Over the long term, Kurm has delivered a compound performance which has beaten the markets as well as preserved and grown capital. The strategy has been contrarian and concentrated, driven by fundamental business valuations. This has resulted in performance which is lumpy or volatile, especially when Kurm invests in sectors which are out of favour. This has recently been further impacted by the European Sovereign Crisis as well as fears about global growth. Performance is necessarily impacted by this strategy in the short term, but investors’ focus must be on long term business values.
This is exactly what has happened in the last year, as Kurm has invested in the volatile and unloved US financial services, sector in companies such as Bank of America and American International Group (AIG). While stock markets have risen modestly in the 12-month period, financial services stocks are cheaper now than where they started this period. Performance has thus suffered.
While the stocks are cheaper, the businesses are worth more as the underlying business strength becomes apparent. The overhang of sub-prime mortgages, credit default swaps and other errors of the last decade are being addressed by management teams, while the underlying core businesses continue to develop. For example, Bank of America has an enormous franchise amongst depositors and AIG has an extremely potent brand. Many of the US financials in Kurm’s portfolio could stop doing new business and be worth two to three times their market prices if they were liquidated.
The core businesses are strong and so liquidation is not going to happen. In the first few months of 2012, financial stocks have appreciated, but they are not near my estimates of intrinsic value. If this estimate of intrinsic value were reached, then Kurm’s net assets per share would be significantly higher.
The investments in the emerging and frontier markets have also experienced volatility, while the businesses continue to perform well. While Asian growth is being questioned, the underlying Asian corporations to which Kurm is exposed are growing well.
Focusing on good businesses with honest managements at fair prices, together with the occasional contrarian opportunity, continues to enable the families invested in Kurm to preserve and grow the real value of their capital.
The views expressed and comments made on this website are not personal advice based on your circumstances. The purpose of this website is to provide information and analysis to help you make your own informed investment decisions. If you are not confident making your own investment decisions you should contact a firm which is authorised and regulated by the Financial Conduct Authority (such as Ashik Shah & Co. Ltd.) so that a qualified financial adviser, after considering your personal circumstances and investment objectives, can make personal recommendations of investments which are suitable for you. Whether you make your own investment decisions or prefer to follow the recommendations of a financial adviser you should always remember that your capital will be at risk and that investments can go down in value as well as up.