Value Investing with Walter Schloss

Irving Kahn was a fellow employee of  Walter Schloss at the Graham-Newman Corporation.  Kahn Brothers Advisors, LLC manages over $500M of institutional and private capital.  From their website:

“Our chairman, Irving Kahn, got his start in value investing in 1930s while serving as Benjamin Graham’s teaching assistant at Columbia University. Over time, our investment philosophy has evolved from Graham’s original “discount to net asset purchase” model. We now target a many different types of companies including, in particular, businesses purchased at a discount to their private market, transactional or going-concern value. Still, in the tradition of Graham and Dodd, our investing discipline continues to stress three key words: margin of safety.”

And…

“We study companies and try to find undervalued securities… We’re absolute value investors focusing on asset values, book value discounts and low price to earnings ratios to normalized earnings. And we aren’t interested in so-called relative values — you know, something selling at 20 times earnings in an industry group with a 35 multiple.”

-Thomas Graham Kahn, “Outstanding Investor Digest”

Last week, Kahn Brothers & Co released their 13F detailing holdings as of 6/30/2010.   Here is the filing:

Some quick points:

• Kahn Brothers only bought one stock during the quarter: BP
• Likewise, they only sold one stock during the quarter: USEC
• The company did add to a number of positions as well as sell off a number of positions during the quarter.
• You will note the median Price / Book for the fund is 1.3x.  This compares to the S&P 500′s P/B of 1.98x.  Obviously, value is playing a part of this portfolio.
• In terms of industry concentrations – Simply put, there are a lot: 43% in Financials and 37% in Health Care.
• Position concentration is also greater than you see in most 13Fs: The top 5 names make up 50% of the portfolio with the top 10 names making up nearly 75% of the total assets.
• The largest percentage increase in holdings during the quarter was Patterson UTI Energy (still a relatively small position)

We know that Schloss and Graham both espoused significant diversification in holdings.  That being said, we also know Schloss has recommended going up to 10% in a limited partnership setting.  It looks like Kahn brothers is doing something similar, but with a little more concentration.  We plan to bring you more coverage of Irving Kahn, Kahn Brothers and their 13Fs in the future.