Lærte lektioner fra Kurt Karas foredrag om rationel investering


Take-aways from a lecture by value investor Kurt Kara

June 8, 2017


  • Kurt Kara is the author of the Danish book The Rational Investor. I attended one of his lectures where he explains that the investing universe is made up of three domains of constants: human, economic and investment constants.
  • His portfolio, Maj Invest Value, contains an array of stocks with wide moats that protect the businesses against competitors’ attacks and swings in the credit cycle. For instance, Christian Dior is part of the portfolio since “if you’re able to fold a dead cow in a particular way and call it a purse, which your customers are willing to pay $10,000 for, you got a good business.”
  • Kurt recommends that you’re cautious with low price-to-fundamental securities, as they are often cheap for a reason. He reminds investors that “free cheese is only available in mousetraps.”

A few weeks back, I brought my father along to an event titled “Put your liquidity to work.” On the agenda was a 45-minutes lecture with the author of The Rational Investor (in Danish, Den Rationelle Investor), Kurt Kara. Here are my key take-aways from that educational and insanely funny lecture.

Human, economic and investment constants
The lecture’s theme was constants. First, he presented the human constants that affect stock markers: status, fear, greed, euphoria and the pleasure-pain relationship. We all know these emotions to some extent. We fear our portfolio will plummet; our greed prevent us from selling; euphoria’s grip on us in extreme bullmarkets. Yep, those are definitely constants – emotions that have blurred human judgment for centuries. He then moved onto the economic constants: gold, money, accounting, interest, risk, reward, assets and liabilities. Money’s existence and importance, accounting rules and the balance between assets and liabilities, interest rates and bonds’ influence on the credit cycle’s stages and the eternal balancing of risk and reward are all constants in the economic sphere. These psychological tendencies (human constants) as well as frameworks and rule sets (economic constants) have persisted throughout centuries, which is why Kurt is confident that it’ll continue to be so.

So what? My take-away from this examination is that these constants create opportunities and threats to investors. The psychological constants rule the market through euphoria and fear, which create fluctuations that defy the rationality in an investment opportunity. In such cases, it’s essential that you stick to your investment constants: rationality, quality, independence and your circle of competence. Kurt loves easily understable business models; products that “make sense”; excellent management teams with proven track-records; balances with a reasonable capital structure; and last but not least, an attractive price.

Far from all investors stick to these constants. For Kurt, it’s all about using this ‘constants framework’ in a way that allows him to acquire stakes in businesses he regards as compounding machines with durable moats. For instance, Kurt predicts that there will always be a demand for the type of exclusive products that Christian Dior offers, since it’s brand relies so heavily on the status aspect of the human constants domain. Since he was able to acquire Christian Dior stock at an attractive price, the purchase adhered to the principles set-forth in the investment constants sphere. In short, it’s about combining elements from these constant domains and building an investing case around them.

A glimps into Maj Invest’s portfolio
If you’re not familiar with Kurt, he manages a value portfolio in the investment company Maj Invest. He gave the audience a glimpse of this portfolio by presenting two cases:

He started off by highlighting United Technologies (UTX). It’s one of three market participants that produce parts for airplanes. It’s an industry with almost impenetrable entry barriers (for instance, it would take 30 years to produce one of UTX’ products since it takes three decades to extract a particular material from a crystal that is necessary in the development of a membrane). Hence, there is a golden combination between a low level of competition and a high pricing power. Kurt acquired his stake at a time where its P/E was around 15, which he considered attractive.

Kurt’s other example was Christian Dior (CDI), which he bought on this ground: “If you’re able to fold a dead cow in a particular way and call it a purse, which your customers are willing to pay $10,000 for, you got a good business.” He highlighted the strong brand value and status that is so embedded in its products. This ensured sky-high profit margins and a certain resilience against cyclical downturns (since it’s the superrich who buys these specially-folded dead cows). Again, it was offered at a reasonable price.

Free cheese is only available in mousetraps
The last question from the audience went something along the lines of: “When do you regard something as cheap?” Kurt promptly answered that he scouted for opportunities that were priced attractively – not cheaply. “Free cheese is only available in mousetraps”, he advised. Recently, I’ve  been hunting-down stocks with a combination of low P/E (<12) and P/BV (<1,2). Though I’m undoubtedly a long-term investor, I couldn’t resist wondering whether or not I may have walked into a mousetrap, since some of my holdings have taken a beating. However, I convinced myself – perhaps naively so – that I believe in my selections still. Time will show whether I will get the cheese or a lesson by the trap.


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