If only one word is to be used to describe what Baupost does, that word should be: 'Mispricing'. We look for mispricing due to over-reaction.

Financial innovation can be highly dangerous, though almost no one will tell you this. New financial products are typically created for sunny days and are almost never stress-tested for stormy weather. Securitization is an area that almost perfectly fits this description; markets for securitized assets such as subprime mortgages completely collapsed in 2008 and have not fully recovered. Ironically, the government is eager to restore the securitization markets back to their pre-collapse stature.

Value investors have to be patient and disciplined, but what I really think is you need not to be greedy. If you're greedy and you leverage, you blow up. Almost every financial blow up is because of leverage.

Risk is not inherent in an investment; it is always relative to the price paid. Uncertainty is not the same as risk. Indeed, when great uncertainty - such as in the fall of 2008 - drives securities prices to especially low levels, they often become less risky investments.

Avoid organizing investment team into silos.

Like to have a catalyst - reduces dependence on the market: Distressed debt inherently has a catalyst - maturity.

Avoiding where others go wrong is an important step in achieving investment success. In fact, it almost assures it.