Very interesting piece from SmartMoney’s Reshma Kapadia in the magazine’s new May issue. (It doesn’t appear to be available online yet; when it is, we’ll add the link). With all the recent talk about whether the U.S. is headed into — or is already in — a depression, Kapadia interviewed three money managers who actually lived through the Great Depression, getting their insights about how it felt living through that terrible period, and what they think of today’s economic and stock market climates.
The three Depression survivors aren’t just notable because of their ages; they’re good — very good. All three have been longtime successful money managers, and two were friends and students of the great Benjamin Graham. (Walter Schloss, for example, is one of the “Superinvestors of Graham & Doddsville” that Warren Buffett referred to in his famous 1984 Columbia University speech.) Here’s a summary of what they had to say:
Irving Kahn: Now 103 years old, Kahn worked closely with his friend Graham throughout the Depression. Today, he is the chairman of Kahn Brothers Group (and still shows up to work five days a week, Kapadia notes), which has averaged annual returns of 10.9% since 1994, far ahead of the S&P 500’s 6.8% . His strategy focuses on overlooked firms with good businesses and little debt, and which are trading for less than the value of their assets.
Kahn says it is “absurd” to think the U.S. is headed for another depression, writes Kapadia, who adds, “Back then, the Feds refused to aid banks and were powerless to adjust interest rates or insure accounts.” Kahn didn’t downplay the problems, however, and recommends ultra-safe government bonds for a portion of one’s portfolio. “But as an investor who has seen dozens of economic downturns, Kahn plainly says this is just part of the natural cycle of the market,” Kapadia says. “‘Investors have no reason to feel bearish,’ he says. ‘True value investors are glad the markets are down.'”
Walter Schloss: The “superinvestor” posted annual returns of almost 16% over 47 years, more than 5 percentage points better than the S&P, according to Kapadia. (He closed his fund in 2002, but manages millions of his own dollars today).
Like Kahn, Schloss, 92, doesn’t think today’s woes compare to the Depression. “Back then, he says, the economy was dependent on only a handful of businesses, like banks, railroads, utilities and oil companies,” writes Kapadia. “Today, economic growth comes from a much broader array of industries.” Schloss says if investors today “were a little less emotional, they would see that this could be a good opportunity, so long as they move carefully and keep an eye on balance sheets.” Schloss currently has about half his portfolio in stocks.
Seth Glickenhaus: The 95-year-old warned of a housing bust a few years back, saying the Dow would fall to 7,000. His Dorchester fund has averaged annual returns of 13% since its 1981 inception, 4 percentage points better than the S&P, Kapadia notes.
Glickenhaus doesn’t think the current situation will turn out to be another Great Depression, but he says some industries — autos, brokerages, and home builders — will keep struggling. There are more safety nets for citizens today, he says, and the fact that countries like Brazil, China, and India are continuing to grow (albeit less quickly) have him thinking that “a new bull market may soon be in the making”, writes Kapadia. Glickenhaus is cautious, though, and has at least 30% of his clients’ money in cash.