Legendary Investor Series: Martin Whitman - The safe and cheap man (Part II)

If you're a value investor, you need to know who Marty Whitman is.

Whitman writes quarterly in the Shareholder letters for his TAVFX. The investment advice beats any MBA textbook easily. You could get a better understanding of investing through these than most major MBA programs in the U.S.

Whitman is totally committed to TAVFX due to his personal stake in it. Few things align your investment manager's interests with your own like him putting $63 million worth of his own money beside yours. Much of it came from his initial success in the buy-out of failed companies.

Today, the Third Avenue Value Fund has more than $11 billion in assets under management. Yet this massive size isn't hurting Whitman's ability to generate returns. In the last year, he's up 17%. Most managers find their performances stagnate as soon as assets under management rise above a couple billion.

Strangely enough, Marty Whitman currently has 54% of his equity position abroad. Only one of his top five holdings is a U.S. play.

Obviously Whitman favors development companies, particularly those located in Asia. Whitman's favorite Hong Kong company of all is Cheung Kong Holdings, one of the largest property developers in Hong Kong. Whitman has more than $880 million worth of his fund's assets in the stock. To Mr Safe and Cheap guy, he simply loves the conglomerate discount.

MYOB can understand why. Firstly, holding companies are often discounted, even to the extend that the SOP is greater than the total market cap. Check out Wheelock Holdings. Whitman obviously doesn't mind this. This only adds on to this profits when there is any unlocking in value. It also allows him to collect on the cheap.

Secondly, Whitman appreciates and values FCF over 'paper' NAV. The conglomerate discount gives him a good ratio that he is paying for compared to the FCF.

In the next series, MYOB will look at the gripes Mr Whitman has over paper valuation of company based on NAV.