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Tue. Apr. 21, 2009

Who is Irving Kahn and Why Should We Listen to Him? *

Last week we looked at confidence in your investing process and noted that true confidence comes from knowledge and experience. Knowing how your investing process works is important in gaining confidence, but real comfort only comes from having been there before and experiencing the gains after coming out of a downturn.  Although experiencing tough times first hand, creates lasting memories it certainly is not pleasurable. Today we have the opportunity to learn from the experiences of someone who has lived through many downturns and profited from it.

Irving Kahn has made a career of finding solid but beaten-down stocks by poring over annual reports and studying balance sheets looking for companies that have lots of cash, not much debt and good long-term growth prospects. He has seen it all, bull markets, bear markets, recessions, recoveries and, unlike most of us, he’s also seen the Great Depression. Born on December 19, 1905, Kahn worked as a stock analyst and brokerage clerk on Wall Street in the 1930s.

Kahn learned from the best. He served as the second teaching assistant to Benjamin Graham at the Columbia Business School. When asked about the Great Depression, he noted that the problem after the Depression was not so much the lack of money to invest but rather “knowing how to use it without losing it. There were too many bargains.” A bargain isn’t a sure thing, and Kahn will only buy investments he deemed “riskless.” Kahn hasn’t deviated from that philosophy over the decades.

Since 1978, Kahn has served as Chairman of The Kahn Brothers Group Inc. The company is a money manager and Registered Investment Advisor. It’s principals manage over $550 million of institutional and private funds. The firm provides money management and brokerage services through its affiliated broker-dealer, Kahn Brothers LLC, which is a member of the New York Stock Exchange.  At 103 years old he still shows up five days a week to hunt for overlooked companies with good businesses and little debt that are trading for less than the value of their assets. He is quoted as saying: “I’m at the stage in life where I get a lot of pleasure out of finding a cheap stock,” adding that his research still pushes him to work evenings and weekends.

Kahn does not believe we are headed for a repeat of the 1930s when people “felt so helpless.” As an investor who has seen dozens of economic downturns, Kahn plainly says this is just part of the natural cycle of the market. “Investors have no reason to feel bearish. True value investors are glad the markets are down.”

Then, like now, there will be companies that survive and eventually thrive. Consider these stocks that not only survived the 1929 crash, but went on to reach new highs within two years:

  • Archer-Daniels Midland (ADM) – Yield: 2.18%
  • Coca-Cola (KO) – Yield: 3.71% – [Recent Analysis]
  • U.S. Steel (X) – Yield: 2.18%
  • Deere and Co.  (DE) – Yield: 3.03%
  • Macy’s (M) (Formerly Federated Department Stores) – Yield: 4.38%

Unfortunately, we all couldn’t be trained by Benjamin Graham and absorb the deep rooted confidence he had in his investing philosophy, but through knowledge, time and experience we can build the needed confidence in our own investing process. Abby Joseph Cohen, a partner and chief U.S. investment strategist at Goldman, Sachs & Co. during the Squawk Financial Summit aired that on CNBC March 24 said, “There hasn’t been a recession yet that hasn’t ended.” Value investors like Kahn, Buffett and others are betting this one won’t be any different.  My money is with them.

Full Disclosure: Long KO

References:
- Stock Pros Who Survived the Depression
- Wikipedia
- Kahn Brothers Group, Inc.
- The Stocks That Survived 1929


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