Margin of Safety in 2001

by Ashik Shah on 29 May 2001

The company has successfully preserved and grown the capital of its shareholders, while global stock markets have shown considerable volatility.

During most of the last three years, the crowd has argued that to grow capital, one must invest in fast-growing businesses which are adopting or selling new technologies, or one must follow fashion or momentum. With this herd mentality, much of the crowd has come unstuck.

Kurm, on the other hand, is a “value investor”, and has always invested capital with attention to the “margin of safety” offered in an investment; the price offered by the stock market must be comfortably below the underlying, intrinsic, value of the business, based on realistic assumptions about growth.

Kurm has indeed invested in growing businesses. However, there has been no need for exaggerated ideas about growth in revenues. The prices paid have meant that even with moderate growth, the investment can be profitable.

This is all the more important when thinking about recent recessionary signals in the U.S.A. and Europe. Added to this, there has been a severe cutback in spending on information technology. Once-proud giants like Microsoft have to content themselves with relatively mediocre growth, and reduced earnings estimates.

Kurm’s investments conduct business in markets which are more stable and predictable. The products, and the demand for them, are easy to understand, and they are usually needed on a regular basis. This means that, while recession is not welcome, its impact will not be so bad. In fact, many of our investees will benefit, as investment opportunities present themselves.

Kurm has only invested in businesses where the management has most of its own capital in the business and only profits if shareholders gain. In the recent internet boom (and bust!) investors have lost money, while investment bankers and some promoters have profited handsomely at their expense.

Kurm is well placed for the years ahead. Over 10% of the assets are in cash equivalents, ready to take advantage of any opportunities, while the rest is invested in stable, sound businesses with well-protected strategic positions and good, understandable, prospects.

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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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