Prudent insurers and distress in telecoms in 2003

by Ashik Shah on 28 August 2003

In the last quarter there has not been much activity in the portfolio. As a long-term value investor, my advice is focused on situations where I believe that the intrinsic value of a business is not reflected in the stock price of that business. In addition, the portfolio is relatively concentrated, but with investments in businesses which I know well. Given this concentrated long-term focus, there is no need to trade frequently.

Kurm has considerable exposure to the insurance and reinsurance industries. Many companies in these related sectors continue to suffer from both the loss of capital due to “9/11” and the general fall in the stock markets over the last few years, which have both resulted in weaker balance sheets. At the same time, premium rates have risen and remain very firm. This means that companies which have prudently maintained strong balance sheets and avoided many of the excesses of speculative investment and overambitious underwriting are now reaping the benefits of the premium rate environment All the insurance companies in which Kurm has investments are in this category and are run by their founders or by people who think and act like long-term owners. Further they have reputations for integrity. This means that the money is in safe, honest, hands and ought to grow in value over time.

In the last letter to you, I had mentioned the distress in telecommunications and energy sectors. Kurm now has an indirect investment in the telecommunications industry with its holding in investment company Leucadia National. Again, our money is with very shrewd investors who have a very creditable long-term record. While this sector was the darling of many an investor in 1999 and 2000, when values of the business were enormous, until many of the companies ran out of cash and filed for bankruptcy, very few investors are willing to take a look now when there appears to be genuine value in some of the companies emerging from bankruptcy. This is the nature of the investment cycle. In a boom, greed makes most investors forget the fundamental issues, and in a bust, fear takes over. However, over the long-run it has always paid to be fearful when others are greedy and greedy when others are fearful.

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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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