IRVING KAHN STARTED
his long and remarkable career on Wall Street in 1928, and he's not slowing down, even though he'll be 100 this Monday.
Kahn, the chairman of Kahn Brothers, a low-profile New York investment firm, might be Wall Street's oldest active investor. He's in the office every business day, reading scientific periodicals, annual reports and newspapers in search of undervalued stocks in the tradition of his friend and mentor, Benjamin Graham, widely considered the father of value investing.
Kahn worked as a teaching assistant for Graham at his lectures at Columbia University that started in 1928, and he helped Graham with statistical material for his first major work, Security Analysis, which was co-authored by David Dodd and published in 1934. Kahn met his wife, Ruth, at one of Graham's early Columbia lectures. She died in 1996.
Along the way, Kahn got to know many of Graham's famous disciples, including Warren Buffett. A gutsy Kahn wasn't swept up in what he calls the "crazy market" of the late 1920s. In fact, his first trade in the summer of 1929 actually was a short sale of Magma Copper that turned out to be a winner in a few months.
Given his success over a 77-year career, Kahn has no need to work, but he scoffs at retirement. "It's like I'm married to the business, more so because my wife isn't here. It's sort of a like a game with me," Kahn said recently at the firm's midtown Manhattan office. "It's fun to get things right for the right reason."
Kahn could be on the job for a while longer because he's a member of an extraordinarily long-lived clan. His oldest sister, Helen "Happy" Reichert, is 104, and his younger brother, Peter, is 95. Kahn's other sister, Lee Reichart, died in the past year at 101. Only about 1 in 1,000 people in the Kahns' generation reach 100. The Kahns have been the subject of studies seeking to unlock the elusive genetic secret of long life. So far, researchers haven't found much through their genetic sleuthing, except that the Kahns have high levels of the "good" cholesterol, HDL, which can ward off heart disease.
The surviving siblings remain mentally sharp, and Irving is in good physical condition. In warm weather, he walks the mile from his apartment on Manhattan's Upper East Side to the firm's offices on Madison Avenue and 55th Street. On a cold recent afternoon, this reporter rode on a city bus with Kahn from his office to his home. Although his firm would gladly pick up the tab for a car service, Kahn finds the $25 cost "obscene," relative to the senior-citizen bus fare of $1.
Says Kahn Brothers president, Tom Kahn, Irving's 63-year-old son: "My father continues to research ideas and talk to companies. One of the nice things about this business is that there's no mandatory retirement age, and you allegedly get wiser as you get older." And, he adds: "Sometimes I'll talk to a company and they'll tell me. 'Your father just called last week.' Irving is a voracious reader. He reads several newspapers a day, plus numerous scientific journals. He's a frustrated scientist."
Irving Kahn still finds good ideas. A year ago, he unearthed Payless ShoeSource (ticker: PSS), the country's largest budget-shoe retailer, whose shares were around 12, just a small premium above book value of $10. Kahn was bullish on the business because he felt there was a strong need for well-made, inexpensive shoes and the stock was cheap. Payless has since doubled. "I read a lot of annual reports," Kahn says. "J.C. Penney decided to get rid of Payless." Part of his research involved buying a pair of Payless leather shoes for $49. He liked them, and was wearing them at the office last week. "He feels that, at $99, Rockports are too expensive," jokes Tom Kahn.
A modest man, Irving Kahn isn't crazy about the attention his 100th birthday is generating. He was honored Tuesday night by the New York Society of Security Analysts, which he, Graham and several others founded in 1937, when stocks were largely discredited as an investment and the community of stock analysts then called statisticians was very small.
About 100 people attended the dinner, including such value-investing luminaries as Mario Gabelli, Marty Whitman, Charles Royce, Jean-Marie Eveillard and Walter Schloss. The keynote speaker, Louis Lowenstein, a former Columbia Business School professor, lauded Kahn as a "model of wisdom and sanity."
AFTER BARRON'S SENT
a photographer to Kahn's office last week, he remarked that "taking 60 to 80 pictures of a middle-aged man" was excessive just to get one good shot. He joked with the photographer that, since she was attractive, he ought to be taking her picture.
The centenarian will ring the opening bell at the New York Stock Exchange on Dec. 30. Kahn Brothers, started in 1978 by Irving and two of his sons, Alan and Tom, has owned a Big Board seat since its formation, when it paid $100,000 for one now worth about $4 million. The Kahns started their own business after working at Abraham & Co. for nearly two decades. Their firm oversees $800 million for private clients, but has no mutual fund.
|The pursuit of excellence never gets old. Says Kahn: "It's fun to get things right for the right reason."|
The Kahns have been featured in Barron's several times, starting in 1983, when Tom and his brother, Alan (now 67), were interviewed as the "Net-Net Kahns." Alan, a noted value investor and a successful shareholder-rights advocate, separated from the firm this year. A decade ago, Irving was the subject of a cover story ("True Believer," March 13, 1995) and the three Kahns served up some profitable stock ideas near a market bottom ("Kahn-Trary Opinions," Oct. 7, 2002). The firm has done well for clients. The average account was up an annualized 16.6% from Dec. 31, 1994, through Sept. 30, 2005, versus 11.5% for the S&P 500 and 9.6% for the Russell 2000.
"I would say that we're modified Graham-and-Dodd investors," Tom Kahn adds. Both he and his father say that finding companies that fit Graham's exacting financial standards is more difficult now. During much of his investing career, Graham, who died in 1976, profited by purchasing "net-net" stocks for less than their working capital cash and other liquid assets.
Some Kahn Brothers favorites now include IDT, the Newark, N.J.-based telecom, and Audiovox, a maker and distributor of cellphones and consumer electronics. IDT trades below $12 and is likely to end the year with nearly $10 a share in cash. Investors therefore are paying little for its profitable phone-card division, a nascent film-animation business and other units. Audiovox, at about 13, sells below its book value of $18 and has $7 a share in cash.
"It's impossible to reverse-engineer Irving's investment process," says Carl Schecter, the head of risk-arbitrage trading at Nomura Securities in New York and a long-time Kahn Brothers client. "It's an idiosyncratic mix of top-down economic insight and bottom-up financial analysis." Schecter cites a China play, Nam Tai Electronics, an electronics maker, whose shares traded near book value when Irving recommended it three years ago. The stock has since quadrupled.
Kahn doesn't dwell on the past. He'd much rather discuss nanotechnology than reminisce about the Crash of '29.
He's also keen on the New York City Job and Career Center, an organization he founded in 1986 that helps students at New York City public high schools find jobs, develop interviewing and resume-writing skills and decide on careers. Irving points out that guidance counselors at city schools are overwhelmed by the sheer number of students they need to advise. Irving was a 1923 graduate of DeWitt Clinton high school in Manhattan. Two years ahead of him at the school was Roy Neuberger, now 102, a founder of the Neuberger Berman investment firm, now owned by Lehman Brothers.
Kahn went to City College in New York, but never graduated. "Just like Bill Gates," he notes. Gates didn't finish Harvard.
Kahn met Graham in 1928. Kahn was working as a clerk at a brokerage firm one of three Wall Street jobs Kahn was holding down at the time. "The head bookkeeper at the firm was a nice guy, and he saw how skeptical I was about that crazy market. I asked him if he knew anyone who consistently made money. He opened the ledger to G for Graham. I went over to Graham's offices at the Cotton Exchange on Beaver Street and that was the beginning of my career."
Kahn says that he and Graham would take the subway from Wall Street up to Columbia's business school for Graham's lectures, which began at 4 p.m., an hour after the market closed in those days. Graham used real-world examples to illustrate his points. Kahn remembers that in 1929, Graham noted skeptically that a utility holding company, American & Foreign Power, an Internet stock of that era, had a larger market value than one of the period's great blue chips, the Pennsylvania Railroad.
Kahn's passion for science has served him well as an investor. His interest in the growing global need for clean water led him to companies like Osmonics, a maker of water purification equipment that was taken over by General Electric. A long-time believer in the benefits of nuclear power, Kahn has championed USEC, a formerly government-owned company that enriches uranium. Its shares sell for around 11. Kahn got excited about Monsanto two years ago when it traded in the 20s, because he felt its genetically modified seeds were being unfairly maligned by environmentalists. "I thought...they were perfectly safe," he says. Monsanto now is in the 70s.
"The thing that makes our style different from the typical firm is that we read much more broadly outside Wall Street on subjects like science and technology to locate trends that are not obvious," Irving says. "One reason that it's hard for many people to manage money is that they're influenced by what other people do. Buffett's not like that."
Alan Kahn says his father has an "unbounded curiosity about everything. Wide reading leads to the uncovering of investment ideas." Irving Kahn has thousands of books nearly all non-fiction in his apartment and several thousand more at his house in Rockaway, a seaside community in Queens about 15 miles from Manhattan where Kahn and his wife raised their three children.
"My dad says he doesn't have time to read fiction," Tom Kahn says. "I remember as a kid he would come home with a briefcase full of annual reports. His business is his hobby. He doesn't play golf or bridge, and he gave up tennis a while ago."
With Irving Kahn's zest for his profession, this Wall Street patriarch could be uncovering undervalued stocks and offering inspiration for years to come.