Could index investing become too risky?

Seth Klarman is one of the few hedge fund managers praised by Warren Buffett. His Boston-based Baupost Group is famously tight-lipped and extraordinarily successful, currently managing around $30 billion.

That puts him on par with the endowments of schools such as Harvard and Yale. As it happens, my business partner Scott Puritz and I were classmates of Seth’s at Harvard Business School.

Recently, a private letter to his clients was excerpted in the New York Times. The letter fundamentally warns investors not to get too invested in the “Trump effect” on stocks. The unknowns are many, Klarman wrote.

He has a point, but the more interesting part of the letter, as cited by the newspaper, came later.

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