Legendary Value Investor Marty WhitmanTalks About General Motors and the GMAC Bonds

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Marty Whitman talks about the "safe and cheap" discipline of Third Avenue Funds. He also discusses his thoughts on General Motors and GMAC.

Marty Whitman, founder of Third Avenue Funds, spoke on Value Investing at the monthly forum sponsored by the New York Chapter Association of Individual Investors. Currently, he is updating his 1979 book entitled "The Aggressive, Conservative Investor" published by Wiley and Sons. Since 1984 up to April 2005, Third Avenue Value Fund has yielded a compounded annual rate of return at 17 percent.

In his talk, he discussed the principle of Safe and Cheap in buying common stocks. Whitman identified 3 attributes or elements that constitute a safe stock.

1. The company has to have a superstrong, financial statement. This is measured by 3 conditions:

    A. Company has relative absence of liabilities.

    B. Company has presence of high quality assets either in cash or assets readily convertible into cash.

    C. Company has free cash flow available to shareholders. He admits that this is actually very rare than most people think.

2. Management is reasonably competent and cognizant of outside, passive investors.

3. Invest only in businesses that one understands. Here, Whitman reminds that full disclosure of financial information is very critical. One can forget the business if one cannot understand the company.

As for cheap, he means that the stock price is no more than 50 or 60 cents for each dollar to the private buyer.

During the Q&A, Marty shared a lot of ideas, including his most recent buys and his very strong opinions on General Motors (bankruptcy chances) and the GMAC bonds. Third Avenue also picked up shares of Pfizer at $21.

A more comprehensive set of notes from the talk can be found in the files section: http://finance.groups.yahoo.com/group/marty_whitman_club/

About the author:

Judy Onghai has a Phd. from UCLA in Psychology. Her interests are in value investing and the field of behavioral psychology of value investing.

Judy is a shareholder of Third Avenue Value Funds.

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Judy Onghai

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