The patriarch of Wall Street – energetic advocate of prudence

12.01.2013
New York has an inhabitant who has taken to his heart the birthday wishes of “may you live long years”. Irving Kahn is 107 years old. He works every day, from Monday to Friday, in his office in Manhattan where he manages about 700 million dollars on behalf of Kahn Brothers Group.
NYSE brokers during the break (By OF/KM)

NYSE brokers during the break (By OF/KM)

NYSE brokers during the break (By OF/KM)

The fact itself that at his age he moves around on his own wins respect, but he is also perfectly fit intellectually. At the New York Stock Exchange he plays the role of a Biblical patriarch, and could be referred to as “the Methuselah of the trading floor”.

Indeed, his career started in the time that seems prehistoric for the present youth: he appeared for the first time in NYSE building in 1928, one year before the outbreak of the Great Depression – the largest economic turmoil in the modern history. First, he worked as the so-called “runner”, a courier transmitting orders from clients’ offices and banks to brokers hectically working on the trading floor. He did not like this work in continuous tumult, so as soon as one week after he asked his superiors from Hammerschlag, Borg & Co. to reassign him to the research and analyses department of this small company.

However, he did not only dig into papers. He was spending evenings and weekends working for a large and important brokerage house H. Hentz & Company (established  in 1856 by a cotton mogul who developed stock exchange trade in this raw material, then of strategic importance). After finishing his work, Kahn used to roam the building of the Hentz company, located in downtown Manhattan.

Evening after evening, working his way down one floor at a time, he knocked on the door of any office that had the lights on. One evening, he met the bookkeeper who was responsible for all documents of the H.Hentz brokerage house and who let the young beginner have a peek.  Kahn’s attention was drawn to the “Benjamin Graham’s joint account”, which distinguished itself by having almost solely profitable transactions.

Everybody who invests on the stock market should know this name, as Benjamin Graham is the guru of stock exchange. Owing to his conservative attitude he survived the Great Depression, though he lost a lot. In 1934, he published, together with David Dodd, Security Analysis, a fundamental book for securities trading, and later, among others, The Intelligent Investor. It was Graham who drew a distinction between active and passive investors and between investing and speculating. It could also be added that though he first refused, he later employed an applicant by the name of Warren Buffet. Friendship ensued and lasted till the death of the “master” – as Buffet referred to Graham – in 1976.

Irving Kahn has had neither such enormous success nor such big recognition, but he also belongs to outstanding students of Benjamin Graham. Soon after the meeting with the indiscreet bookkeeper, Kahn discovered that Graham worked in the same office building where H.Hentz was located. He became Graham’s assistant, helping him particularly to prepare and teach his famous investment and securities classes at Columbia University’s Business School.

Having turned one hundred, Mr Kahn has not changed his opinion about the advantages of prudence that he had formed many years before. He learnt from Graham about the importance of resilience against the lure of quick gain. He recollects that Graham usually said “no bid”. Most of the time, he refrained from investing. He only made positive decisions when he thought he had a much better chance of making more money than he could have stood to lose if he was wrong.

With his 107 years of age, Mr Kahn comes every day to Kahn Brothers Group, Inc. seat on the 22nd floor of the building at Manhattan’s 555 Madison Avenue. He occupies the most respectable corner office – suitable for the Chairman, as this is his official function. His 69-years-old son Thomas G. Kahn is a President. The motto of the company is “safety margin”. The philosophy of its owners and managers can also be expressed in two words – “unlocking value”.

Kahn Brothers invest their money and that of their clients above all in undervalued companies and underestimated shares on the stock exchange. If none are available, they stop buying, because they believe that in such a period it is better to keep the cash.

The Wall Street Journal, whose representatives visited Chairman Kahn at his recent birthday, recalls the “rule of the thumb” which says that to find appropriate share of stocks in the investment portfolio , one should deduct one’s age from 100. By that logic, the portfolio of a 50-year old should consist in half of stocks and in half of other assets.  Irving Kahn should have all his assets in cash, gold and bonds, and only a “short” position in stocks. The conservatism of the company’s patriarch, however, is not absolute, and his personal assets portfolio is still half cash and half stocks.

He has never invested borrowed money and he still sticks to this rule. When asked about it he repeats that if you manage a lot of (others’) money, you can be wrong and still not have to worry. Thus, operating with the money of others requires even more responsibility, but above all increased vigilance. With this attitude, he is cautious about the so called short selling. Although in the present times bear strategy is rather natural, Mr Kahn believes that investors should show more patience.

When selecting shares for own purchase he uses elementary common sense. He likes to invest in agricultural and food companies, because in these sectors “the sun works for you”. However, he also buys stocks from the high-tech sector. Despite Kahn’s natural conservatism, one of his favourites is Monsanto – a leader in unconventional agricultural technologies, known above all from its domination in the field of GMO seeds production.

Clients of Kahn Brothers can be no less than big fish. Financial qualification is in place. The entry threshold is “mid-seven figures in assets available for investment”, i.e. available assets of ca. 5 million dollars (literally – between 3.75 and 6.25 million dollars). Another condition is the agreement for the investment horizon of no less than 5 years. Before opening the account, future clients may want to convince the Kahn Brothers about their extraordinary caution exercised in assessing potentially and temporarily poor financial results. In return, a perspective of safety above all can be expected.

What does Irving Kahn do most often beside work? The answer is – he reads. He reads at least two daily newspapers in the mornings, many magazines and a lot of books, usually in the field of science.

When asked by Wall Street Journal representative about the reason for such intensive reading – apart from it being a habit, and the curiosity about the world – he answered that his unchanging aim was to know much more about the stock he was buying than the seller did. He added that individual investors should avoid doing things they know too little about. If they obey this rule, they stand a chance of outperforming professional investors, especially by sticking to small companies’ stocks.

In his statement for Bloomberg, Irving Kahn concluded that in his opinion one should follow not the crowd, but the “value”. When buying stocks one should buy the out-of-favour, the underrated and the unpopular ones. Nobody can predict the market, but chances of success grow if you buy one-dollar bills for 50 cents. If you are going to do your own research and choices, and then invest independently in selected assets, you should focus on a downside risk, i.e. an impairment of assets.

According to the requirements of his company, the horizon for stock market investment cannot be shorter than 3–5 years, with downside protection, and options should be avoided. In the period of extraordinary low rates, and one should refrain from fixed income instruments.

Irving Kahn’s parents arrived in America separately. His mother came from the vicinity of Płock, and his father from near Białystok, located in Polish regions Mazowsze and Podlasie, respectively. They met and got married already in the US. Irving Kahn is one of four children. At the beginning of this century they were deemed to be the oldest living complete sibling set in the world. The younger sister Lee died in 2005 at the age of 102, and the elder Helen – in 2011, having almost reached 110. The remaining brother Peter, 103, does not really complain about his health.

The longevity of the Kahn siblings has been subject to comprehensive research, mainly genetic examinations. No stout scientific conclusions have been reached so far, so we may tentatively assume that the longevity has something to do with the special conditions of the of Mazowsze and Podlasie.



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