The shortened week got a strong start, with the S&P 500 (SNPINDEX:^GSPC) gaining 0.7%, while the narrower, price-weighted Dow Jones Industrial Average (DJINDICES:^DJI) gained 0.4%. Both indexes recorded new five-year highs.

Reflecting that result, the VIX (VOLATILITYINDICES:^VIX), Wall Street's fear gauge, fell 1.2% to close at 12.31 -- its lowest closing value in nearly six years. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)

Tracking a superinvestor
Seth Klarman, one of the most respected, and successful, value investors of all time, is concerned about the macro environment investors need to navigate. In fact, he recently wrote to his investors that investing may be harder today than at any time in the past 30 years. (If you're wondering why you'd want to listen to Klarman, know that the starting price from sellers for his classic, out-of-print investing handbook, Margin of Safety, is $950.)

Bloomberg News obtained a copy of the 19-page letter he recently sent his Baupost Group investors, and judging from the excerpts they featured, the tone is pretty dour. Still, over the short term, Klarman expects this year to be similar to 2012, with yield-starved investors continuing to move into risk assets, making it harder for value-focused investors to find investable opportunities:

Dampened volatility, accompanied by higher securities prices, is a challenge for Baupost. The Federal Reserve's relentless interventions and manipulations (the "Bernanke put") have truncated market declines, leaving relatively little worth acquiring -- at least for now.

Last week, I wrote that, at zero-bound volatility, investors "should remain laser-focused on valuations – when one is in uncharted waters, a margin of safety is no luxury, it's vital." Where is Baupost finding value now? According to its 13F filing for the fourth quarter of 2012, which it filed last week, the only new U.S. stock position it established in the December quarter was in insurer AIG (NYSE:AIG). Although the share price is now 13% higher than the average closing price during the third quarter, the premium with regard to its price-to-tangible book value is much lower. The shares currently trade at 0.56 times tangible book value against an average of 0.52 in the third quarter. If Klarman saw value in AIG shares then, it's a good bet they still offer a margin of safety today.