Irving Kahn was Benjamin Graham’s “teaching assistant”. He learnt the nuances of value investing from Benjamin Graham and passed them on to illustrious students which included the legendary Warren Buffett.
Irving Kahn’s life history, as detailed in The Telegraph, is fascinating. He has seen the great crash of 1929, the Great Depression, the Second World War, the Cold War and the sub-prime financial crises of 2008. Through them all he carried on investing.
Interestingly, the techniques that Irving Kahn applied to investing over the past several decades hold good today as well. If we follow them, we can also succeed the same way that he has done.
His investing technique can be distilled into a few actionable points:
(i) Look 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. Pay attention to the ‘margin of safety’ when buying stocks;
(ii) 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;
(iii) Investors must remember that their first job is to preserve their capital. After they’ve dealt with that, they can approach the second job, seeking a return on that capital;
(iv) Never buy stocks on leverage, trade short-term or buy at high prices because you will then suffer permanent loss of capital;
(v) Be slow and steady. Study companies and think about what they might return over, say, four or five years. If a stock goes down, I have time to weather the storm, maybe buy more at the lower price. If my arguments for the investment haven’t changed, then I should like the stock even more when it goes down;
(vi) Look for value where others have missed it. Our ideas have to be different from the prevailing views of the market. 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;
(vii) Investors must 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 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.