“You don’t try and buy businesses worth $83 million for $80 million. You leave yourself an enormous margin (of safety). When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000-pound trucks across it. And that same principle works in investing. ” – Warren Buffett on what Benjamin Graham, the father of value investing, meant by having a margin of safety.
Source: The Superinvestors of Graham-and-Doddsville by Warren E. Buffett
“Berkshire’s gain in net worth during 2014 was $18.3 billion, which increased the per-share book value of both our Class A and Class B stock by 8.3%. Over the last 50 years (that is, since present management took over), per-share book value has grown from $19 to $146,186, a rate of 19.4% compounded annually.* During our tenure, we have consistently compared the yearly performance of the S&P 500 to the change in Berkshire’s per-share book value. We’ve done that because book value has been a crude, but useful, tracking device for the number that really counts: intrinsic business value. In our early decades, the relationship between book value and intrinsic value was much closer than it is now. That was true because Berkshire’s assets were then largely securities whose values were continuously restated to reflect their current market prices. In Wall Street parlance, most of the assets involved in the calculation of book value were “marked to market.” Today, our emphasis has shifted in a major way to owning and operating large businesses. Many of these are worth far more than their cost-based carrying value. But that amount is never revalued upward no matter how much the value of these companies has increased. Consequently, the gap between Berkshire’s intrinsic value and its book value has materially widened. With that in mind, we have added a new set of data – the historical record of Berkshire’s stock price – to the performance table on the facing page. Market prices, let me stress, have their limitations in the short term. Monthly or yearly movements of stocks are often erratic and not indicative of changes in intrinsic value. Over time, however, stock prices and intrinsic value almost invariably converge. Charlie Munger, Berkshire Vice Chairman and my partner, and I believe that has been true at Berkshire: In our view, the increase in Berkshire’s per-share intrinsic value over the past 50 years is roughly equal to the 1,826,163% gain in market price of the company’s shares.”
* All per-share figures used in this report apply to Berkshire’s A shares. Figures for the B shares are 1/1500th of those shown for A.
The value investing world has lost a great member – American businessman and investor Irving Kahn (December 19, 1905 – February 24, 2015), who was the oldest living active investment professional. Wikipedia says he was an early disciple of Benjamin Graham, the creator of the value investing methodology. Kahn began his career in 1928 and continued to work until his death. He was chairman of Kahn Brothers Group, Inc., the privately owned investment advisory and broker-dealer firm that he founded with his sons, Thomas and Alan, in 1978.
Irving Kahn was the oldest active money manager on Wall Street. He made his first trade—a short sale of a copper mining company—in the summer of 1929, months before the infamous market crash in October of that year.
Educated at the City College of New York, Irving Kahn served as the second teaching assistant to Benjamin Graham at Columbia Business School. At the time, other notable students and/or teaching assistants to Graham included future Berkshire Hathaway chairman Warren Buffett and future value investors William J. Ruane, Walter J. Schloss, and Charles Brandes, among others. Graham had such an enormous influence on his students that both Irving Kahn and Warren Buffett named their sons after him. Kahn named his third son, born in 1942, Thomas Graham, and Buffett, his first son, born in 1954, Howard Graham.
Kahn was a Chartered Financial Analyst and among the first round of applicants to take the CFA exam. He was a founding member of the New York Society of Security Analysts and the Financial Analysts’ Journal.
“Irving Kahn’s particular value approach was to identify stocks that were selling at a deep discount (i.e., an attractive “value”) and that were generally ignored or disliked by others (i.e., “contrarian”). On the positive side, he required strong financials (i.e., little or no debt), management commitment (i.e., a stake in the business), and the potential for growth (i.e., a fundamental driver that could push the stock price up and create investor interest).
“From this approach, he sought to produce superior long-term returns while avoiding risk of significant loss. He often described the key ingredient necessary for success as “patience” – the ability to wait for the tide to turn.”
A Bloobberg report dated February 26, 2015 ( Irving Kahn, Investor Who Profited in ’29 Crash, Dies at 109) said: “Among the memories he filed away was his work with Benjamin Graham, the stock picker and Columbia Business School professor whose belief in value investing influenced a generation of traders including Warren Buffett. Graham, who died in 1976, distinguished between investors, to whom he addressed his advice, with mere “speculators.”
“Kahn assisted Graham and his co-author, David Dodd, in the research for “Security Analysis,” their seminal work on finding undervalued stocks and bonds, which was first published in 1934. In the book’s second edition, published in 1940, the authors credited Kahn for guiding a study on the significance of a stock’s relative price and earnings.”