Herb Greenberg at Marketwatch.com has an interview with noted value investor Seth Klarman of the Baupost Group. Although Klarman has increased his exposure to U.S. equities he still holds a substantial portion of his portfolio in cash. According to Klarman because most asset classes overvalued there are few values available. Therefore holding cash and waiting for opportunities to arise in the future is the best strategy.

Those opportunities may come from a combination of higher short-term rates driven by the Fed and the default of marginal credits. With so much money sloshing around eventually those poor credit decisions by flush hedge funds will come home to roost.

Klarman goes on to say that markets are inefficient because of human nature. “People don’t choose to invest with emotion,” he says, “they can’t help it.”

We do not dissect Berkshire Hathaway (BRKa) stock holding disclosures like more obsessive Buffetologists, there is an interesting theme playing out. The purchase of substantial stakes in Anheuser-Busch (BUD) and Wal-Mart (WMT) is a sign of some value in “quality stocks.â€? The notion that quality stocks are undervalued relative to more speculative sectors has been a theme on this site for a couple of months now. Berkshire Hathaway’s most recent disclosures in this Reuters article.