Third Avenue funds run by Marty Whitman just released  its first quarter letter. The firm tickers for retail investors are as follows; TVFVX, TVSVX, TVIVX, TFCVX and TVRVX. Marty Whitman always provides some interesting perspectives in terms of both the macro picture and investment philosophy.

Whitman discusses the approach taken by many modern analysts which focuses almost entirely on earnings and cash flows. Any earnings release is heavily weighted by Wall Street in terms of earnings per share, with far less emphasis placed on balance sheet considerations. Whitman explains that at Third Avenue the balance sheet is given more consideration. Additionally, Whitman thinks net asset value (NAV) and changes to it are important for both stocks and real estate.

There is further discussion of the concept of treasuries and how many investors speak of them as risk free. Whitman notes that there are different types of risk which are important to be cognizant of. While credit risk is not a concern with US treasuries, since the US cannot default, there are other areas of risk, which makes treasuries far from risk free investments.

There are many other risks that apply to treasuries such as inflation and capital depreciation risk.  These risks are mitigated when investors ladder their investments and buy new treasuries as interest rates increase.

Whitman notes the four main charachteristics which all funds in the Third Avenue fund family adhere to:

1. The companies are in strong financial condition, which provides a type of insurance to investors.

2. The companies are acquiried at a significant discount to NAV. This provides investors with a large margin of safety, as advoated by famous value investor, Benjamin Graham.

3. The companies are transparent and do not play accounting gimmick games. Furthermore they operate in countries where regulators protect investors.

4. The expected return of the company is at least 10% per annum over the next three-seven years.

The full letter can be found below:

TAF 1Q Report and Letters