Looking at Third Avenue Value’s holdings, one sees that Marty Whitman will uncover any rock on the planet looking for a good deal. Ask the average guy walking down the street if he’s ever heard of Cheung Kong Holdings (CHEUY.PK), Henderson Land Development (HLDVF.PK), Forest City Enterprises (FCE-A), or The St. Joe Company (JOE). I bet he hasn’t. Whitman is basically trying to buy a dollar for 75 cents and then sell it when it reaches full price.
One of his newest investments is Hang Lung Group (HNLGY.PK). Hang Lung is a Hong Kong based real estate company with about three quarters of its holdings in Hong Kong and about a quarter of its holdings in Shanghai. Most of its properties include office buildings and shopping malls. Whitman estimates that the stock sells for a 28% discount to what the real estate is worth. Don’t be too quick to buy this stock because it looks like that gap has closed since he bought and announced in his quarterly newsletter.
Another successful investment similar to Hang Lung is St. Joe. St. Joe (JOE) is an old Florida based farming and land company. On a balance sheet, land is reported at historical cost and is depreciated over time. Some of this land that St. Joe’s owns goes back decades. As everyone knows, land in Florida has sky rocketed so the SEC reported balance sheets underestimate the true value of the company.
An important concept of Third Avenue is to get management to make an appraisal of what its land is worth. Many companies will not pay for the appraisal and only concentrate on operations, ignoring the valuable land assets. Third Avenue has the ability to dig up what these assets are truly worth.
Third Avenue’s second largest holding is Toyota Motor Industries (TYIDF.PK). No, not that Toyota. This is the original Toyota from the 1800’s that made looms (the things that clothing is made on). They spun off the automotive segment and the rest is history. However, they did manage to hold on to enough to equal about 5% of the automotive manufacturer’s stock. So not only do does Toyota Motor Industries sell at a discount to what the stock is trading at, the underlying asset, Toyota Motor (TM) automotive stock, has been rapidly increasing as the company sells more cars and trucks. I must disclose that I bought this in 2004 when researching Third Avenue’s filings and have made about 115%. Not bad for what I thought at the time was a boring investment. I also must disclose that I am a graduate of the Martin J. Whitman School of Management at Syracuse where Mr. Whitman was kind enough to make a naming gift.
This hodge podge of investments might be where you want to put your money as the Baby Boomers age and the American market slows down. The big blue chips like Coca-Cola (KO) and McDonalds (MC) have certainly done well in a bull market and strong economy but don’t forget 1973-1974. Those big blue chips don’t fair as well when things pull back.
According to its web site, $10,000 in the Value Fund on November 1, 1990, would now be worth $115,849. Furthermore, according to a Barron’s article in 2005, it had a standard deviation of 12.9 which is quite a bit lower than the market. That means that not only did it have a higher return, it was also less volatile than the overall stock market probably due to the fact that it is so well diversified.