The morning of Tuesday 11th September is a time the world will never forget. The collapse of the Twin Towers of the World Trade Centre and the resultant human tragedy have deeply moved us all. Your Board would like to express its pain and sorrow for the victims of this attack and for all those suffering in fear of terror around the world, and from the poverty such regimes engender.
The parameters of risk have changed substantially with the destruction of great monuments to, and infrastructure for, global capitalism, and the fact that it happened in a region where such events were unthinkable. In such times it is only natural to seek increased security and protection for all things, including capital.
Kurm has always invested with a focus on preserving capital and making it grow. By identifying strong, well positioned companies with honest management, or shrewd dealmakers, our capital will continue to grow, as long as we invest conservatively, at attractive prices.
There was already much talk, before September 11th, of recession. Several industries have been affected dramatically, such as airlines, travel in general, and the media. Insurance, to which Kurm has a large exposure, has been affected drastically. Many insurers and reinsurers have seen their capital shrink as they face unprecedented liabilities. The Lloyds insurance market of London is facing severe liquidity and solvency issues.
Kurm’s insurance holdings have done us proud. The combination of integrity, prudence and management with most of their own capital at stake has meant that, while the companies do have losses, their valuations and, more importantly, ability to pay claims, have not diminished.
The need for insurance has never felt greater, and so its essential role in enabling everyday activity is ever more vital. Those who provide insurance coverage are in the business of making promises. Unfortunately, many may face problems going forward. Fortunately, Kurm’s investments are not in this category, for example, Warren Buffett says of Berkshire Hathaway: “We are as strong as any insurer in the world and our losses from the attack, though punishing to current earnings, are not significant in relation to Berkshire’s intrinsic business value.”
It is this intrinsic business value which has been Kurm’s continuous focus, and has served us well in terms of capital protection and profitability.
Berkshire will also benefit, with our other holdings, as there is a “Flight to Safety” among those seeking insurance and reinsurance. This will mean that they receive more business at much better premium rates and margins.
There is turmoil, too, in consumer finance. Many lenders have been forced to write-down loans which at once seemed profitable, but eventually proved too risky. Again, this provides opportunities for Household International to gain market share from distressed competitors.
Apart from investing in operating companies, Kurm is also an investor in companies which are vehicles for shrewd deal-makers. The difficult times ahead are ideal for those looking to acquire assets in situations of distress, but with attractive long-term intrinsic values.
In summary, perceptions of risk, and, in some cases, actual risk, have changed so that there is more risk aversion. Our choice of investment in finance and insurance means that we are exposed to risk. However, we have only invested in companies where the attitude to risk is conservative. Our investees do not avoid risk, but take it only on good terms. With their own capital at stake, and with integrity and experience, their managements do not take excessive risk in the expectation of huge pay-offs. In fact, when times appear to be good, our investees may appear to be missing opportunities, but, in fact, are avoiding foolish behaviour. We have seen many competitors fall from glory by misunderstanding risk, and their shareholders have suffered. In times like these, a rigorous approach to risk and investment, with prudence and with an eye on long-term intrinsic value, will keep investors like Kurm protected as well as profitable.
With 20% of our portfolio in cash, we are well positioned to take advantage of opportunities as they present themselves.
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.