Irving Kahn is perhaps the world’s oldest investment banker. Mr. Kahn, 105 years old, has been serving as the Chairman of Kahn Brothers Group Inc. since its foundation in 1978. Mr. Kahn has been in the investment business for over 78 years. He graduated from the City College of New York and served as a teaching assistant to Benjamin Graham at the Columbia University Business School. Mr. Kahn holds a CFA designation and is a member of the New York Society of Security Analysts, the CFA Institute member society that he co-founded in 1930s. Mr. Thomas Kahn, 68 years old, is Mr. Irving Kahn’s son and is the President of Kahn Brothers Group Inc. Mr. Thomas Kahn is also a CFA.
Kahn Brothers Group primarily invests in undervalued securities that offer a margin of safety and good prospects for capital appreciation. The firm describes its philosophy as ‘we eat our own cooking’ as the firm’s managers align their interests with those of their clients’ and buy the same securities for their clients that they buy for themselves. In a recent interview, Mr. Irving Kahn said: “Wall Street has always been a very poor judge of value.”
During the second quarter Kahn Brothers sold their entire stake in Astec Industries (ASTE). The stock lost nearly 16% of its value since the end of the quarter. Kahn Brothers also reduced its stakes in Merck (MRK), Hologic (HOLX), Provident Bancorp (PBNY), and Travelers (TRV). Below is the 13F portfolio of Kahn Brothers as of June 30th:
Although Kahn Brothers has been emphasizing the key three words – margin of safety – as its investment philosophy, the stocks it has picked have shown a disappointing performance since the end of the second quarter. Kahn Brothers held roughly 3.7 million New York Community Bancorp shares valued at $55 million on June 30th. The stock lost 18% in value since then. Scott Sher and Michael Prober’s Clovis Capital Management held roughly the same amount of shares of NYB as Kahn Brothers did and got burned by the fall equally. Douglas Case’s Advanced Investment Partners could not escape from the stampede in the market despite a small trimming it has undertaken in the second quarter.
Another security that Kahn Brothers is bullish about is Pfizer Inc. About 9.5% of the 13F portfolio is parked at this security. PFE lost about 11% in value since the end of the second quarter. PFE continued to occupy the top spot in David Einhorn’s Greenlight Capital despite a 6% trimming Einhorn undertaken in the second quarter. Kenneth Garschina’s Mason Capital kept its position solid and continued to allocate a significant portion of its 13F portfolio to this security.
Kahn Brothers continued to like pharmaceutical companies in the second quarter of 2011 and allocated about 27% of its 13F portfolio to three companies: Pfizer, Merck, and Bristol Myers. While Pfizer and Merck lost 10-11%, Bristol Myers showed a much better performance compared to the other two companies and lost around 1.5% since the end of June. While fund managers might not have made money from BMY, they probably are not complaining much about the minimal loss in this horrific marketplace. Dmitry Balyasny might be regretting that he trimmed 40% of his BMY holdings in the second quarter (see Balyasny’s top stock picks).
Citigroup was another banking stock that hit Kahn Brothers hard with a 30% loss since the end of the second quarter. We estimate Kahn Brother’s loss to amount to around $9 million had it continued to hold these C shares on August 25th. Bill Ackman has been probably one of the most disappointed fund managers as his Pershing Square increased his Citigroup holdings to 23.5 million shares in the second quarter valued at $980 million on June 30th. Mr. Ackman might have lost as much as $330 million from his C holdings.
Another stock where there has been a major portfolio activity was New York Times Co. Kahn Brothers increased its NYT holdings by 50% in the second quarter. Yet, the stock could not resist the downfall in the market and lost 16% in value since the end of June. Jeffrey Ubben’s Valueact Capital was hit hard by the decline as it held 7 million shares of NYT valued at $61 million on June 30.
Overall, Kahn Brothers’ stock picks have shown a performance that fell short of the S&P 500 since the end of June. We estimate the overall loss of Kahn Brother’s 13F portfolio to be around 17%. However, Kahn Brothers have an investment horizon of a minimum of 5 years in the marketplace and their stock picks may turn out to be big winners in the coming period of time.