Seeking Alpha Article Quotes Marty Whitman

A post by Chuck Carnevale showed up in my news feed today because it contained quotes from both Warren Buffett and Marty Whitman (among others).

It's a good post, and one that that readers of this blog may enjoy reading in full. As an example of its value, here's the quote by Marty Whitman:

"I remain impressed with how much easier it is for us, and everybody else who has modicum of training, to determine what a business is worth, and what the dynamics of the business might be, compared with estimating the prices at which a non-arbitrage security will sell in near-term markets."

This, Carnevale says, basically means that "it's easier to value a business based on analyzing its fundamentals than it is to try and guess where the price of the stock may go over the short to intermediate term."

I agree with that, as well as some other things from the post. Here's the link for anyone who'd like to read it in full.

Marty Whitman Retires

Chuck Jaffe generously praises Marty Whitman in this short piece on his decision to step down from managing the Third Avenue Value Fund.

While I disagree with parts of it, Jaffe accurately identifies Whitman's admirable long-term track record--and the three words that Whitman's style boils down to: "safe and cheap."

The whole thing's worth a read, even for those of us who have been following the fund for some time and give Ian Lapey more credit than Jaffe seems to.

The Headline that Made David Einhorn Smile

I have no inside information on this, but I'd be willing to bet that the following headline made David Einhorn smile:

Starbucks To Sell Single-Cup Brewer Verismo, Green Mountain Tanks

I saw this in my Facebook news feed, prefaced by my friend saying, "This looks promising." Indeed it does--but especially for those short Green Mountain shares.

What's Ken Heebner Investing in Now?

Seeking Alpha has a post going over some of Heebner's current top picks. Worth checking out, even if (like me) you think investing in financials like Citigroup is madness.

You Can't Blame David Einhorn

As the recently released transcript of David Einhorn talking to the CEO of Punch makes clear, David Einhorn was right to sell out of the company. Here's an excerpt of the phone call:

PUNCH CEO: Well, I -- I think -- I -- I think the market sort of dictates this. I don’t think it’s a matter for the market to dictate that. We -- our view is simple, that is, that, you know, we have to make sure that we can preserve a sensible headroom to the covenant from a securitisation and -- and take out the convertible as the -- the maximum and minimum requirement of any discussion. But there’s absolutely -- if you go back over the history, and I know -- I -- and I -- and I perfectly respect that you’ve not been involved from the beginning, but when we originally floated the company, we did an initial public offering of 116 million pounds. We have only done since that time --, that’s 161 million pounds. We have only done, since that time, 175 million pounds [inaudible]. So, to be absolutely clear, I don’t -- I don’t look at the business from an equity perspective and if -- you know, and it’s not my intention to over-equitise this business whatsoever. The transactions that we’ve done, for example, we’ve shown, pretty substantially dispassion in what we’ve sold to ensure that we maximise value on the debt and, so this -- so it’s merely about making sure that -- and we can turn around to the shareholders and say, “Actually, anything that we do is sufficient to give ourselves a – headroom for a considerable period of time into the future and also addresses the convertible”. That’s the maximum and that would be the minimum that would be worth considering.

DAVID EINHORN: Mm hmm. So, would you -- as you pencil that out, what do those amounts turn out to be?

ANDREW OSBORNE: Something like 350 sterling.

DAVID EINHORN: 350 million sterling?

ANDREW OSBORNE: If you were -- if you were to roughly sort of work on the basis that you kinda took out the -- the converts, and that’s something that gives you, say, 10 percent headroom in within both of the covenants, filed covenants.

DAVID EINHORN: Wow, wow. That would be shockingly horrifying from my perspective. Can you sell half the company just at a buck and a half -- a Euro -- a pound and half? Oh, no.

ANDREW OSBORNE: So those proceeds are applied to buying back debt at say 60 in the pound and remember any --

DAVID EINHORN: Who cares -- --

PUNCH CEO: [inaudible].

DAVID EINHORN: -- who cares, who cares, after a year of going through this, now we’re going to dilute ourselves like this. Oh, no.

ANDREW OSBORNE: Why do you get diluted?

DAVID EINHORN: Because you doubled the share capital almost.

PUNCH CFO: Yeah, but [overspeaking]...

Consider what Einhorn just heard. He just heard the CEO of a company he owns a large amount of equity in tell him that he doesn't view the business from the perspective of an equity holder. Later on, the CEO doesn't even appear to understand how nearly doubling the share count will dilute current equity-holders.

I'd sell as many shares as I could after that conversation, assuming I owned any. To the point, however, Einhorn has no duty to other shareholders to not sell shares of a company when he learns something such as this affecting Greenlight's investment.

The only person in a fiduciary position here is that CEO. You can blame him for being an idiot many times over. But you can't blame Einhorn--or at least shouldn't.

Marty Whitman Quotes (from Third Avenue's Recent Letter)

Third Avenue's latest shareholder letter is a great read.

At its start, Marty Whitman basically provides a condensed view of his book, Value Investing: A Balanced Approach--which serves as either a nice teaser for those who haven't read the book or a nice refresher for those who have.

Throughout the letter, a number of one-liners are made. Whitman points out, for example, that "analysts really ought not to use the word 'risk' without putting an adjective in front of it." Similarly, he says, "Economists have it wrong when they say, 'There is no free lunch.' What they should say is, 'Somebody has to pay for lunch.'"

Later, James Montier is quoted saying, "The idea that the risk of an investment, or indeed, a portfolio of investments can be reduced to a single number is utter madness." And Thomas LaPointe observes that, "A disorderly Italian default would be at least ten times greater than a Lehman Brothers event."

Anyhow, there's much more in the letter; you can read it here.

David Sokol on Minimizing Mistakes

SFGate recently reported on the management philosophy of David Sokol, one of Buffett's highly-praised business managers. While noting that details can be found in Sokol's book, Pleased but Not Satisfied, the article itself summarizes a few of the lessons. Regarding minimizing mistakes, for example, it says:

In Sokol's mind, operational excellence consists of paying attention to detail and minimizing the making of mistakes or other small problems that could turn into big issues. For example, some oil companies have been cited numerous times for a lack of attention to seemingly small manners, and that have resulted in oil pipeline leaks or oil well explosions. In many cases, these damaging events might have been less severe, or could even been prevented with attention to seemingly minor maintenance activities. Because of a lack of attention to detail, the last oil company might experience huge declines in its reputation and profits. Openness and candidness are other key ingredients to excellence, according to Sokol. In his words, "the more uncomfortable the situation, the more valuable a candid conversation becomes."

There's nothing revolutionary there; it's really just the basics. But actually doing what is "basic" is another story. And Buffett loves those who do the basics well, decade after decade.

Short Stocks Like David Einhorn?

Business Insider recently linked to an interview with David Einhorn in which he lays out how he short stocks--or at least how he did it in this past financial crisis. Here's the relevant section:

Interviewer: Okay. I guess I want you to continue to sort of chronologically in August of ’07, as you said you see BNP Paribas freeze redemptions and that gives concern and you’re talking to the rating agencies among other things and you’ve identified the type of companies that you had concerns about. Can you just sort of take us through chronologically through the end of ’07 and into ’08 and how things changed, if at all, for you folks?

David Einhorn: Yeah absolutely. So this is sometime in August, we put on a bunch of positions and our team here basically divided up the names for sort of further work cause we wanted to figure out which were the ones that were the most exposed. Whereas the initial couple dozen was ticked off relatively quickly over the course of a weekend, which is not our normal amount of time to [do] due diligence, but I felt that given what was going on, there may not be a lot of time. And so we began putting on those couple dozen positions a little faster than we ordinarily would if we were just researching an individual security.

So from there we began concentrating our work and trying to figure out well which were the better, more exposed companies and which were the less exposed companies and over the course of the next couple of months, we focused the list down and we covered a number of the shorts and we increased a number of the shorts as we focused on the people that we thought were most vulnerable.

In sum, Einhorn quickly shorted a group of businesses in an industry with problems, worked feverishly to differentiate the worst of that bunch from the best, and then covered his shorts or added to them accordingly. You can check out the rest of the interview at Santangel's Review.