Irving Kahn, the founder of the money management firm Kahn Brothers Advisors, just died at age 110 in New York City where he had been coming to work on a daily basis. Entering the investment business in 1929, he became yet another disciple of Benjamin Graham, author of “The Intelligent Investor” which has become the bible of value investing for other reasonably successful people like Warren Buffett. The investment philosophy was simple enough --- on paper. Just buy companies at prices that represented good values and resist the urge to sell them. Compare this with the average mutual fund that turns over (trades) 60 percent of its portfolio on an annual basis. The one billion under management at Kahn Brothers Advisors speaks for itself as to the investment success of the firm, and that’s after considering that he has outlived many of his original investors.
So, as we complete what has now been the sixth year of the current bull market, it’s comforting to consider that that someone like Irving Kahn has enjoyed a career in investment management that has spanned roughly fifteen bull and bear markets --- and still managed to live to 110. Imagine how many doom and gloom investment books plus radio and TV shows urging market timing that someone like Irving Shapiro had to endure as he steadfastly maintained his “buy and hold” strategy.
Easy for him, maybe, as the “long-term investor” personified, but the average layman trying to make an informed decision and an educated guess as to where markets will go in the future has a reason to be anxious. That cliché “the market rises on a wall of worry” comes to mind. I’m reminded of when I fell through the ice in a pond one spring. I was about four years old in a snow suit, and my German shepherd “Bruno” saved my life by running back to the house barking for my mother --- who, when she always told the story, said that she hauled me out “as I was going down for the third time.”
Six years into a bull market would prompt anyone to feel like they were venturing out into thin ice --- considering that until now there had never been a twelve-month period of time without the market dropping by at least 10 percent. At this point, it has been over three years since even a downdraft of this otherwise routine 10 percent.
So what’s the worst that could happen? If we bail out now, we might miss the repeat of one of the last bull markets that extended for almost ten years from 1990 into 2000. Think about the opportunity cost of bailing out four years too soon on that one --- especially toward the end when the 500 index rose by over twenty percent per year for four years in a row. Someone slowly rebalancing and taking some chips off the table of their better-performing funds during that period captured much of the gain without being battered as much in the subsequent 2000 dot com bubble burst. That’s rebalancing; not market timing.
The prudent investor who feels the ice softening up might be wise to take a few chips off the table of their best performers and add them to some value-oriented, dividend-producing stock funds. Sooner or later there is sure to be the bear market that always follows the bull, but the reassuring fact is that the market over the past 39 years has experienced just two calendar years when the loss was greater than 20 percent. On the positive side, there have been 19 years when the gain has been greater than 20 percent. The odds are in our favor, and people like Irving Shapiro have lived to see it happen.