Irving Kahn’s Beer Investing Insight

Irving Kahn was an incredibly fascinating man that received less than his fair share of media praise during his lifetime. An intuitive individual that invested during the Great Depression and lived to be 109, Kahn was a unique example of what can happen when you have five variables working in sync: (1) raw intelligence; (2) an insatiable intellectual curiosity; (3) the capacity for decisive action; (4) a wildly long runway of 80 years; and (5) a decent amount of capital as a young man.

In 1928, Kahn had the gut sense that some type of shock to the system was imminent because valuations were trading at 4x the post-Civil War average despite only giving slightly above average growth. He then made an incredible decision. He sold all of his investments, held 70% of his net worth as cash, and took the remaining 30% and shorted a company called Magma Copper that was barely profitable during the Roaring 1920s was incredibly overleveraged.

When the Great Depression struck, the price of Magma Copper fell so hard that Kahn tripled his net worth—an astounding given his high cash position.

From that point on, Kahn had “real money” and recognized that his station in life had changed—he was no longer just a man in his 20s with some walking-around money. Repeating that action in future endeavors would be reckless. As Marshall Goldsmith would say, Kahn seemed to have a keen awareness that “what you got here, won’t get you there.”

After WWII ravaged the European continent, Kahn looked internationally to develop a thesis of what industries he thought would prevail. Aware that the families of beer scions often occupied a spot on each country’s wealthiest lists, Kahn concluded that new beer companies would rise, develop into strong brands with pricing power over time, and generate lucrative returns during the transition from micro-cap stock to regional player.

You know index funds that own a little slice of the top 500 or so companies in the United States is all the rage today? Kahn’s version of an index fund was purchasing three or four beer companies in about a dozen companies, and then letting them ride indefinitely, occasionally pruning and reshuffling the portfolio as he deemed necessary (interviews with Kahn leave the impression that he’d make transactions on 2-4 alcohol stocks out of the 40 or so in his portfolio each year).

After September 11th, he purchased shares of Monsanto for under $10 per share and watched them rise nearly ten-fold in value over the remainder of his lifetime.

He travelled in Warren Buffett’s social circle, having attended Benjamin Graham lectures at Columbia and becoming friends with Walter Schloss (who also worked with Buffett during the Graham-Newman partnership days). At Kahn’s 100th birthday celebration, Schloss remarked that Kahn was a focused individual who paid attention to companies that made “real products” that would need to get purchased over and over again.

When I was speaking to a mechanic recently, he mentioned that modern European cars are going to have significant trouble at the 140,000 mile mark or so, compared to its 1990s peers, because there are so many electronics and added complexities in modern vehicles that introduce more opportunities for things to go wrong. What I love about investing is that complexity of the business model is not a prerequisite to strong returns. Beer, soft drinks, chocolates, toothpaste, aspirin, face creams—all of these simple products have created and continue to create immense fortunes. Kahn’s investing successes covered a wide variety of strategies, and it would be inaccurate to say that he only invested in simple businesses, but it is useful to know that a single insight like “people will continue to drink beer” can be a singlehandedly sufficient insight to build a fortune.

Originally posted 2018-07-09 01:20:24.

Like this general content? Join The Conservative Income Investor on Patreon for discussion of specific stocks!