The Life of Kahn: 109 Years of Wisdom

          “I’m at the stage in life where I get a lot of pleasure out of finding a cheap stock.”
– Irving Kahn, at age 107 in 2013

Though not widely known in the general public the way Warren Buffett or George Soros have become household names, Irving Kahn is revered by a number value investing junkies. He passed away earlier this year at the age of 109. Kahn continued to work and give interviews until just months before his passing. We collected much of the wisdom culled herein during the past 20 years as Irving provided it through interviews while he was in his 90s and early 100s.

Kahn began his career in 1928 on the floor of the New York Stock Exchange. The hustle and bustle was not suited to his temperament; quiet investment research soon became his preference. In the office building where he worked, Kahn befriended a gentleman at another firm. “The head bookkeeper at the firm was a nice guy and he saw how skeptical I was about that crazy market.” “That crazy market” was the market of 1928-1929, eclipsed in its ebullient insanity only by the 1998-2000 mania. The bookkeeper showed Kahn the transactions of another investor whom he thought Irving would admire. That other investor turned out to be the person later referred to as the “father of value investing,” Ben Graham.

Kahn quickly struck up a relationship with Graham and became his assistant. Says Kahn, “In the 1930s, Ben Graham and others developed security analysis and the concept of value investing, which has been the focus of my life ever since. Value investing was the blueprint for analytical investing, as opposed to speculation.”

“The main lesson I learned from Ben was the distinction between investment and speculation. It’s still the most important lesson an investor needs to know.”

Graham taught Kahn to calculate what he thought a company was worth and then buy shares of that company only if the market offered those shares to him at a lower price. This requires considerable patience. Says Kahn about Graham: “Most of the time he passed.” The price wasn’t right. “There are always good companies that are overpriced. A disciplined investor avoids them. As Warren Buffett has correctly said, a good investor has the opposite temperament to that prevailing in the market.”

          “As Warren Buffett has correctly said, a good investor
has the opposite temperament to that prevailing in the market.”

“During the Great Depression, I could find stocks trading at tremendous discounts. I learned from Ben Graham that one could study financial statements to find stocks that were what he called a ‘dollar selling for 50 cents.’ He called this the ‘margin of safety’ and it’s still the most important concept related to risk.”

“You don’t have to be very smart to find value” during economic depressions such as that of the 1930s. At other times, the investor needs to seek value in less popular areas of the market. “We basically look for value where others have missed it… When investors flee, we look for reasonable purchases that will be fruitful over many years. Our goal has always been to seek reasonable returns over a very long period of time. I don’t know why anyone would look at a short time horizon. In my life, I invested over decades. Looking for short-term gains doesn’t aid this process.”

Kahn would buy shares with the expectation of holding them for a minimum of three years and usually more than five years. He often held his positions for 20 or more years. Once found and acquired at an intelligent price, it often makes sense to hold a company’s shares for the long term. In contrast to Wall Street’s myopia, Kahn had tremendous patience and discipline. Compared to Kahn, the average U.S. stock mutual fund is a frenetic buyer and seller of shares, trading so frequently that it turns over 85% of its portfolio each and every year.

“We approach the stock market not as traders, not like Jim Cramer, or the guys at ‘Fast Money’ [a CNBC program]. We approach it from an analytical point of view. We want to know about the business [that we own], and we want to own stocks that we can feel comfortable with, even if they close the stock exchange for five years.”

“The thing that makes our style different from the typical firm is that we read much more broadly outside Wall Street. One reason that it’s hard for many people to manage money is that they’re influenced by what other people do. Buffett’s not like that.”

Also in opposition to Wall Street convention, Kahn viewed cash in one’s portfolio as an asset to be deployed only when safe opportunities were present. He preferred holding cash, and often a great amount of it, to owning stocks if stocks were not available on his terms – i.e., at bargain prices. “You don’t have to be fully invested all the time. Have patience. Keep your standards.”

Kahn, like his teacher Graham, was disciplined. And his penchant for bargains was equally on display in his daily life. Even in his 100s, Irving would often walk to work from his home on Madison Ave. and he eschewed taxi cabs because he thought the cost was outrageous.

Kahn’s investment portfolios stood apart from the crowd, too. His results bore little correlation to the movements of the overall stock market. In rapidly rising markets, his clients’ portfolios lagged the returns of the S&P 500 by a wide margin. And, despite a long track record of success, Kahn would lose clients during such periods – usually shortly before markets would regain their sanity by way of much lower prices. The siren song of the market is hard to ignore as it continually steers individuals onto rocky shores.

Investing is a complex struggle against one’s emotions, requiring an understanding that the process is a mixture of both art and science. There are no sure-fire, step-by-step procedures to success, believed Irving. He advised against putting one’s faith in so-called “proprietary methods,” as Wall Street would (mis)lead many to believe. “All the kids that believe in equations and rules?” Kahn scoffed. “They will learn more as they get older.”

Individuals should be more skeptical of Wall Street. “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.” Kahn’s recommendation was to pass on that the way he and Graham would pass on the majority of potential investments. “Value investing means being much more discriminating.”

“John Maynard Keynes was one of the most famous economists in history. He was a genius, but he failed as a macro investor. It was hard to believe at the time. But when he became a bottom-up value guy, well, he became very successful… Value investing will almost always be right.”

By spending one’s time focused on the businesses whose shares he or she owns, the investor is better able to maintain a business-like approach to investing. “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.”

          “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.”

“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 recognize 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.”

Kahn was a buyer, not seller, of shares during large market declines. When the 2008 crash occurred, he was unemotional. “This is not so new to me. It’s like the same play or plot with different characters.” Lower prices are opportunities. “Investors have no reason to feel bearish. True value investors are glad when the markets are down.”

Despite his successful track record and decades of experience, even Irving fielded numerous calls from clients who were not so glad during that 2008 market meltdown. Many clients wanted him to sell their stocks and raise their levels of cash (the opposite of what Irving knew was right). Asked in October 2008 what he was saying to those clients, he replied with a bit of humor: “I tell them to get a life. Stop watching TV. Drive up the Hudson. The fall colors are beautiful this time of year.”

“The public is spellbound by daily price moves.” Yet Irving paid almost no attention to the market’s daily action. “I don’t watch it, because I’m not a trader.” He studies the companies he owns and those that he is considering for investment.

“During the recent crash [of 2008] and in other selloffs, I looked for good companies selling at a discount, which do surface – if you’re patient. If the market is overpriced, an investor must be willing to wait.”

In August 2014, Kahn was having a tough time finding bargain securities. “I try not to pontificate about the market, but I can say that my son and I find very few instances of value when we look at the market today. That is usually a sign of widespread speculation. But no one knows when the tide will turn. Those who are leveraged, trade short-term and have bought at high prices will be exposed to permanent loss of capital. I prefer to be slow and steady.”

“I’ve seen a lot of recoveries. I saw crashes, recoveries, World War II. A lot of economic decline and recovery. What’s different about this time is the huge amount of quote-unquote information. So many people watch financial TV – at bars, in the barber shop. There is this superfluity of information, all this static in the air. There’s a huge number of people trading for themselves… It’s a hyperactivity that I never saw in the ‘40s, ‘50s, and ‘60s.”

The hyperactivity and static create a level of noise that runs counter to thinking rationally about investing. “Leave your feelings out of it. Buy the out-of-favor, the unpopular. Think value. Think downside risk. Think total return, with dividends tiding you over. We’re in a period of extraordinarily low rates – be careful with fixed income. Stay away from options.” He sums it all up: “Protect yourselfSticking to value investing helped me to preserve and grow my capital. Investors must remember that their first job is to preserve their capital.”

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