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Interview Summary

In a recent episode of Value: After Hours, Third Avenue's Matt Fine, Portfolio Manager of the Third Avenue Value Fund, joined hosts Tobias Carlisle and Jake Taylor to discuss the current market dynamics, the evolution of value investing, and insights into the distinctive investment philosophy pioneered by Third Avenue's founder, Marty Whitman. Fine shared his journey of joining Third Avenue during the dot-com bubble, a period that taught him invaluable lessons about fundamental value investing amid market extremes.

Reflecting on value investing today, Fine examined the effects of passive flows on market efficiency, sector-specific opportunities, and how companies with strong balance sheets stand resilient amid rising interest rates. He also delved into specific investment themes and holdings, including Subaru, European banks, and offshore energy—each illustrating the Third Avenue Value Fund's commitment to undervalued, financially sound investments.

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Interview Highlights

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• 00:00 - Matt Fine’s Early Days at Third Avenue
  • Fine reflects on starting his career during the dot-com bubble and the profound impact of learning from Marty Whitman, a pioneer in fundamental value investing.
  • Recounts early experiences with legendary investors and how Third Avenue’s approach proved resilient during market turbulence.
• 04:39 - Investing in a Rising Interest Rate Environment
  • Fine discusses the philosophy behind Third Avenue’s focus on financial wherewithal, emphasizing the importance of robust balance sheets to weather scarce capital environments.
  • Highlights how Third Avenue's conservative approach to leveraged assets has helped the fund outperform during challenging market conditions, as seen in 2022.
• 08:44 - Value of Certain Liabilities as Assets
  • Analyzes Marty's concept of “liabilities as assets” with examples from portfolio holdings like Kmart's market leases during its restructuring and Harbor Energy’s low-cost financing structure.
  • Explains how favorable liabilities can enhance a company’s strategic flexibility, particularly in volatile markets.
• 13:55 - S&P 500 Quartile Spreads and Valuation Divergence
  • Fine shares observations on the growing spread between the most and least expensive quartiles of the S&P 500, noting its impact on value strategies.
  • Emphasizes that while high valuations dominate in the U.S., cheaper stocks are growing more undervalued, a trend he attributes partly to flows from active to passive management.
• 22:33 - Impact of Passive Investing on Market Efficiency
  • Discusses the risks passive investing poses to price discovery and corporate governance, as fewer active managers participate in markets.
  • Warns of a potential "dystopian" capitalism, with long-term implications on shareholder engagement and market efficiency.
• 26:19 - Reinvestment vs. Capital Returns: David Einhorn’s Insights
  • Echoes David Einhorn’s viewpoint that the current market undervalues reinvestment, making capital returns through dividends and buybacks more attractive for certain companies.
  • Shares examples of companies like Mercedes and European banks returning significant capital due to robust financial positions.
• 40:54 - Identifying Investment Opportunities in Troubled Markets
  • Describes Third Avenue’s opportunistic approach, seeking undervalued companies in sectors facing temporary challenges.
  • Explains the investment philosophy of “buying gray clouds and selling sunshine,” as exemplified by their investment in EasyJet during the 2022 UK market crisis.
• 50:54 - Analyzing Subaru’s Valuation and Resilience in the EV Transition
  • Outlines the rationale behind Third Avenue's investment in Subaru, noting its financial health and strategic alliance with Toyota in response to EV market dynamics.
  • Discusses how Subaru’s slow approach to EV adoption aligns with its U.S.-centric market and resilient business model.
• 59:06 - Outlook on Offshore Energy Investments
  • Projects continued strength in offshore energy, citing limited equipment orders and tightening market dynamics as supportive factors.
  • Highlights Third Avenue's long-term view of the industrial cycle and potential gains for asset owners in this space.

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Learn More: Explore how Third Avenue’s investment philosophy can help your portfolio. Access the full interview transcript, additional resources, and our latest quarterly insights to stay informed on the market's evolving opportunities.