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

Like most immigrants,  the Alvarez family didn’t believe in debt.  When it was time for college, Raul chose a route that would minimize the  financial burden on his family. For his undergraduate degree, Raul attended the University of Miami where he was entitled to free tuition because his mother taught in the graduate school.  He graduated cum laude and was hired by an accounting firm.

He was asked to do some financials for one of his clients, and it wasn’t long before he accepted a position as a director of finance with the company.  This was the first of many moves in his career.  Raul quickly ascend through the ranks and was always looking for the next strategic jump. To gain experience and move ahead, he leveraged his Hispanic background by took an operations job in Spain.

In 1987, looking to make another large career leap, he contacted the biggest player in the industry, but the door wasn’t open – yet.  Another competitor had started rebuilding itself and gave him an opportunity in 1989 where he served as a corporate vice president that oversaw acquisitions. Then in 1994, seven years after his initial contact, the industry leader came knocking. A friend had tipped the company off to Raul’s quality of work.

“They approached me through a headhunter and I said I’m not gonna call you back! You didn’t call me before, I’m not calling you!”  His friend encouraged him to pursue this opportunity. It was something Raul had always talked about.  Eventually, he decided to join the industry giant.  As before, Raul quickly rose through the company’s ranks.

So who is Raul Alvarez?

If you are a dividend investor you probably own shares in Raul’s company and you have been lovin’ it during this economic downturn.  Raul Alvarez now goes by the name Ralph and is the President and Chief Operating Officer of one of the most successful companies in the word, McDonald’s Corp. (MCD).  He has helped MCD extend a six-year success streak with his focus on improving restaurant operations, adjusting prices and keeping down costs and is in line to take the reins when 64-year-old Chief Executive Jim Skinner retires.

Full Disclosue: Long MCD

References:
- McDonald’s Seeks Way to Keep Sizzling
- He’s lovin’ it; the Ralph Alvarez story

As the son of a Merrill Lynch broker, Charles Mangum has always been fascinated by the market. At age 14, he bought a few shares of convenience-store chain Circle K and watched his investment double. “I thought, ‘This is so much fun,’” says Mangum.

A few years later, he suffered his first loss when another of his picks, Nichols Oil, went bankrupt. Mangum was unfazed. “It didn’t change my view of stocks,” he says. “I knew I loved investing.”

In 1990, Charles joined joining Fidelity Investments and worked as a research analyst and portfolio manager. Since January 1997, he has worked as vice president and manager of Fidelity’s Dividend Growth Fund (Prospectus) and also manages other Fidelity funds.

His investment philosophy is to find mature growth stocks that tend to be less risky and stronger financially. The emphasis on strong balance sheets steered him clear, for the most part, of tech bubble in the late 1990′s. His portfolio is typically concentrated in health-care, consumer and financial stocks, mainly large-caps and midcaps. That is not to say his fund does not take chances. Charles makes concentrated bets by scooping up troubled but financially strong companies.

Charles is now 42 years old and according to a recent Motley Fool article, the Fidelity Dividend Growth fund has beaten 80% of its peers over the past decade. The article goes on to say:

Like you and me, Mangum is in pursuit of the ultimate dividend stock — the stock that will leave investors set for life. And having trailed his competition in recent years, Mangum is hungry — and looking for a promising stock that the market’s turned its back on.

And just what is this stock? It is Bank of America (BAC). The above article notes several important facts about BAC:

• The entire financial sector is currently out of favor
• The company absolutely dominates U.S. retail banking
• It is currently paying a dividend of around 7%
• It has a solid balance sheet. BAC sold off its sub-prime business a while back, and credit appears under control

In my opinion (see Disclaimer), the day will come when we will look back at this time and wish we had bought more quality financial stocks – the key is finding quality in these sometimes murky waters.

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