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Pro Analysis

How to think like value investing idol Seth Klarman

Seth Klarman
Daniel Acker | Bloomberg | Getty Images
Seth Klarman

Editor's note: This is PRO Strategy, a column on how the smartest minds on Wall Street invest.

Perhaps other than Warren Buffett, there is no other value investor more respected than Seth Klarman among his hedge fund industry peers. He has generated tens of billions in gains for his clients across decades. Here's how investors can learn from his success and apply his investment philosophy.

Klarman started his investing career at Mutual Shares working with Michael Price, before going to Harvard Business School. He then became the first portfolio manager at Baupost, a firm founded by Harvard Business School professors to manage their assets. Eventually he would take a controlling position in Baupost and turn it into one of the most successful hedge funds in the world.

Across his 33 years of investing at Baupost, Klarman reportedly generated annual returns of 16.4 percent and $22.6 billion in net profit for his clients as of the end of 2015.

In total, Baupost had $29.2 billion of assets under management at the end of June, according to the firm.

Here are three key elements of Klarman's philosophy: