Dear Fellow Third Avenue Investors,

Like the sword of Damocles, Greece’s sovereign debt troubles have been looming over the European Union, the Euro and global financial markets since 2009. Slowly but surely these issues have continued to escalate, making a potential Greek exit from the Euro a feasible outcome.

Similarly, as if Greece’s problems were not enough — after months (really years) of negotiations and political instability, the Puerto Rican municipal bond market is now officially in turmoil. The Governor announced that the Commonwealth will not be able to pay its creditors in full.

To pile on, China is dealing with its own fiscal challenges and our own Federal Reserve is providing limited clarity on the timing of inevitable interest rate increases.

We are not in the business of macro forecasting and tend to be quite skeptical of those who think they can predict the outcomes of these types of dislocations. Abnormal psychology is not our strong suit. What we do know, after almost 30 years in financial markets, is that uncertainty and turmoil generate investment opportunities for long term, fundamental value investors like ourselves. As the present situation unfolds, many market participants may panic or be near panic. For many of these market participants, those reactions may actually be appropriate, rational behavior, provided these people are influenced by one, or more, of the following:

• They have direct exposure to Greece, Puerto Rico or the bubble securities of China.
• They know little, or nothing, about the companies, or the securities, in which they are invested, their investments may be centered around ETFs and Index funds.
• They believe their livelihood depends on the near-term performance of stock market prices.
• They own junior securities, especially common stock, of companies that are debt laden.
• They are strictly outlook conscious, rather than price conscious, in the selection of securities they buy, own or sell.
• They believe that the macro outlook for the economy and for markets is more important than corporate details, even in the long term.

As fundamental value investors with a long history of success in varying market environments, we are on the lookout for opportunities that the crises may generate solely due to other investors’ panic.

None of the above characteristics describes the portfolios of Third Avenue Funds.

• Third Avenue Funds have no direct exposure to Greece. We are not directly exposed, today, to Puerto Rico (but it is becoming more interesting). Our Chinese investments are limited to well-capitalized Hong Kong listed property stocks.
• Between the close examination of documents and interviews of management and others, we tend to become well informed, on a long-term basis, about the securities in which we invest. This gives us conviction in our investments during periods of market turmoil.
• We are long-term investors. We buy the common stocks of well capitalized companies when they are available at large discounts from what we believe they would be worth in a private or take-over transaction. We pay little or no attention to near-term price performance. We are not perturbed by short term volatility in prices because we understand the value of the businesses we purchase.
• We do not buy or own common stocks unless the company issuing the security is extremely well capitalized.
• Third Avenue focuses on investing in the common stocks of companies with strong financial positions, which do not need continuous access to the capital markets.
• Third Avenue’s credit investments are primarily geared toward the fulcrum security and priced to accept meaningful volatility.
• We are much more price conscious than outlook conscious.

We would like to reiterate our strong belief that, particularly in turbulent markets, it is critical to adhere to one’s investment discipline and not attempt to chase fleeting returns or time the market. Neither of these strategies has proven to be effective over time. As fundamental value investors with a long history of success in varying market environments, we at Third Avenue are on the lookout for opportunities that the crises may generate solely due to other investors’ panic, having nothing to do with company fundamentals.

We know that our investment philosophy is aligned with yours. We believe the quality companies held in our portfolios will weather the current storms over the long term and deliver superior results. Patience is our number one ally.

We sincerely appreciate your support. Please call us if you have any questions or concerns.

Sincerely,

Third Avenue Management