Investing in great business at great prices in 2002

by Ashik Shah on 12 November 2002

The decline in value since the last quarter is largely explained by one of our investee companies, Household International, receiving bad press. The company is in the consumer credit business, and there is a great deal of negative sentiment about the sector. The sector is perceived to be heavily influenced by the state of the US economy. The sector is also prone to law suits as it deals with lending to the unbanked and generally low income categories. As a borrower in the credit markets and as an issuer of asset-backed securities, markets are very sensitive about Household’s accounting practices, which had faced some scrutiny.

However, having analysed the business and its circumstances, we are confident that the company’s business model is intact and its books are sound, as is its balance sheet. The company is making every effort to explain itself coherently and transparently to the markets. As these issues subside, its true value will come through, and we have taken advantage of the dip in its share price.

Another major exposure is the insurance industry. Insurance and reinsurance markets are doing extremely well with premium rates firmly at higher levels. For those companies with strong balance sheets such us our investees, like Berkshire Hathaway, Markel and Mercury General, these are excellent times. As these begin to reflect themselves in higher profits, our investments will pay off.

Our investment in the vulture sector, where companies take advantage of developments in weak sectors and companies to buy assets and businesses extremely cheaply, is also beginning to bear fruit. Ironically, we have witnessed a major investment into the telecommunications industry as companies crippled with high debt file for, and emerge from, bankruptcy.

The board has considered the future of Kurm and is confident of the support needed to continue after the end of its initial five-year period. Kurm will continue as a mutual fund in the British Virgin Islands, about which you will shortly hear more.

Investing in great businesses at great prices, our timeless conservative approach, will help us achieve our two goals of preserving and growing capital.

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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.

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