Martin J. Whitman, who made “safe and cheap” a value-investing mantra during more than two decades managing the Third Avenue Value Fund, has died. He was 93.
He died Monday, according to a statement from New York-based Third Avenue Management, which Whitman founded. No cause was given.
Whitman created the Third Avenue Value Fund in 1990 and managed it until relinquishing the role in early 2012. During that time, the fund had an average annual total return of 12%, compared with 9% for the S&P 500. In 1990, he was named Morningstar’s mutual fund manager of the year.
The fund, and the firm, struggled during and after Whitman’s final years in management. More than a dozen managers and analysts departed from 2012 through 2015. The firm’s assets, which reached $26 billion in 2006, sank to $8 billion at the end of November 2015, right before the firm shut down its Focused Credit Fund. By the end of that year, losses and redemptions caused assets to fall to $6.3 billion.
For a May 2015 article, Barron’s asked Whitman what it might take for investors to return to Third Avenue. “Beats me,” he said.
Whitman distinguished his style of investing from that of Benjamin Graham and David Dodd, considered the fathers of value investing. Where Graham and Dodd “give primacy to forecasting” cash flows and earnings, Whitman said he based his decisions almost exclusively on balance sheets. He viewed equity holdings “as permanent or semi-permanent commitments, subject only to a risk-arbitrage exception.”
“Value investing entails buying what is safe and cheap,” Whitman wrote in his 1999 book on the subject.
Third Avenue’s major holdings under Whitman included Forest City Enterprises, Japanese holding company Toyota Industries, and Henderson Land Development, a Hong Kong builder.
“We’re pretty much buy-and-hold. We don’t trade,” Whitman said in a 2005 interview with Bloomberg Television. “Value investing means you’re price-conscious more than outlook-conscious.”
As chief investment officer from 1991 to 2003, and co-chief until 2010, Whitman also oversaw Third Avenue Management’s small-cap value, real-estate and international-value funds.
When Whitman wrote “The Aggressive Conservative Investor” in 1979, he called his strategy “the financial-integrity approach.” That description evolved over the years to “the safe and cheap approach.”
He had $63 million of his own money in the value fund as of 2004, when U.S. regulators called on fund managers to disclose how their own interests align with those of shareholders.
“He is the king of due diligence, spending an enormous amount of time collecting and analyzing information before pulling the trigger on any transaction,” Eugene Isenberg, former chairman of Nabors Industries, wrote in a forward to one of Whitman’s books. From 1991 to 2011, Whitman was a director of Nabors, a contractor for onshore oil and natural-gas drilling rigs based in Hamilton, Bermuda.
Whitman endured a huge loss in the 1990s betting on Japan’s recovery from recession. Having “made a small fortune in the 1980s by cannily buying shares in troubled savings and loan institutions in America,” Whitman saw similar promise in Japan, Gillian Tett wrote in her 2003 book, “Saving the Sun: A Wall Street Gamble to Rescue Japan from Its Trillion-Dollar Meltdown.”
In 1997 Whitman bought 46 million shares of Long-Term Credit Bank of Japan, a stake of almost 2%, and “bombarded the LTCB management with letters recommending restructuring plans,” Tett wrote. After the bank “brushed him off,” he flew to Tokyo to confront management directly.
The collapse of the bank saddled Whitman with a $46 million loss. Unbowed, he told an investment conference in 1998 that his portfolio had turned a “small profit” since entering the Japanese market.
Whitman turned to distressed corporate bonds in 2009, finding “huge, huge opportunities” and increasing, to 35% from 10%, the amount of distressed debt his funds could hold. In 2009, his final year as manager, the Third Avenue Value Fund returned 44%, compared with the 26% gain by the S&P 500, including dividends.
Martin Jacob Whitman was born Sept. 30, 1924, in New York City and was raised in the Bronx.
As part of his U.S. Navy service during World War II, he was stationed at an ammunition depot in Hastings, Nebraska, where, he recalled, he saw black sailors mistreated due to the color of their skin. Later in life he provided scholarships for African-American and Latino students to attend college and law school, the Wall Street Journal reported.
Whitman used the G.I. Bill to obtain an undergraduate degree in business administration from Syracuse University, followed by and a master’s in economics from the New School of Social Research.
He began his career as a security analyst at Shearson, Hammill in 1950. He developed his investing approach while working in the family office of William Rosenwald, son of a founder of Sears Roebuck.
He founded M.J. Whitman, a brokerage, in 1974 and, a decade later, led a takeover of Equity Strategies Fund, the predecessor to Third Avenue Funds.
In 2002, he sold 60% of Third Avenue Management to Affiliated Managers Group.
He was an adjunct lecturer, adjunct professor and distinguished fellow in finance at the Yale University School of Management from 1972 to 1984 and 1992 to 2008.
Syracuse University named its school of management after Whitman, a major donor and frequent lecturer. He raised three children with his wife, Lois, a lawyer who founded the children’s rights division at Human Rights Watch.