Lessons From Graham's Assistant

Irving Kahn is one of the many value investors that help shape the value world, but due to his low profile, Kahn is virtually unheard of outside of value circles.

Kahn was born in 1905 and started his investing career in 1928. He was one of the founding members of New York Society of Security Analysts' and Financial Analysts’ Journal and was among the first few applicants to take the chartered financial analyst (CFA) exam. But it was his work with the godfather of value investing, Benjamin Graham, that helped build his reputation.

Indeed, Kahn worked closely with Graham over his career, even assisting as Graham’s teaching assistant at Columbia University Business School. He went on to contribute to Graham’s Bible on value investing, "Security Analysis," by providing some statistical help.

Despite this involvement in the creation of value investing as we know it today, Kahn was never able to achieve a similar status to Graham or any of Graham's other disciples.

Kahn's investment philosophy can be summed up in two words: "unlocking value." His career was built on the practice of finding valuable underpriced stocks by analyzing different overlooked companies’ balance sheets and annual reports – much like that of Graham. According to Kahn, investing is a complex mixture of art and science and thus requires both qualitative and quantitative analysis to accurately determine the worth or value of some particular investment. Unlike Graham, who favored the numbers over anything else and rarely considered qualitative factors, Kahn left no stone unturned.

Value investors today can learn a lot from Kahn’s slow and steady, methodical approach; to help give some more insight into his process, here are some of his best, most informative quotes.

Lessons from Graham’s assistant Irving Kahn”‹

“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. Value investing means being much more discriminating.”

“I’m at the stage in life where I get a lot of pleasure out of finding a cheap stock.”

“Investors have no reason to feel bearish. True value investors are glad the markets are down.”

“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.”

“Ben [Graham] believed that if he told me the answer right away, I would forget it, but if I took the initiative to look it up myself, then I would always remember it.”

“Before the crash in 1929, a student asked Ben if he should buy the warrants of utility company American and Foreign Power Co. – the internet stock of the day. Ben asked the student to calculate the total market value of Pennsylvania Railroad, a blue-chip company. This exercise showed the whole class how distorted the market had become, and, of course, Ben was right because American and Foreign Power soon tumbled following the crash.”

“I understand that net-net stocks are not too common anymore, but today’s investors should not complain too much because there were only a handful of industries in which to look for stocks in the old days. Now there are so many different types of businesses in so many different countries that investors can easily find something. Besides, the Internet has made more information available. If you complain that you cannot find opportunities, then that means you either haven’t looked hard enough or you haven’t read broadly enough.”

“Why are results so often below average? I believe there are two reasons. First, the institutional client illogically expects security selection to be limited to the major corporations conventionally selected by others. This conventional bias dooms performance to an approximation of the averages. Second, the institutional investors believes he should have his hand held a few times a year to confirm his own reactions to the current scene.”