“You must have the discipline and temperament to resist your impulses. Human beings have precisely the wrong instincts when it comes to the markets. If you recognise this, you can resist the urge to buy into a rally and sell into a decline. It’s also helpful to remember the power of compounding. You don’t need to stretch for returns to grow your capital over the course of your life.” — Irving Kahn
Irving Kahn: Background & bio
Irving Kahn was on one of the disciples of Benjamin Graham similar to Warren Buffett. He had the noteworthy opportunity of working as Graham’s teaching assistant at Columbia University Business School.
Irving Kahn contributed to Graham’s bible on value investing, Security Analysis, by providing some statistical help. Irving Kahn’s main source of insight into the world of investment was Graham; he was inspired so much that he named his second son Thomas Graham after after the great investor himself.
Born Dec. 19, 1905 Irving Kahn kick started his career in 1928 and since then has been actively contributing to the world of business. He is one of the founding members of New York Society of Security Analysts and Financial Analysts’ Journal and was among the first few applicants to take the Chartered Financial Analyst (CFA) exam.
Irving Kahn worked closely with Benjamin Graham over his career. He had the noteworthy opportunity of working as Graham’s teaching assistant at Columbia University Business School and also contributed to Graham’s bible on value investing,Security Analysis, by providing some statistical help. Irving Kahn met his wife, Ruth Perl Kahn in Benjamin Graham’s classes.
Sadly, Kahn passed away on February 26 2015 at the age of 109.
Irving Kahn was co-founder and chairman of Kahn Brothers Group Inc., a broker-dealer and investment adviser with about $1 billion under management. Up until age 108 he still commuted three times a week to the firm’s Madison Avenue office.
One of Irving Kahn’s greatest trades was made in 1929 when he sold short 50 shares of Magma Copper. Four months after he made his bet, on October 29, 1929 the market crashed, and Kahn’s bet paid off. His initial $300 bet tripled in value.
Kahn was highly influenced by the investment philosophy of Graham and much of his knowledge regarding the financial world has been acquired during his years of serving as Graham’s teaching assistant. Kahn learned from the best of the best and has effectively utilized his inspiration and expertise in becoming one of the most renowned value investors of all times.
The investment philosophy of Irving Kahn can be captured in two words: ‘Unlocking Value’. His career was built on the practice of finding valuable underpriced stocks by analyzing different over-looked company’s balance sheet and annual reports. According to him, investing is a complex mixture of art and science and thus, requires both qualitative and quantitative analysis in order to accurately determine the worth or value of some particular investment.
Irving Kahn’s philosophy is epitomized by the investment practice of his firm Kahn Brothers Group. They make use of a pure bottom-up approach when in search for potential stocks for investment. The company would rather hold cash than invest in overpriced speculative stocks just for the sake of being fully invested. The firm focuses on investing in equity securities which are undervalued. The firm takes into consideration the asset valuations, operating performance and long-term fundamental business prospects. Irving Kahn invests in cheap good companies with long-term growth prospects; he invests with a mind set of holding on to the investment for the time period of more than 3 years.
As a value investor, Irving Kahn does not give importance to portfolio diversification, and rather sticks to having a concentrated mix of undervalued high growth potential stocks. According to him, a portfolio is like an orchard of fruit trees, and it is unrealistic to expect the trees to reap fruits every year from each species of tree.
The maturity of every investment is unpredictable and varied; according to Irving Kahn, it takes 3 to 5 years or even more for the fruit of an investment to ripen. Patience is the key element to success and profitability and thus, it is not wise to abandon or change the investment philosophy just because the returns are not as expected. Moreover, when investing in a company, Irving Kahn prefers the company to have little or no debt and the management to have a share in the company stocks as that would ensure proportionality between management and external stockholders interest which is maximization of stockholder’s wealth.
Irving Kahn: Kahn Brothers
What Is Value Investing?
“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”
-Benjamin Graham, “The Intelligent Investor”
The “value investing” model, developed by Benjamin Graham in his texts, Security Analysis and The Intelligent Investor, is highly dependent on price. Security selection is therefore a process of identifying situations where companies trade at a significant discount to their liquidation or long-term going-concern value. This discount, defined as the “margin of safety,” is critical in two respects. A large margin of safety component not only reduces the risk of a permanent loss of capital but also serves as the platform for significant future gain. Superior returns on investment often result when the marketplace ultimately recognizes the true value of the enterprise.
Value investing incorporates principles that have produced extraordinary returns for money managers through several market cycles over many decades. Kahn Brothers has the experience required to successfully apply these principles to the selection of securities. We do not attempt to time broad directional swings in market levels, interest rates or exchange rates. We are not interested in annual benchmark comparisons. A study of the performance of successful value-oriented investment managers over long periods of time found they under-performed market indices 30% – 40% of the time. In other words, out-performing an index 60% – 70% of the time produced highly satisfactory risk-adjusted rates of returns for these successful managers. Furthermore, investors appreciate that value investing generates tax efficient returns resulting from both long holding periods and favorable tax rates.
Our Philosophy: Unlocking Value
Kahn Brothers employs a bottom-up stock selection approach, and invests in undervalued equity securities that are usually out-of-favor in the market. We select securities, one at a time, based on asset valuations, operating performance metrics and long-term fundamental business prospects. Unlike many investment managers, we spend a considerable amount of effort evaluating the downside risk of every investment.
If there are very few values to be found in a given period, we are comfortable holding cash, rather than placing money in speculative, overpriced issues. We will not invest in an overpriced market simply to become ?fully invested? but will patiently wait for attractive situations to present themselves.
Kahn Brothers thinks of a portfolio as an orchard of fruit trees. One cannot expect fruit every year from each species of tree. Investments can and often do have varied and unpredictable timetables to maturity. We believe a suitable time horizon for investment fruit to ripen for harvest can be three to five years or longer. Indeed, a key factor in realizing outstanding performance is having the discipline and patience to maintain time-tested principles and not abandon the orchard before the fruit has ripened.
Kahn Brothers views the investment process as a combination of art and science. Each investment decision has both quantitative and qualitative aspects. While a novice can readily duplicate the former, the latter can only be acquired after decades of analyzing investment opportunities. A key element to outstanding investment performance is bringing these two factors together.
Value investing incorporates only one methodology for securities selection. While many consider it to entail less risk than some other approaches, it can produce returns below popular indices for multiple annual intervals. Value investing may result in concentrated portfolios and will not produce portfolios diversified by investment style. These potential risks must be considered by any investor utilizing the services of Kahn Brothers Advisors LLC.
The following views summarize our methodology for evaluating each specific equity investment:
“We study companies and try to find undervalued securities… We’re absolute value investors focusing on asset values, book value discounts and low price to earnings ratios to normalized earnings. And we aren’t interested in so-called relative values — you know, something selling at 20 times earnings in an industry group with a 35 multiple.”
-Thomas Graham Kahn, “Outstanding Investor Digest”
Irving Kahn: Books
“We live in an era with too much confidence in advertising. Everyone tells you that you can attend a seminar for $250 and make lots of money. Value investing means being much more discriminating.”
“I’m at the stage in life where I get a lot of pleasure out of finding a cheap stock,”
“Investors have no reason to feel bearish. True value investors are glad the markets are down.”
“I would recommend that private investors tune out the prevailing views they hear on the radio, television and the internet. They are not helpful. People say ‘buy low, sell high’, but you cannot do this if you are following the herd.”
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