The quarter ended 31st July 2009 has been one of tremendous positive sentiment. Kurm performed very favourably and outperformed the US indices. While Kurm suffered when wide-spread panic hit all major markets and asset classes, the successful strategy of maintaining a slightly contrarian attitude, focusing on fundamentals and buying based on intrinsic value has meant that the fund has avoided some of the worst of the impact of the credit crunch.  Kurm avoided  investment in financial stocks during the credit bubble and the leverage which undid many, many investors. In addition, commitment to investing where incentives are clearly aligned has ensured that we have avoided fraud.
While many in the markets ran for cover and avoided investing due to recessionary fears, losing confidence as they saw declines in net worth, Kurm’s strategy remained rational and this meant that the capital of investors was able to take advantage of many rare opportunities. While others waited for the bottom, trying to time the market, Kurm was able to focus on price and intrinsic values.
On the North American side, the fund established a new position in Berkshire Hathaway, when the price became closer to offering attractive returns. In addition, the fund added to positions in Hertz, Sears and St. Joe, a company discussed in the last letter. There was a good unrealised gain in the quarter from our investment in Americredit, a consumer finance business, again demonstrating the value of our strategy. Investing in troubled retail, car rental, property and consumer finance during a recession does not sound sensible at the outset, but when we focus on cash flows and underlying asset values, as a sensible business-minded investor should, then the rationality is all too clear. The Asian investments had a tremendous quarter due to the underlying robust nature of the local economies, but also due to the specific stock selection and discipline of the managers we have chosen. In the UK, the underlying businesses of our key investments, all unique businesses, have done well, but the share price performance has been mixed.
In the private equity space, I continue to watch closely the events at Alchemy, as well as the future plans of John Moulton, whom I believe will not retire. While most of the businesses at Zeus are managing the impact of various aspects of the credit crunch, after an astute acquisition, the performance of XLN telecom, a telecoms provider to SMEs, has led to tremendous uplift in value.
While markets have advanced significantly recently, there is a need for caution. The major economies may have stopped shrinking, even if temporarily, but this could largely be due to stimulus measures. There will also be inflationary consequences of these measures. Certainly, the financial system is now working again, but there are still possibly surprises ahead, even if systemic risk is under control. It does not make sense to rush back into speculation (it never does), but even today, there are still major opportunities: for example, despite strong performance in the markets in general, Kurm’s investments in the US healthcare sector have not risen and some have even declined in value, so that they still represent good value and thus present an investment opportunity.
For the investor or family with a long-term horizon, a rational, contrarian, value-based approach such as Kurm’s offers the potential to preserve and grow 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.