Q & A WITH MARTY WHITMAN, CEO OF THE THIRD AVENUE FUNDS
When it's tough to make sense out of the market, sometimes the best thing to do is get another perspective.
Martin "Marty" Whitman has been in the fund business since 1984. He's chairman, CEO and portfolio manager of the Third Avenue Funds, (800-443-1021), and a well-respected value guy.
While some value managers only invest in growth companies that are selling at a reasonable price, i.e., GARP, Whitman takes things one step further and is a devotee of GADCP----" growth at dirt cheap prices".
Perhaps that point of view comes from his pre-fund years when he was in the distress business finding financial opportunities in bankruptcies. Or, maybe it's just because he sees things in general a little differently than many. In any event, here's a man whose main concern is not the direction of the market but buying stocks that are well-capitalized and priced right.
Q: What makes you so good at what you do?
A:I think the emphasis is on quality of resources. The only common stocks that we like to go into are companies that are extremely well-capitalized. Now there are trade-offs in doing that, but it's comforting. So the first thing you want to buy is high quality net assets.
Q: What might some of those trade-offs be?
A:Sometimes we get very conservative management. And, normally to get to our pricing, the near-term earnings outlook stinks. But, assuming no catalyst, we try not to pay more than 50 cents for each dollar we think the thing would be worth were it a private company or a take-over candidate.
And, we assume that most businesses, quite properly if you do the research, sooner or later are going to be involved in what we call "resource conversions" like mergers or acquisitions, going private, or recapitalizations.
Q: How often do mergers or takeovers happen to your holdings in the Third Avenue Value Fund?
A: It's very common. We get about four to six take-overs a quarter. For instance, we have a position in Financial Security Assurance Holdings for which we paid $32 a share and a cash deal was just announced at $76 dollars a share.
Q: What about some of the fund's other holdings?
A: We have a huge position in Toyoda Automatic Loom Works. It's a great way of buying into Toyota motors at about a 50 percent discount...
You want to play biotech? As biotech grows, in order to test drugs for efficacy and FDA approval, these companies are going to have to farm out the testing because they don't have the in-house capability. So, we've invested in clinical research organizations, (CROs), like Parelex and PPD pharmacy.
Q: Are you optimistic about the future of the market?
A:I've got a theory. Ever since the end of World War 11, virtually every American industry went through depressions as bad as anything that existed in the 1930s. And the difference between now and the '30s is there is no domino effect. So the general market fades into insignificance as compared with specific sectors.
On the market now, I would say that health care is in the crapper, insurance stocks have never been cheaper and home builders could not be more depressed. So what happens to businesses like those is a lot more important than the market. Having an opinion about them and pricing them right is a very productive use of my time. Trying to guess the general market is a waste of time.
All the people who are involved with the general market and worry about the Dow at 11000 and NASDAQ at 5000, are chasing something that's really not all that important.
Q: What is important?
A:The underlying merits of a company.
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