Irving Kahn & Tom Kahn – Ben Graham Centre Value Investing 2005
Published on Dec 7, 2015
Mr. Kahn is the Chairman of Kahn Brothers & Company. He was educated at the City College of New York and served as the second teaching assistant to Benjamin Graham at the Columbia Business School after Leo Stern. Mr. Kahn has over 78 years of experience in the investment business and is the founder of the Financial Analysts’ Journal.
0:08enough
0:14Ben Graham’s origins because she graduated from Columbia in 1914 writings
0:22of 580 captain man but he couldn’t take a factory job because they didn’t pan up
0:27buddy and he does she had a lovely family came to wall street course he had
0:36that kind of mind that looked for principles he change his first job
0:44working for a member how stock exchange firm and I remember that he cited the
0:51fact that he’s Bush we used to put out an analysis of a company because she was
0:59not listed on the bonds not be alleged did not recognize that was disappointing
1:07because Barry Bonds you speak of now had another title they were called the
1:14community can be lady clothing company that is known as IBM convertible to
1:22anybody that listen to bed and bought the bonds stayed with him well I think
1:27we all get to that Brandon Inge company because people’s insurance and now one
1:36killed at learned why then should book was called the Bible of our profession
1:42namely
1:44Graham and died came out in 3498 practical war couple of weeks that to
1:57everybody’s surprise now published I did over a million in Edgewater 50 issue
2:08some people complained it was too good a book and she wrote a simple but in
2:14virgin more popular margin call and the intelligent investor meeting followed by
2:22seventy you probably know better
2:24Warren Buffett and that region look at the DuPage
2:29grams book understand y Wang went to work for and got a great many of these
2:36good ideas
2:37employee went out on his own and to his great credit
2:41very strong supporter of that would in fact only did Asia Sri intervention time
2:49you gettin London Ontario barney is complaining about the terrible could we
2:56have also complained that he’s got forty-eight bigoted wk can’t find him to
3:03put into it still trying to fight a lower market at 14 check track ID’s to
3:10like this please I think that there’s another side defended you get mad but
3:18ultimately in the library then will the second book or storage instability same
3:26publisher and nothing to do with going out it had to do with his longtime
3:33decision that we can do better regulating business cycles without
3:37getting slammed by depression though by the peak of a place that book in my
3:44opinion will be logged used because his solutions now approaching application to
3:53the European Union European Union
4:02she encouraged 11 kind of courage you live in effect the value of that euro is
4:10dependent upon the 26 countries who are not members of the EU and the many
4:16outweigh any do it because Egypt have concerned with their own production in
4:21their own cause we’re going to perform at Brussels constitution which will
4:29equal
4:32law rules lack of subsidies and all the other good things we learned about war
4:37and said they cannot manage I did basically waiting and I we have now got
4:46too big to promotional
4:52schools have grown I can both make sure I think it’s Jordan in breach of Moore’s
5:00Law and the company gets too big
5:02each quietly issues and I think that’s also true faculty they’ve got to have a
5:10good shot that’s the most effective way to sell value investing no question i’d
5:19like to stop and have anybody suitable Thomas myself and shapely know the AG
5:32and question and answer questions to thinking maybe I’ll just having a
5:50question that came up was where their value investing was an odd or science
5:55what they might shed then I don’t always agree we both in their heads and also
6:13that I created by the he could pay to bed but he’s no signs and all the kids
6:20believe make it perfect baggage will they get older if you were a science it
6:31would be replicated Apple could put turnout rhythms in the machine and you
6:38could pop out the answer and it doesn’t work that way so it has to be an are so
6:46anyway for some questions please come right to the mic and as a question
7:01you are
7:05I would just like to know what you see is the great potential for a value
7:10investing today what would you recommend in terms of somebody managing the
7:14portfolio today working said you know something about trade need to use by
7:25people who don’t realize that the Canadian market so far better and that
7:30much but that’s largely due to the fact that they give population maybe fifty
7:41but we’re both about the same size which is much richer than we are and minerals
7:46oil and gas and get your copy of the American immigration policy is what used
7:55to be that you’re welcome people from different countries and get the benefit
8:00of their own cultural and they will try to become successful here but careful
8:08and take a poll only came from far away went into what I go to go industry and
8:16many do a successful company boat in any case shall I think the entries you got
8:25to begin looking in place
8:28market tonight over price and hopefully will be companies that permit plenty of
8:38room for a fellow to come in and do it
8:47one would have to be very patient one doesn’t have to necessarily one’s
8:59portfolio invested all the time so my belief is one has to stay very strongly
9:07contrarian and you don’t need all your money on the craft table all the time
9:15sometimes the best things to do absolutely nothing so if markets are
9:19high
9:20don’t invest and be very selective and keep your standards hiring in time thank
9:33you for doing this for us
9:35my question is I’m curious as the baby boomers move into retirement
9:41it’s some someone has hypothesized that there will be essentially an excess of
9:47securities that will be sold to finance requirements and whatnot and not enough
9:53demand to fill that will be on the market depressing the whole economy or
10:02the whole securities market I was wondering if you could comment on that
10:06and be a value investor I i guess you’d think that’s probably a good thing but I
10:11like your comments on that I think it get baby boomers
10:17believing appetite tell them to believe that he can say hey by the big mutual
10:23funds which are now in the trillions and they of course cannot buy gold baiul
10:30stocks they can’t date swamp every company by the big capitalization of the
10:37major 500 in an invoice for each
10:43affect your concern about the baby boomers hitting the market down would
10:49think it’s kind of a good thing if it happens because they not been Bangladesh
10:56they might make them on the tracking of people and there are certain well-known
11:04value investors investor over the years who talked about a shortage of equities
11:11and the fact that there’s going to be such demand for equities that stocks
11:16were gonna go up of course there’s gonna be a scarcity of you may know talking
11:30my question concerning technology stocks has wondering if you might be able to
11:35comment on your approach to valuing technology stocks and in light of some
11:41of the reasons I guess the research of of of that area how it may or may not
11:46differ from mr. Buffett’s investment strategy thank you but we like
11:51technology stocks only after they crashed so we like Busta tech stocks
11:58will we can buy them at close to cash per share with him I have a lot of cash
12:04and no dad book value discounts so popular tech stocks are of no interest
12:12to us because as contrarians are disciplined doesn’t really let us by
12:19popular stuff be giving Campbell
12:23get by sometimes there are exceptions even in that bag you can come and meet
12:32you can will exceptions what you can locate a company we can even go get a
12:38little bit and management which owns a good part of the company and on top of
12:45that give the mainland China Hong Kong and Mainland China and chill I’m not to
12:54brag about it
12:56cases companies which is still attract you
13:01his company’s name by Nhan Dao had run by japanese chinese people but it’s
13:08located mostly in mainland China named kicked out of communist China and forty
13:18people which might have to come to Hong Kong and get a good schools like
13:26billions of Business School and then they went back when the government is
13:33possible if you can locate an area where it was going to go right
13:39thought China reasonable risk of changes in politics show on Sunday with a
13:50question do you somebody hitting up to the microphone now
13:56javis nice to meet you I have a question if you looking for US companies invest
14:02in and you look for one that has perhaps management problems or affected by
14:06economic problems would you consider entire acquisition strategy or a gradual
14:11acquisition strategy and how would you differentiate the two I’d like to do it
14:19feeling that day was successful didn’t want but for this you look at all of the
14:24company’s bought he painfully Deborah made a mistake as you do a break and
14:29abilities but its own schedule to encourage good night what did give them
14:36a better Graham the first time that I should do something which I don’t be
14:40fooled by a cook in a scandal a little while he borrowed money on what was
14:48supposed to be lol we saw it all on the top and water on the bottom and american
14:54express but likely won’t go to college still underway in other words very good
15:03value investors if not permanently bad sample taken others have warned you
15:09already bought control of the company
15:11California business private company called she’d probably be paid to eat but
15:21he was absolutely right because he said it was that when she broke out of the
15:30limited to California market and becoming
15:35go up any day have I would say that in general our approach involves buying a
15:44initial position
15:45in a company getting to know it better for us there’s never a green light that
15:52goes on as you have to buy her red light that kind of goes on as you have to sell
15:57it so I would say we could ease into a situation over time and frequently
16:05things that we buy go down we do homework and we say to you know we were
16:10right but we were just too early and we have the courage of our convictions and
16:15will end up buying more facts some of our best capital gains have come just
16:20from that principle so just cause the company’s shares go down doesn’t mean
16:25that it’s unattractive the question is is it a greater value and so we move
16:32slowly both on the way in and on the way out I would say yes we have people
16:40especially for a bit in school not to be fooled by all of the snake oil friends
16:46in wall street trading can you make money not worry most about holding 34567
16:55yeah sometimes all go and that comes to a point and joy road to question about
17:01what you sell mansion but I think quickly speaking companies like planes
17:09when they begin to wear them because they measure the show good competition
17:14gets to be too bad you could see if you can take a problem but most values well
17:21boy I have shown already that show I think we don’t have that problem do it
17:30my element is coming over
17:35morning gentlemen I recently read Robert Hagstrom the stuff that way and in his
17:44book he mentioned that many of the tools that Ben Graham originally used to
17:50identify attractive candidates like price to book a price-to-earnings may
17:55not be as effective today because the market is much more efficient and he
17:59mentioned that potentially going forward you may have to as a value investor you
18:04would have to consider stocks for the for the growth component specifically
18:08under
18:09can you comment on this
18:12his idea on looking for undervalued companies well yes i i would comment by
18:18saying that hitting Yahoo Finance and and looking to see what Yahoo Finance
18:24says is not the answer you’ll have to you’ll have to dig beyond situations and
18:31you’ll have to have to sometimes pick apart companies for example we have an
18:38interest in a company called high heat which trades on the New York Stock
18:42Exchange ITT is in very complicated company and multiplied industry with a
18:49billion dollars in cash and no debt you need to do work in order to understand
18:56whether that companies attractive or not we have an interest in a company called
19:01advanced marketing services which trades on the New York Stock Exchange and
19:06hasn’t filed with the SEC for over a year that I can present a very
19:13interesting opportunity if one has confidence that the management is sound
19:18good you know right away all the institutional portfolio managers can’t
19:23buy all of the kids who bring up Yahoo Finance want to see any earnings on it
19:27because I haven’t been any earnings releases so the question is can you dig
19:32behind you know what is standard data and get a leg up by eating having
19:40confidence of doing homework
19:41and knowing something either intuitively some way not inside information that
19:47gives you a leg up on on other investors and you’re absolutely right that there’s
19:52a lot of information out there today so the way band practice value investing
20:00when there was little information is different than the way we have to
20:04practice in today s coming back early days mugging the region a.m. post player
20:10is that some employees
20:12overstated earnings in order to get bonuses that were not entitled to know
20:19the amount they show up with that tremendous I didn’t end begin dollar
20:23company a jail youPornMate you tom says not flatly in making it sound like maybe
20:30care of all that bad at all because companies owned by the phone this as
20:38well as I shall we have a couple of million kid is another example of I just
20:42want to give you an advanced marketing business
20:45relates to three questions take about eighty percent of their business
20:5210 Wilmot said she would call shapes come the other is Costco and that they
21:02did Jay no I’m saying what tom said that even though it looks bad now a long-term
21:08future for companies that share results and good names I’m just giving you give
21:15you a call saying yes he came down for whatever it was that important education
21:23or just as another example of a company that has problems in the news now
21:28Audiovox it has a hundred forty million dollars in cash and no debt so it has
21:34about seven dollars in cash and no debt that consumer electronics business is
21:39fine and growing and profitable they just put out a press release saying that
21:44they can file their financials with the SEC and then to add insult to injury the
21:51nasdaq is now thinking about the listing
21:54well of course most investors would say don’t touch it with a ten-foot pole we
22:01are hoping that the stock would go down when these press releases unfortunately
22:06it has accommodated us the way we wanted to but the problem relates to nothing to
22:13do with the company and all it has to do with one of their prior orders not
22:18permitting them to use the audited financials that they did three years ago
22:23and as far as we can see there’s nothing untoward in the order that has to do
22:28with various investigations into taking place with KPMG nothing to do with this
22:34company so sometimes you get a situation where a company comes out what looks
22:40like dire news and if the shares go down you get a very interesting buying
22:47opportunity so far we’ve only stopped for quite a while and if you take away
22:52their seven dollars in cash shipping about $8 for the company
22:56we’d like it to go down and we buy a lot more of it because lined up the clarence
23:01give them or exchange it was interesting though my question pertains to a theme
23:09that you both actually spoke of in was also highlighted in Warren Buffett’s
23:14letter on try to shareholders about not having great buying opportunities right
23:19now by and large in the marketplace and my question is where are you finding
23:23value right now and where do you see the next team in terms of value orientation
23:29invest in capital markets and if you do adhere to the principles emerged in the
23:34safety do in these kind of market conditions to relax at all ever and have
23:39a follow up as well as we find Emily small caps company particularly no way
23:47I’d need management owns a lot of stuff let me if another example slightly in a
23:54bit of a boat we bought this nagging about $20 or less and people did
24:00willfully one man known simply on percent of it very much
24:07but we had plate that he wouldn’t he is showing on them out and about $1,100 and
24:15we shall add them to the point I’m making is that you have to do more
24:20homework paid no attention to what you see in the newspapers about the leading
24:25companies want them usual but boy but find out where the industry’s I guess
24:32company which is the reason it’s very disinterested
24:39hogs gone up tremendously she’s all this trouble with made count show one never
24:46knows what’s gonna trigger it would give you caption optional companies I would
24:54also say that we’re not finding a general theme that we can play and we
25:02can say to you go look at this industry if you came to us eight or ten years ago
25:08we would have said hey we’re buying nearly all of the team utilizes refs we
25:15have certain standards as to which ones were vying and we have certain reasons
25:19why we won’t buy some and the other but they were like shooting ducks and about
25:23you could buy them a discount some tangible book value and generally
25:27everyday mutual icing thrift was one that you should look at if you had a
25:32deposit you were lucky well you can still buy them from the flippers was we
25:37would buy them they jumped 20% and 30% we can buy them from the flippers and
25:42still get a good price today there is no overall industry that I can say go look
25:49at the day mutual I savings banks are going to look at this go look at that
25:54the only thing I can say is we maintain a really strict contrarian approach so
26:02if something is very popular and everybody loves it and we’re buying it
26:07we have to save ourselves what are we doing wrong here
26:10the photos I take half of the price of a comp
26:14stock has fashioned basically so what we’re doing is we’re buying
26:19long skirts at the thrift shop mini skirts are in favor of I’m a long skirts
26:25for a dollar or two and then waiting too long skirts come back in two sacks and
26:29if you can do that you’re halfway home you know you almost halfway home with
26:34you can just stick to being a contrarian five-day
26:37follow-up is based on this contrarian approach to this is it a kind of a
26:43one-way is is there ever any consistency and actually trying to take advantage of
26:49market so you do feel have sillier lofty valuations basically don’t short stocks
26:56we basically don’t use derivatives reaction we really believe it’s been did
27:02that were buying a little piece of a company and that you know we are we are
27:07holding a piece of the business I was wondering you mentioned earlier that
27:11Canada has some great growth opportunities given that this country is
27:15very natural resources based how does a value investor analyzed a company whose
27:22cash flows are are very dependent on fickle commodity prices we get last year
27:30course was in an American company called Premanta G which is located in Denver
27:40Colorado the reason we bought it also didn’t have any dead two men whom 2013
27:48beside himself and they located a lot of coal-based gash in 20 States Wyoming and
27:56Utah and Canadian company of the networks didn’t see on their abundance
28:01talk a little pool at 3950 Canadian publishing it look it up so it away even
28:10in an overpriced market finding underpriced yeah
28:20good afternoon to Warren Buffett’s gone on record calling derivative instruments
28:26weapons of mass destruction and instruments are capable of wreaking
28:31havoc across global economies and so forth
28:33of it in spite of long-term Capital Management what are your thoughts on
28:38derivative instruments and i know you’ve gone on the record saying no you don’t
28:41use them but what do you think about the tangible benefits away with a sense that
28:48we we don’t think that any of the regulators have a have a completely
28:55fully grasp on the danger and exposure to financial institutions from
29:01derivatives and the assumptions underlying maybe the liquidity of these
29:08instruments so it’s a problem and you know just thought a dirty bombers
29:16downtown Toronto a problem that people think about we don’t have any particular
29:21clear answer to it other than to say that we had against risk by buying good
29:30value and then we can sleep at night because we hold these stocks we don’t
29:35worry about them we know we’re buying a dollar for less than a dollar and over
29:40time we’re going to make money no question
29:47my question relates to run the macro environment she increasingly
29:54manufacturing moving fraud and companies increasingly focus on service component
30:00how’s that working out in the valley terms of being able to invest in space
30:07companies in North America well I don’t think that we really focus on macro
30:13basically people who do grandma related security analysis are interested in
30:21micro and of course of a company is is in a business that’s what a
30:28manufacturing something and there’s potential competition from abroad you
30:33take that into account for example we own shares of a company called Hey Girl
30:38which makes men’s pants I have to sit on the board of directors of that company
30:42the stock sales at about eighteen and a fraction and has a tangible book value
30:47with the low twenties one of the things they did was over time they got rid of
30:53all of their factories in the us- and now source 100% of their products from
30:59abroad I think maybe 15 or 20 percent come from factories they have in Mexico
31:07and the Dominican but the risk come from use Pakistan Bangladesh Indonesia China
31:13all different kinds of places so sometimes there can be an opportunity
31:19when a company is in transition to let’s say being from a domestic sourcer to
31:28being a sorcerer from from abroad so it’s an issue and competitions certainly
31:36home abroad is an issue but our focus is micro not mad bro and you know every
31:42investment firm
31:44every investment bank every commercial bank has economist who give you their
31:50macro opinions of things have you know our view is if you take twenty of these
31:56guys prognostications and 10 of them aright enema wrong why don’t you flip a
32:01coin what do you have to listen to a live freely in words from from some
32:06economist
32:10yeah I think that a question many good but they should be more such as sitting
32:18possible and talk about companies as you know about always you think should be
32:27steady by outside
32:39thank you back from her today
32:45internationally what region do you think will provide opportunities to find
32:50copies are suitable for investing and also because of Euro lengthen did
32:55business in the industry has a composition of the companies are you
32:59looked at changed over the years is a tracker finding value place in North
33:03America question thank you but because she is too much money chasing very
33:13industry average stock and putting
33:16pease I’m just sayin companies in the Dow Jones fifty years ago that preceded
33:27it great wonderful once became the dog disappeared
33:32you like it can’t use it I get argument 32 points and it is true that’s why
33:41diamonds perot so expensive and not very common but you we wouldn’t people find
33:47them we would agree that it’s harder to find attractive situations and there’s
33:53no law that I know that says you can help catch we also have to be very
33:59cognizant the potential risks in buying for foreign securities currency risks
34:07you know legal risk you a political risks you understand all the risks and
34:11the question is how can you enforce a contract in russia but can you enforce a
34:16contract in mainland China and you see what I can stock keeps going up well you
34:22should care so these are all concerns and I would say in general we’re not
34:29adverse to buying international companies but we have to put into the
34:34equation all of these risks
34:40yeah i was just wondering if you can comment on the issue I know it’s it’s a
34:48scary subject foremost value investors and and they don’t really like to sign
34:53too much value to that particular ask but dang ramen and Warren Buffett both
34:59have said they actually prefer they don’t mind paying a higher pay for
35:05something they can see sustainably grow and as opposed to something that’s going
35:10slower and they don’t see too much value there so how do you in your particular
35:14sign value too bro let’s say we start off with the notion that you you want to
35:20grow your capital you don’t care whether it’s you know growth company not a
35:25growth company you not particularly concerned whether the earnings grow
35:32rapidly they don’t grow rapidly
35:34you know you want the capital to grow so that’s the first thing we pay up for a
35:42company that had clearly defined great prospects
35:48well you know one of the problems is that the company has you know clearly
35:51defined great prospects you guys know what already you know you’re smart guys
35:56you top business school you know if so then the question is how do you
36:02determine how much of those great prospects are already in the price of
36:06the stock how do you how do you make a determination as to as to what what what
36:12element the price of the stock how much of that caused people like you folks
36:17have identified the great prospects and we don’t feel particularly comfortable
36:23paying up for those great prospects cause we we don’t have a way to figure
36:29out how we do we’d rather have a company that most you guys say is gee this is
36:33terrible you know and nobody wants to buy it because then we can figure out we
36:40can figure out you know what it’s worth and where the shares of selling and so
36:44forth so we want to grow our money we had con- brothers have
36:50grown our capital over the years and I would postulate least take a lower risks
36:55and the S&P you’re down for a lot of others in the growth of our capital so
37:01we want to grow our money and we don’t have to grow it necessarily gross stocks
37:06everyone is enamored of growth stocks I mean how about growing your capital from
37:10number of stuff right to just a follow up then in that case when Warren Buffett
37:22made the decision to invest in companies like coca-cola in the you know taking
37:27Charlie Munger place could you justify that kind of decision or would you
37:32choose her child stay away from those kind of situations I think warrant was
37:39became a NHE a born again Christian when he made a lawyer and persuade he didn’t
37:51think he’ll get the idea then search and wonderful ok going from all of these
37:59insurance company but you already own they looked four pages to buy a name and
38:07you can’t argue with the idea that coca-cola
38:10a minute good name I think so is Jimmy I think he held onto him too long because
38:17he didn’t know that I’ll be able to buy him and he said he didn’t know that Coke
38:24vice president and managing on some coke in July 2008
38:31don’t have any age unless you speak about the company will also say that we
38:42can criticize what juan has done for sure but he has a different approach
38:47obviously very successful approach and we have been a Walter Schloss who’s now
38:54retired
38:55had Condell has so there are many people who are deciding also been will follow
39:01value investing with different nuances to and I would say that the answer your
39:08question we wouldn’t buy coca we wouldn’t by Julie well-worn feels
39:12comfortable with them in a previous these funny story about watering Wow in
39:18school and just generally people in doubt it
39:24care what was the cherry and Benjamin Graham and I put up the money and put
39:32you need a good thing he killed down here with george 89 percent professor
39:41this buddy once-a-year breakfasts fundraising but I remember meeting
39:48warning came to New York
39:52well as private jet and he said yes and then blow but I could put it in your
39:58pocket
39:58way back so I never going to tell me the name of a coca-cola agency doee of low
40:06places named still is called the Canadian enterprises company in Atlanta
40:15home 49% and usually by probable the one in Canada had a law that went down below
40:25the book and I was gigi guarin he really just changed my company by tomorrow on
40:35the question sort of touch on the last question about brands Boko colon
40:39gillette can you talk about one of the key things that we learned in our
40:43courses vote sustainable competitive advantage and I was wondering where do
40:48you see that as a criterion your investments and how do you see a company
40:54company like jagger he see them as having a sustainable competitive
40:58advantage of their than their brand or is there a brand that sustainable well
41:04it’s an interesting question because what you have is is it in that
41:09particular instance you have a company which is has not produced the kind of
41:15returns on capital but you would expect the company to produce that’s very
41:22competitive difficult business so sometimes you have a situation where a
41:28company may not be learning what it should be and that they represent the
41:32business opportunity for management to get here earnings to the level where
41:38they should be
41:39sometimes you have a situation where brand is owned and doesn’t appear on the
41:44balance sheet and perhaps it has some value so many instances like that
41:49they’re very interesting sometimes you have patents which don’t appear on a
41:56balance sheet we own a company called Hologic which makes x-ray machines and
42:01they have a patented technology to digitize x-rays which they bought from
42:06doing so so that they can be hidden assets in terms of brands of patents for
42:12things like that which make some of these companies very interesting that
42:16can be under performance on the part of management’s which can present
42:22opportunities for improving earnings so we tend to look at those things
42:34I just left handed and publisher of the Los Angeles
42:46rocking to commodity prices are I’m sorry I was made for the company s main
43:05st
43:06after landing hard cover case how do we how do we do our research is actually
43:25question what resources we use as well one way to approach these things is to
43:32you know picked up today’s paper and you’ll notice I haven’t read it but I I
43:38could swear this is true that the new high list is extremely large and the new
43:44low list is extremely low that may tell you certainly something about the
43:48general market environment but believe it or not looking list which is pretty
43:55paltry today and there’s not much you can find doesn’t seem like a high-tech
44:00sophisticated way to do investing but sometimes you get very interesting idea
44:05is from companies around the new lowest another example companies have a problem
44:13the specialist firms on the New York Stock Exchange you’re under
44:16investigation
44:19these stocks tanked vandermolen lagrange alright it’s an area to be looked at
44:26we look at them to pass and not buying insurance companies are under
44:33investigation
44:34loss mcclemon problems we did another look we did some calculations a lot of
44:42debt
44:43and what Putnam’s worth and so forth we elected to pass but every day in the
44:48newspaper there are problems in a company and industry that create
44:55concerns on the part of investors and I would recommend that the students read
45:01the paper when they find there’s a problem in a company or industry
45:05about the financials do some work CNN affect any of these stocks have gotten
45:11not down to where they are attractive and then see if you can convince
45:15yourself that they are attractive investments but that’s certainly one way
45:21to look and that has nothing to do with what you hear on TV with the talking
45:26heads you know it has nothing to do with any of the programs on TV journalists
45:34are only interested primarily in which stocks are moving so take the other side
45:41and look at the industries and the companies that are having problems and
45:47see if there’s anything of interest in that area that’s a good way to store
46:00question often asked about a year after that we might match world of public
46:12investment ever and I have you ever seen one bid is always changing look for
46:42girls in the oysters and it never go down you’ll find the employee lot of
46:48women will have great lake bush and wonderful lungs they can hold the air
46:55but maybe three managed a dive down below and place a species should know
47:04later they can create corals there’s an example of that we have still kinda you
47:11wouldn’t run into every day and make a motivation good that he would help solve
47:18I would have to win to Japan with the New York society of security analysts
47:24financial analyst Federation in the early 16th and I had that trip produced
47:32a lot of good results because at that time japanese stocks were very very
47:38cheap and you can buy Tokyo fire marine for nothing and fifty catch based on its
47:45portfolio and that there are a lot of very intrigued by Komatsu caterpillar
47:50tractor and still there were lots of interesting things you could buy them we
47:54leave work values at that time and probably a trip I may be speaking out of
48:02turn presented most successful opportunity
48:09well one of the 100 most special thing every day of my life has been going well
48:15he said kind of a man who not only was the one who teach you but he also gives
48:21things like this when I worked there one day I show it was bad
48:25bond issue and the word on the bottomless brunch and I didn’t know what
48:30it meant then let it strikes me as I know but I won’t tell you I tell you
48:35you’ll get it by tonight but if you go over to the unabridged dictionary and
48:40look at each weight right and it was just like you know drawn trip peace in
48:48the bond issue working for master and learning how to make good book you read
49:04what we are doing behind the book who wrote the book while you look at the
49:14second book he wrote called storage stability all you have to do is go to
49:18the web just bought stock that nice i like it
49:28changes spelling and I’d probably get a couple of thousand pitch the idea behind
49:36bus stop bench economic plan is much more important that you know you don’t
49:46you don’t need a lot of big winners you know that then made most of this money
49:50and Geico and if you study the history of of of what he did and if you can
49:58identify just a few very cheap companies and identify them very early with a
50:04really good management sand and a sound basis if you will and have the courage
50:11to stay with them when they get knocked down by more of them then over a period
50:17of time you can do extremely well for example we ought to come
50:20New York Community Bancorp which is the old Queens County Savings Bank that
50:26stock has ranged from $1 to $35 over the 10 years since its public it’s now back
50:35in nineteen having really gotten she’ll act down from 35 well we still have a
50:40tremendous amount of confidence in their wealthy family business model
50:45multi-family loans and their management and though we have a very large position
50:50in it we continue to buy it has a nice shield we know a lot about the
50:55management we know about the underwriting record in the conservatism
51:00with respect to their loans for example they just made a large lawn on a large
51:07apartment complex in the Bronx called co-op city and I believe their loan to
51:12value ratio is something like thirty four percent so if you buy a house and
51:17you know suburb of Toronto the bank alone is 75% so New York Community Bank
51:25even though it’s come down even though we own it and fairly substantial
51:30quantities were honest we deem it to be a very attractive stock so we have the
51:34courage a sticking with management’s and businesses that we like and I would
51:39recommend to you that you don’t need a lot of really big winners in your career
51:43to do extremely well and and be very wealthy
51:4910 last maybe if there’s any more but I think he’ll run the stock market crash
51:56of 1929
51:58and the depression and you’ve had a wonderful cover over 75 years any chance
52:04of repeating
52:12need to talk about boys just when you thought there was a chance of the 1929
52:19crash and the depression that followed if they were the chance that that would
52:25repeat again in the next page in two steps that was a real estate low budget
52:41movie utilities
52:43borrowed money and it didn’t get more than a year to pierce bubble but
52:49unfortunately it came at a bad time for the world when he went to let the gold
52:55standard September 31 that you had all the terrible things that follow
53:01that’s why you should look carefully at what Ben Graham wrote about having a
53:05single currency that’s regrettable into the basic commodities because that would
53:11not have been and will not happen in my grill the European Union is going to be
53:16a very good thing because she’s gonna make all the people who are fighting
53:20with each other
53:21be a because will one day she doesn’t want to lose and that concept closer
53:29world is what behind that great englishman that the internet and dying
53:36for it he once you see the world who died in an open exchange and that’s
53:42what’s going to happen so I think that in the case
53:4629 market which bad bank loans and I can’t explain why the federal bank was
53:56not able to shorten the period between the whole terrible deflation but I don’t
54:05think it’s going to happen again and this morning
54:08in value investor’s portfolio full of contrasts wedding what are you referring
54:17to my income trust well basically we’ve seen as an explosion them in the Kenyan
54:23market especially the last few years and I just don’t know how much research has
54:28begun into this from from the value investor’s perspective talking about
54:33about trusted by money by what we teach funds what are you referring to rats or
54:41royalty trust that we don’t like Greece and generally we don’t buy weeks we’d
54:50sell on a yield basis and we believe interest rates too low and gonna go up
54:55so why would you buy security which essentially cells on the basis of
54:59interest rates go up to properly analyze the reach you have to be thoroughly
55:04familiar with the markets in which its properties are located
55:08theoretically you should be familiar with the least is that it has within
55:12those markets and it’s it’s a complicated and now assisted I would say
55:17we don’t feel comfortable with maybe you could accuse us of being too lazy but we
55:25have never been fans of reach
55:31you talk about some factors influencing your decision about the company I would
55:39like you to summarize please note that the five most important factors in the
55:44order of priority qualitative or quantitative they do pay attention vile
55:49finding an undivided company thank you the first thing I would say is it should
55:55either be obscure or add a favor so it could be a big company which is not
56:02obscure but it is very much out of favor that’s the first thing the second thing
56:08is we’re very much balance sheet oriented so we are not interested in
56:13companies that have excessively leveraged balance sheets just doesn’t
56:17make us comfortable we like companies that have no debt or low debt 30 is we
56:24like management to be on the same page that we’re on so if there’s any way that
56:29management can own a lot of stop that’s terrific shape they’re not ship
56:34management can be somehow in senate the way wherein sent it that’s a very
56:39important factor of course one of the things that we’d also like is is for a
56:47company to have some Lego I’d say we’ve one of our biggest mistakes as we have
56:52bought some commodity companies that were left with poor management and
56:58that’s the kiss of death by a company that’s a commodity business that has too
57:03much leverage on the balance sheet and has management which is not to sweat so
57:08I would say certainly avoid those at all costs but we’re not focus so much
57:14initially on the income statement what we would say is what is the earning
57:20potential of this business if it were run properly if the management succeeded
57:26in their plan to close to losing division to do this to do that what
57:32could this company learn what’s a reasonable margin what some reasonable
57:36earnings level and then say is this stop cheap based on
57:41that and what is our confidence that management can achieve that so we don’t
57:45care for company has earnings or doesn’t have earnings fact we would prefer
57:49companies to be losing money not hemorrhaging cash does that really
57:53noxious top-down you get some wonderful opportunities to question copyrights
58:03patents had to go value and copyrights and patents and as well you talk a lot
58:07about management but he was signed some sort of value to management as well as
58:11you look at the proven track record to management or what they can do in the
58:15future I would say that as far as patents go and copyrights we don’t put a
58:22dollar value on these things we have to figure out I mentioned this X-ray
58:28company with this patented technology we have to figure out what the potential is
58:34technology you know whether they’ll be able to you know succeed in developing
58:39it or not and I wouldn’t put any tremendous value on it goes
58:46we’re very old-fashioned what we like to sort of look him in the eye medium talk
58:50to a private judge their credibility one of the one of the ways that we can get a
58:58leg up I would say people who don’t know anything and are just looking at numbers
59:05are looking at Yahoo Finance or watching TV or whatever is to meet management’s
59:11and try to make some assessment as to their competence credibility and things
59:17of that nature and we don’t seem to have any trouble
59:21generally speaking in getting the shot and talking to management’s on a
59:26one-on-one basis and it’s an important thing a lot of people don’t want to do
59:32it but we think it’s like to have all these people and make an assessment
59:37final question all of them here very interested in job opportunities if they
59:45take this call us what are the job opportunities that Yoseob
59:52my impression and I D is kind of good and that you can’t go he companies the
60:02way I studied in one so I went to bed at school and I B because most of the cases
60:10and theoretical a synthetic ones that we just constructed to make the point that
60:17point that she could you can look at companies in Canada USA and I think that
60:24was one of the benches great achievements that he brought people up
60:27from wall street after the market closed no Dejan 3 o’clock and they discussed
60:36stocks in that particular day nothing short range but that was mostly to point
60:44out like terrible silly nonsense going on in the boom years later on point out
60:51any cheap is a MarketWatch they close at Goldman Sachs he did well going out of
60:57business I moved people can get that and get it was a depression that made a
61:04great many people rich because she put it in the time when they couldn’t
61:10internet and download 94 mi I would suggest to your students without the
61:18meaning and I V education that once they get their degree they’re not fully
61:23educated and I would recommend to them one of two pass one is defined picasso
61:33and clean as paint brushes so find who wins the super duper practitioner of the
61:40approach to you on clean is paint brushes against coffee or whatever the
61:46other would be to work for a large institution where they’re relatively
61:54benign and they will ich you learn and grow and what I mean by that is don’t
62:00work for someone who
62:01counts you cash register receipts every day because you can work for an outfit
62:06like that and all they wanted was you know how much did he make for us today
62:10but if you go or for a big bank or someone who’s use you as a intellectual
62:16resource and let you grow personally and so far that’s a much better place than
62:22going to work for some hot-shot brokerage firm that wants to know after
62:27six months how much you made for them and thank you all the time and we just
62:33wanted to take a minute why don’t we show our appreciation to thank everybody
62:51I just a minute to express what a pleasure and what an honor it is to have
62:58the opportunity to thank mr. Khan for his words of wisdom our students have
63:03had the occasion to hear from someone who’s had experience of more than 75
63:07years on wall street if thats not starting to work with the paintbrush of
63:12the cast so I don’t know what is so I really appreciate you doing this I think
63:18some investment professionals might have the opportunity maybe two or three
63:22cycles in the market Mr Khan has seen the Great Depression of 1929 is actually
63:28forecasted that we won’t have another one certainly learn directly from Ben
63:33Graham and has seen the multitude of economic cycles that we’ve had since
63:36then what richer learning environment could we all have this Mr Khan we
63:44appreciate your candor and sharing your thoughts your experience and your
63:49beliefs with our students most of all thank you for helping us launch ivs
63:56value investing course
63:58lotsa has been a strong supporter of the Ivey Business School four years in
64:03addition to being an alumnus who we can all be very proud of he had the vision
64:08he had the courage and he had the belief to work with I V to create this value
64:14investing course are also pleased to have George A
64:19but you have a very hard on developing the scores for all of you but it’s only
64:31been successful thanks to the support from pet from
64:35lace and for mister com this is the first chorus taught in Canada
64:41specifically aimed at value investing but it’s our dream to make it much
64:47larger and Canada it’s our dream to make this one of the leading centers in the
64:53world that researches that teachers that disseminates information about value
64:58investing and makes more disciples the following is very strong footsteps that
65:05you’ve laid before us so too proud to Roger and all the Fairfax and Hamlin
65:11lots of friends we have here today thank you for having the faith to work for us
65:16here at Ivy we also have a number of friends from the value investing
65:20community here today and we look forward to working with all of you as well to
65:25make this the richest experience that we possibly can for our students and for
65:30the value investing community we hope this is the start of a very strong
65:35relationship and one that will endure for many many many years so that I
65:40thought you very much
65:42you can try this in person but we do have a reception and a little bit of
65:47food and water I think at the back please to join and I’m sure that all of
65:54us here to answer any questions that you have a chance of a lifetime so thank you
65:59again
