And the the inherently, as you know, value investors are patient. >> Yes. And but you describe them as idiosyncratic, meaning we're not I mean there's been questions about where are we in the credit cycle, right? And are we actually going to see any kind of downturn? >> Yeah, it it's been a very strange environment where we really haven't seen significant downside volatility since the GFC. We haven't seen a lot of corporate bankruptcies. As I said, we're starting to see more. We're seeing them in private credit, too. Um so, there's a lot of trouble out there. Um I I don't have a market forecast. We really never make market forecast. I don't know what's going to happen. But, I think we are due for a credit cycle. You can imagine there's scenarios where we're in a um sort of inflationary boom environment. Um we're onshoring a lot of companies. There's a lot of demand within our real estate book for for um industrial land, for warehouses, for cold storage, even. So, things are starting to heat up. And I think that with all the demand, all the money that's going to build data centers, you kind of feel that that's inflationary, that the building of it, demand for land, demand for equipment, demand for electricians, that it it's through the roof. >> Inflationary short-term, deflationary long-term? >> It might be. And but those are also once the genie's out of the bottle, will people be happy to not be getting their wage increases and cost I mean, right, it's such a political hot potato. And of course, increasingly, AI is a political hot potato. Are we going to build all these data centers? If we're going to build them, where are we going to build them? Cuz a lot of citizens are pretty up in arms already. >> you think that is an unappreciated risk in the markets right now? >> I do think it's a risk that's not fully baked in. >> The fact that politicians are going to crack down. >> I think there are a lot of risks that are not baked in. I politicians may crack down. It'll probably be more of a local thing rather than a national thing. But, first of all, you have the overall AI risk that it could it run amok. We haven't probably written the rules. I'm not sure this administration's gotten their head on around doing that. Um and then locally, it's it's it's really a political issue now, and it's going to be probably even more so by '28. Um so, I think there'll be bumps in that road. And then of course the amount of debt we have, what's going on in the Strait of Hormuz, there are a lot of issues. The market kind of learned over the years don't pay too much attention to those kinds of issues because what really matters is will corporate earnings come through and what's the Fed going to do. And I think that those issues may come more into play. And I worry for the US and debt just hit 100% debt to GDP. Um, and that that's a alarming number. That's not immediate sign of trouble, but nobody thought it could get to this level and of course the structural deficits are enormous. So, adding to that debt 2 trillion or more a year is going to it's high 30s, it's going to be 50 in 5 years and it'll be 100 another decade from that or something like that. Those are scary numbers. >> Inflation risk out there from what's happening with AI, I think energy prices as well. Do you think the Fed's going to raise rates this year? >> I think that they would really like to lower rates. I think that probably First of all, I have great respect for Kevin Warsh. I know Kevin. I think he's a deeply thoughtful guy. I feel fortunate to have somebody with his background in the seat and I don't think he's that political an actor, but I could be proven wrong. But I think Kevin is is somebody that is going to always do what he thinks is right. So, I think he's going to take his time. I think he's going to act in a thoughtful way that all of us would want. And I think he's going to look deeply into data. I think he's going to try to change the culture a little bit at the Fed to make everybody look deeper into data. They're clearly going to have a different communication strategy around their moves, which I think is right. I don't understand how telling people what you're going to do and then wishing you hadn't said that is is any better than any other strategy. So, I think changing some of that is a good idea. My guess is they watch a little while, maybe they have one increase or two increases. Um I think they'll watch the inflation numbers. Ultimately, I think they would like to bring rates down and I think if AI is as successful as it seems, then there's going to be a significant deflationary effect and they may have plenty of room to lower rates at some point. >> Okay, we just have a few minutes left. I'm going to do a little rapid fire here. We don't get the opportunity that much. So, Seth, that What what's What is your best idea right now? >> I think our favorite single idea is in the commercial real estate space. It's assisted living, which has gone through a horrible time since COVID and a lot of bankruptcies in the area because those newly built um assisted living centers couldn't get occupied. Nobody would put their relatives in them and that's shaking through the system. It's starting to turn, but I think we're still in the early stages of that turning. So, that's our favorite idea. >> What's the one miss over the years where you just kick yourself? The one that got away. >> For me, the one that got away was we had this you know, we like to get phone calls from the street or from from operating partners and we got a phone call that hey, we think there's 40 or 50 million dollars of venture investment in this company called Palantir. And would you be interested? Is there a price? And we did a lot of work and we were ready to make a bid and the seller changed their mind. And I think that would have been you know, this was 15 or 20 years ago. So, I think we would have made billions if not tens of billions of dollars on that stake and it's it was unavoidable. There was by the time we could act, there was nothing to do, but it it it I think every investor has a story like that. >> Yeah. I mean, what what's your process? Because you're across so many different areas. Like how do you find the ideas and how do you research them? >> I've got 40 investment professionals on the team sitting in four areas, which is public equity, credit, private investments that include some private credit, and real estate. Um they have pipeline meetings. I'm in the flow of what they're looking at, what they're working on. I tend to give them a lot of rope, but I also involved and in their meetings all the time. So, I have a good sense. We're allocating capital with kind of a bottom-up perspective. So, bottom-up, I can see are the best opportunities in private investments, in public equity, in credit. Where are we seeing the most opportunity? And rather than sitting back and saying, "Let's allocate capital top-down." We're letting it get allocated bottom-up based on what we're seeing. >> And and and who do you listen to? It whether it's a a fellow investor or a CEO or who who Who do you whether it's advice or just where the future's going? >> So, I think I I try to read and listen as broadly as I can. I'm friends with a number of people in the business that have been around as long as I have. So, friendly with people that run some major funds, distressed funds, long-short funds. Um I have great respect for um some of the um some of the thought leaders in the industry on the the columnists, the the academics, you know, I always want to read Niall Ferguson. I don't always agree with him, but I want to know what he's thinking about. Um Trying to get up to speed on AI, I read everything. So, we're listening to a bunch of podcasts. I love reading Dario Amodei's thought pieces. That it's just um >> They're a little depressing. >> I think that it's remarkable and we should be glad we have an executive who could just be a cheerleader, but is also a thoughtful steward and maybe warning us that that it's got potential, but it's also got risk. Um I I admire somebody for being a leader like that. I of course listen to Jamie um and and there aren't too many people of that ilk. And of course um Warren Buffett, Todd Combs, um Ted Weschler, they're they're all friends and really thoughtful investors with a a deeper perspective. So, I don't often talk about individual stocks with them, but I'm talking about the markets or about um deeper, you know, philosophical things about moment in time. >> So, 44 years, Seth, how much longer you going to do this? Another 44? What's your vision for Baupost? >> I hope I get another 44. I'm I'm in still my 60s, so I imagine I've got another decade or so. I don't think people should stick around forever, so I keep making mental notes, especially when I see some old guy do something they shouldn't do, that I need to get out of the way. And I'm empowering my team more, um pushing down capital to some of the team, um and changing the way we make decisions in some ways. So, I feel like I'm continuing to develop the team. The moment I think I'm not the best person in the firm to lead the firm, I'll get out of the way, but I feel like another 10 or 12 years and then it's time to hand it off for good. >> Okay. Well, thank you very much for the candor today, as always, and for sharing some of your story, Seth. It was a treat. >> Thank you so much. >> Thank you. >>