Today I want to take a look at the latest 13F filings from two investment firms that can trace their history all the way back to Benjamin Graham, the founder of value investing.
Kahn Brothers
The first firm is Kahn Brothers, which was founded in 1978 by Irving Kahn, who worked as a teaching assistant for Graham in the now-legendary Columbia University classroom where the concept of value investing was born. Kahn went on to have a long career as a value investor and was still going into the office a few days a week until he passed away in February at age 109.
Kahn's firm is now run by his sons, who still use the Graham approach to value investing that served their father so well during his long and productive life.
It should come as no surprise that Kahn Brothers' 13F shows that the firm did very little buying in the second quarter. Hey, it's hard to find bargains after a six-year run-up in stock prices.
That said, Kahn Brothers did buy shares of bond insurer MBIA (MBIA), increasing the firm's stake by over 70%. Concerns about bonds issued by Puerto Rico, Chicago and other governments around the country have weighed heavily on MBIA's stock, which is trading at just 30% of book value.
It's a little bit of a long shot at this point, but if Puerto Rico in particular can resolve its debt situation, MBIA could soar to many times its current price.
Kahn Brothers also continued adding to its stake in Blackberry (BBRY) and Patterson-UTI Energy (PTEN) during the quarter. The firm also made very small additions to holdings in BP (BP), Bristol-Myers Squibb (BMY), Landmark Bancorp (LARK) and Trinity Place Holdings (TPHS).
But the real story was what Kahn was selling during the period.
For every stock the firm added to, Kahn Brothers reduced its holdings in five companies. The biggest sales were in Old Republic International (ORI), Navient (NAVI) and SLM Corp. (SLM).
Kahn seems to be having the same problem that everyone else in the value camp faces these days -- there simply aren't enough cheap stocks to buy .
Tweedy Browne
Connecticut-based Tweedy Browne can also trace its heritage back to the very start of value investing. The firm made a market in illiquid stocks, and one of its best early customers was a fellow named Ben Graham.
Over the years, Tweedy Browne evolved from a market maker of illiquid, undervalued securities into an investor in them -- and finally into the investment-advisory firm that it is today.
I've met most of the firm's principals and worked on some projects with the late Chris Browne and I can tell you that these are some of the finest folks and most intellectually generous people I've ever met. They're also pretty good investors, with a strong long-term track record.
Tweedy's latest 13F shows more selling than buying during the second quarter, with the biggest purchase involving a 30% increase in the firms' Verizon (VZ) stake.
For a deeper look at the firm's thinking, I also looked at Tweedy's recent shareholder letter for the second quarter.
The firm wrote: "With the increase in volatility during the quarter, we had an opportunity to add a few new positions to our fund portfolios, including Hyundai Motor, Kia and a couple of Hong Kong-based smaller-capitalization companies. We also added to various positions, including GlaxoSmithKline (GSK), HSBC (HSBC), Verizon and Standard Chartered Bank (SCBFF)."
The letter also addressed current market conditions, saying: "The S&P 500, the DJIA and the MSCI World Indexes hit all-time highs earlier this year. Simple P/E ratios are at 18 to 19 times trailing earnings. The Schiller Cyclically adjusted P/E ratio is at 26 as compared to its historical average of 16. The Buffet Valuation indicator (total market capitalization/GDP) is at approximately 132 or nearly twice its historical mean. 2014 marked the biggest year for U.S.-listed IPOs, by both number and proceeds raised, since 2000. Private equity investors are routinely quoted in the press indicating what a wonderful time this is for selling businesses."
That sounds like something I could have written at any point in 2015, as I've frequently made the same points!
Tweedy also wrote that it's also holding a lot of cash as it waits for bargain inventory to be created.
The bottom line
Tweedy Browne and Kahn Brothers both have long track records of successful investing. So, it's worth paying attention to what they're buying and selling, as well as to their commentary on stocks and markets.
