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Conversation: Jean-Marie Eveillard and Marty Whitman

January 21, 2008

Jean-Marie Eveillard and Marty Whitman met in 1990 shortly after Whitman launched what would become his signature fund, Third Avenue Value TAVFX. They were two kindred spirits on a conference panel with a third portfolio manager, who was speaking about financial theories and hypotheses.

"He was talking in a language that was completely different from ours," Eveillard says. "Martin and I chatted afterwards about the fact that it was good that the other was there, because we simply didn't speak the same language as the third guy."

To Eveillard and Whitman, such academic speak only applied to conventional money managers, whose goal was to keep up with a benchmark in the short term. Eveillard and Whitman, on the other hand, didn't give a whit about benchmarks nor the short term; they were buy-and-hold investors who bought companies they knew from the bottom up at ridiculously cheap prices.

"I was very impressed, from that day to this, on what Jean-Marie had to say," Whitman says. "He was very, very value-oriented. Very interested in not taking investment risk, and willing to go all places in the world, and very skilled at doing things that I am particularly unskilled at, such as investing in gold--which is a talent all unto itself."

Nearly two decades later, this mutual respect remains. We asked Eveillard, 67, and Whitman, 82, to sit down together to talk about investing. The following conversation took place Aug. 22 at the offices of First Eagle Funds in New York; they had just returned from having lunch together. Their conversation has been edited for clarity and length.

Marty Whitman: Talking about not speaking the same language, I'd put it this way, in academic terms: modern capital theory, the efficient market theory of the efficient portfolio hypothesis. It's all only extremely tangential. It's really not relevant to what you do, Jean-Marie. It's certainly not relevant to what I do.

Jean-Marie Eveillard: No, I think the consultants, the specialized magazines, they all talk the academic language, and it's an instance where the academics are simply wrong.

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Rating: 3.8/5 (25 votes)

Comments

Eric McGough
Eric McGough premium member - 6 years ago
Sometimes I wonder why I keep reading the same value stuff over and over, like this article. It is nothing really new to me after 35+ years of studying the value approach and it's players. Yet, every time I do, I come way feeling wiser more assured. Maybe it is the tongue and check humor most the well know value types seem to posses.

I thought Marty Whitman (MW) was very humorous in this article. I decided to cut-n-paste a few samples of his humor here for those that may not take the time to ready the whole interview:

MW> A limited partnership is a business or investment association where, at its inception, the general partner brings experience to the situation, and the limited partners bring money.

MW >At the end of the limited partnership, the general partner has the money, and the limited partners have the experience. [laughter]

This makes me wonder why I stick with managing only my own money and not my open own fund:

MW> I got in the business in 1984 when I did a hostile takeover of a closed-end, my first fund. It took me a long time--I'm sometimes not too swift--to find out that the business was a license to steal. [laughter] It's better than having a tollbooth on the George Washington Bridge. All cash business, no credit risk, no inventory, you are the principal overhead.

MW> It is a fantastic business, not only fun and interesting, but you make a lot of money. It took me a long time to realize that in the fund business, the value is not in buying at a discount. The value is in having a management contract.

MW> I don't know what genius made it up, but the mutual fund industry is so effectively and strictly regulated; it's the only area, in my experience in business, where the public gets close to an even break. The Investment Act of 1940 gives the public all these benefits and substantive protections. At the same time, it allows promoters like Jean-Marie and myself to get ungodly rich. [laughter]

I stop short of calling his humor "jokes" as they are all "sadly" true.

MW> I'm reminded by my daughter, who is a Broadway producer, that 95% of the people in show business are extraordinarily talented, but only 5% make a living. But you go into finance, 5% may be talented and 95% don't know which end is up, but they all make a very comfortable living. Finance is a much better vocation in general than show business. [laughter]
mla
Mla - 6 years ago
"But, as I've said before, many mutual funds in the end, and it may be a slow death, will be squeezed between the very cheap index funds and absolute return investors."

By "absolute return" investors, does Jean-Marie mean value investors?

So the distinction is between index funds, conventional market-chasing funds, and "absolute return"/value funds?

ccyork
Ccyork - 6 years ago
mla Wrote:

-------------------------------------------------------

> By "absolute return" investors, does Jean-Marie

> mean value investors?

>

for some reason i got the impression that he meant hedge funds
valueorama
Valueorama - 6 years ago
absolute return investors are value investors. They dont care about any index performance, they are not interested in doing better than an index. But would like to make money by not losing any and generating good returns.


mla Wrote:

-------------------------------------------------------

> "But, as I've said before, many mutual funds in

> the end, and it may be a slow death, will be

> squeezed between the very cheap index funds and

> absolute return investors."

>

> By "absolute return" investors, does Jean-Marie

> mean value investors?

>

> So the distinction is between index funds,

> conventional market-chasing funds, and "absolute

> return"/value funds?

>

>


crafool
Crafool - 6 years ago
Absolute investors are value investors. Value investors are generally obsessed with Warren Buffett's rules of investing, which are as follows: Rule #1, Don't loose money. Rule #2, See Rule #1.

This is all based upon Benjamin Graham's teaching that every investment should be based upon thorough research a margin of safety and an adequate rate of return. If it does not meet all of the requirements you sit and do nothing until the market serves you up that fat pitch that allows you to meet all of the criteria. Thus, many value investors hold lots of cash which is generally a residual from them not finding enough ideas, and thus sitting as they and any true businessman would do.

By the way, any readers beside me notice that Buffett is on an investing in the market tear (Buying BAC, WFC, USB, now Swiss Re, Jean Marie has reopened all the First Eagle Funds, and Mason Hawkins has reopened the LongLeaf Funds. Noted value investors have seen an opportunity to put money to work in my opinion.

Always remember, "Fear is the foe of the faddist and the friend of the fundamentalist", Warren Buffett
alanb9
Alanb9 premium member - 6 years ago
I'm not sure that he had any reference at all to value investors when he referred to absolute return investors. See this link:

http://www.investopedia.com/terms/a/absolutereturn.asp
ccyork
Ccyork - 6 years ago
oh, so i guess i was right. absolute return investors are hedge funds

http://en.wikipedia.org/wiki/Absolute_return
mla
Mla - 6 years ago
I found this in the fund profile for First Eagle Overseas:

Absolute Return Focus

Fund Management knows that positive,

absolute returns are what matter most. We attempt to

preserve capital and consistently generate positive absolute

returns independent of broad market conditions. We hate to

lose money.

[www.firsteaglesogen.com]

So I think he is using it in the broad, value-oriented sense.
ccyork
Ccyork - 6 years ago
could it be that both value investors and hedge funds are absolute return investors?

maybe so. i guess it really doesn't matter too much

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