Amit Wadhwaney of Third Avenue on Balance Sheet Investing

Amit Wadhwaney, along with other great value investors will be speaking at the European Investing Congress on October 10th.  Other big speakers include; Howard Marks of Oaktree Capital Group LLC (NYSE:OAK), Tom Russo, and Guy Spier.

Balance sheet

Amit Wadhwaney, founding manager of Third Avenue International Value Fund was interviewed by Oliver Mihaljevic. We have some excerpts from the interview, and the full video interview below.

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The Q&A starts off with some insights into Wadhwaney’s academic background and how he ventured into the investing business. Then the investing theory of Martin Whitman, present manager of Third Avenue and acclaimed investing advisor is discussed in detail. Wadhwaney stresses that Third Avenue bases its investment on a bottom-up approach that focuses on buying things cheaply.

Moreover the balance sheet of every company that Third Avenue invests in or is planning to invest in, is parsed throuoghly and scientifically. The balance sheet holds more value to the hedge fund than estimating earnings and earning multiples or the discounted cash flow approach. The investment approach assesses the safety of a company not from its stock price or market cap, but from the ability to withstand any adverse internal and external factors.  He also mentions that market risk entails the rise and fall in share price and that is inevitable. The real risk that investors should focus on is the investment risk that comes from factors like poor balance sheets.

In a sum up of Third Avenue’s theory of investing, Wadhwaney splits it into a bottom up approach for companies with conservative valuation, risk assessment and avoidance, focus on balance sheets and investing on a long term basis.

Wadhwaney expresses his aversion from investing in stocks that rely heavily on credit ratings from , such as investment banks. He cites Lehman Brothers, Bear Stearns as examples. He also mentions that in foreign investments, an unintelligent government could spoil the whole company and its shareholders. Telecom Corp of New Zealand (NZE:TEL) was broken apart because of a foolish and politically motivated business approach of the kiwi government. Third Avenue managed to get out of that investment without incurring losses.

Wadhwaney specifically talks about Netia a Polish telecom company, that is now worth $700 million and Viterra Inc. (TSE:VT), a grain handling company, as examples of companies that benefit from rising inflation. He also discusses how reinvestment in resource companies could be a challenge in an inflationary environment. Resource companies like oil and gas suffer from the fallback that the investment is being made in a depleting source, so that is risky. He mentions other resource companies that Thrid Avenue invests in, like Weyerhaeuser Company (NYSE:WY), AntarChile  as examples of assets that have a solid reinvestment plan.

He also likes Daiwa Securities Group Inc. (TYO:8601), Svenska Handelsbanken AB (STO:SHB-A) (STO:SHB-B), Mitsui Fudosan Co Ltd (TYO:8801) (FRA:MFU), Otsuka Holdings Co Ltd (TYO:4578), Parmalat SpA (BIT:PLT) and Titan Cement (PINK:TITCF).

While commenting on Asian market, specifically the emerging markets, Wadhwaney observes that the market is gradually transitioning to  more transparent business practices. Singapore and Hong Kong are reasonably transparent, as individual companies are getting more watchful but there is still a lot to achieve,

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Video below: