MI378: The Aggressive Conservative Investor: Lessons From Martin Whitman w/ Shawn O'Malley

The Intrinsic Value Podcast - The Investor’s Podcast Network

The Investor's Podcast Network

Education, Investing, Business

4.6 • 592 Ratings

🗓️ 18 November 2024

⏱️ 54 minutes

🔗️ Recording | iTunes | RSS

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Summary

In today’s episode, Shawn O’Malley (@Shawn_OMalley_) explores the highs and lows of famed investor Martin Whitman’s career. Whitman is the founder of Third Avenue Management, which, at its peak in 2006, managed 26 billion dollars across a handful of funds. For nearly two decades, Whitman outperformed market benchmarks with average annual returns of 12 percent. Whitman’s approach to investing is unique, and in this episode, you’ll learn about why the balance sheet is just as important or more important than the income statement, how Whitman got his reputation for being a “vulture” investor, how Whitman was able to profit from companies going through bankruptcy, the legal differences between being a bondholder and stockholder, what Whitman looks for in the companies he owns long-term, and takeaways from Whitman’s legacy, plus so much more! Prefer to watch? Click here to watch this episode on YouTube. IN THIS EPISODE, YOU’LL LEARN 00:00 - Intro 07:13 - Why investors should focus on creditworthiness 08:20 - Why the balance sheet is just as important or more important than the income statement 11:35 - How Whitman’s legacy was tarnished by the 2008 Financial Crisis 15:05 - How to assess earnings power using assets 28:58 - What strategies Whitman used to beat the market averages 35:09 - How different markets have varying degrees of efficiency 37:42 - What issues Whitman has with current accounting standards 43:16 - The case for thinking more like a creditor in stock investing And much, much more! *Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Kyle and the other community members. Request a free copy of Whitman’s book, Dear Fellow Shareholders, on this page. Whitman’s book Distress Investing. Case studies on legend investors from past episodes: Howard Marks, Bill Ackman, Bill Miller, George Soros. William Thorndike Jr.'s book, The Outsiders. Hunter Hopcroft’s blog post on Martin Whitman — check out Hunter on Twitter. Check out the books mentioned in the podcast here. Enjoy ad-free episodes when you subscribe to our Premium Feed. NEW TO THE SHOW? Follow our official social media accounts: X (Twitter) | LinkedIn | Instagram | Facebook | TikTok. Check out our Millennial Investing Starter Packs. Browse through all our episodes (complete with transcripts) here. Try Kyle's favorite tool for picking stock winners and managing our portfolios: TIP Finance. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts. SPONSORS Support our free podcast by supporting our sponsors: Fiscal.AI Connect with Shawn: Twitter | LinkedIn | Email HELP US OUT! Help us reach new listeners by leaving us a rating and review on Spotify! It takes less than 30 seconds and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

Transcript

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0:00.0	You're listening to TIP.
0:02.8	Hey, welcome back to the millennial investing podcast. I'm your host, John O'Malley. Today, as I've
0:07.7	done a few times before, I'll be diving to the career writings and lessons to be learned from
0:12.0	an esteemed value investor. For this episode, I'll be zooming in on Martin J. Whitman. If you're
0:17.0	not familiar with him, Whitman's story has ties and lows. You might say that Whitman was,
0:21.6	in a way, portrayed by time. For almost 20 years, Whitman had a track record of earning an average
0:27.2	return of about 12% per year, compared with a gain of only 5% per year in the MSCI World Stock
0:33.2	Index over that same period. And at its peak, his firm Third Avenue Management oversaw
0:38.4	roughly $26 billion in 2006 across a handful of different funds with varying strategies.
0:45.2	Yet, at 84, Whitman's nearly two decades of outperformance was wiped out by the 2008 financial
0:50.7	crisis, where his value funds suffered a loss of 45% in that one year alone.
0:56.2	And several years of poor performance across his firm's investment funds paired with an
1:00.4	exodus from his investors more than tarnished Whitman's legacy.
1:04.3	The climax came in December 2015 when one of Third Avenue's funds focused on distressed
1:09.2	bond investing, halted customer
1:10.8	withdrawals, temporarily blocking its investors from pulling out their money, which was and
1:15.4	still is a relatively unprecedented move for a mutual fund to make, signaling how badly its
1:21.1	strategy had failed.
1:23.0	After having established Third Avenue Management in 1974, Whitman retired 38 years later in 2012
1:29.0	and gave up the reins to his flagship $3.2 billion value investing fund.
1:34.3	Five years of subsequent outperformance by the fund's new torchbearers led to some 80% of
1:39.1	the fund's assets being redeemed by investors who were looking to move their money elsewhere.
	...

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