- The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.
- It appears that Kimco could become an 'A' rated REIT during the next year or two.
- Whenever the financial markets fail to fully incorporate fundamental values into securities prices, an investor’s margin of safety is high.
- Kimco does not deserve the same multiple as REG or FRT, but there is certainly room to grow the multiple.
In our constant quest for value, we regularly screen dozens of REITs weekly in order to find a diamond in the rough. While it’s impossible to eliminate all investment risk, we look to minimize it by selecting securities with a significant margin of safety.
As Warren Buffett told an audience at Columbia Business School in 1984 (for the 50th anniversary commemoration of the original Security Analysis):
You do not cut it close. That is what Ben Graham meant by having a margin of safety. You don’t try to buy businesses worth $83 million for $80 million. You leave yourself an enormous margin. When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000-pund tricks across it. And that same principle works in investing.”
The margin of safety is the essence of value investing because it’s the metric by which hazardous speculations are segregated from bona fide investment opportunities. As Benjamin Graham wrote in The Intelligent Investor, the value investor’s purpose is to capitalize upon “a favorable difference between price on the one hand and indicated or appraised value on the other.”
Surveying our list of filtered investment opportunities, we have identified a REIT that is worthy of ownership. As I explained in a recent article,
Once a moat is created, it must grow. The weaker firms are usually losing market share, and unable to raise prices to offset their costs, or being undercut by competitors…companies that are able to withstand the relentless onslaught of competition for long stretches are the wealth-compounding machines that we want to find and own.”
Identifying a moat-worthy company involves careful consideration of the company’s industry, its current competitive position within that industry, and the “economic moat” around the company; that is, a sustainable competitive advantage that helps preserve long-term pricing power and profitability. Warren Buffett (Fortune 1999) summed it up as follows,
The key to investing is …determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”
The Case For Kimco