The Living Embodiment of Ben Graham

When Ben Graham's name is mentioned, it invariably invokes an association with Warren Buffett. The association is understandable, given that Buffett is Graham's most famous acolyte. But there are others -- not as famous as Buffett, to be sure -- but enviably successful in their own right: William Ruane, Walter Schloss, and Charles Brandes come readily to mind.

Remarkably, there's one living acolyte who is actually a contemporary of Mr. Graham: Irving Kahn, the still-extant chairman of Kahn Brothers Group. Graham was born in 1894, Kahn in 1905 -- a mere 11-year gap. According to Kahn Brothers Group website, Mr. Kahn started in the value trade in the 1930s while serving as Mr. Graham's teaching assistant at Columbia University Business School.

Mr. Kahn's curriculum vitae actually predates the '30s. He's one of the few professional investors, if not the only one, who remembers and profited from the 1929 market crashed.

Time flies
Fast forward 80 years, and Irving Kahn is still very much in the loop, serving as Kahn Brothers Group chairman while also vetting investment opportunities. Two years ago, in Barron's, he offered a very Grahamesque rationale for Nam Tai Electronics (NYSE: NTE  ) , a Chinese contract maker of consumer electronics and other goods. (For balance sheet aficionados, Nam Tai Electronics looks even more intriguing today -- offering over $4 of cash per share, a 3.1 current ratio, and no long-term debt.)

Times change, and few investors adhere verbatim to Graham's dictum. The Graham strategy worked well in the depths of the depression: Between 1929 and 1932, the DJIA lost nearly 90 percent of its value, which is why Graham could find many companies whose liquidation value offered a substantial margin of safety.

Graham's modus was simple, though labor intensive: the task was to grind out simple arithmetic calculations to discover a company's financial standing. In the modern epoch of Excel spreadsheets, Bloomberg machines, and Yahoo! Finance, much of the grinding is done for you. And for everyone else, which is why Warren Buffett and the other Graham disciples evolved beyond the straight-forward, easily comprehended analysis proffered in The Intelligent Investor and Security Analysis.

The one and only
But of all Graham's disciples, Irving Kahn's adheres most closely to Graham's exhortations, because Kahn still places a great deal of importance on price, which flies in the face of many modern investment theorists.

Most of us are familiar with the derisive chestnut, "knows the price of everything, but the value of nothing," suggesting price doesn't matter, as if there were a disconnect between the two. To which I'll retort, did the investor who bought JDS Uniphase in early 2000 know the value of that company? I don't follow JDS Uniphase, but looking at its current price compared to its early 2000 price, I believe I could persuasively argue there is more value today than there was 10 years ago.

In short, of course price matters, for what other signal is there of value?

Picks of a legend
Speaking of value and price, the following is a list of Irving Kahn's latest purchases (which are actually representative of Kahn Brothers, so they are likely a collaborative effort), as gleaned from GuruFocus.com, for the first quarter of 2010:

 Company

5-Year High Share Price

Estimated Average Cost*

Citigroup (NYSE: C  )

$57

$3.56

SLM Corp. (NYSE: SLM  )

$58

$11.41

Patterson-UTI (Nasdaq: PTEN  )

$38

$15.87

MBIA (NYSE: MBI  )

$74

$5.22

Pfizer (NYSE: PFE  )

$28

$18.07

Medco Health (NYSE: MHS  )

$66

$63.77

Old Republic International

$23

$11.09

Source: GuruFocus.com and Yahoo! Finance.
*Average of the price range for Q1 2010.

You should immediately notice that price matters -- and it matters a lot -- and that value isn't found on the hit parade. You'll also notice a willingness to overweight a sector. (Indeed, Kahn's portfolio is overwhelming weighted with financial and health-care issues.) And if you were to delve a little deeper into recent history, you'd notice a willingness to double down; that is, to add to positions at lower prices.

These stocks aren't the picks of quick-hit artists, and that presents another advantage. Today, most investors are investors in name only: They are really traders masquerading as investors. That's good news for those of us willing to measure holding periods in years, as opposed to months.

The principles of prudence and patience will always, in the end, offer a better chance at outsize returns -- even more so when fewer and fewer investors are less and less willing to practice prudence and patience. Irving Kahn has proven that so for the past 80 years.

Fool contributor Stephen Mauzy, CFA,, owns shares of Citigroup, and very much wants to see where its trading when he's 105. He's the author of the upcoming book Wealth Portfolio. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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