Chip Rewey Looks For “Safe And Cheap” At Third Avenue Management

Chip Rewey has been a careful, methodical value investor for virtually all of his 23 years in the finance industry. He worked at Cramer Rosenthal McGlynn for over a decade, and he was appointed the manager of a value equity team overseeing the all-cap and small-cap funds ($4 billion in assets) for Marty Whitman’s Third Avenue Management earlier this summer.

Rewey is a full believer in legendary value investor Whitman’s “safe and cheap” investing approach, and believes investors can currently find opportunities in areas including forest products, regional banking, agricultural equipment and broadcast and cable TV.

He sat down for an interview with Value Investor Insight in January.

Chip Rewey Looks For "Safe And Cheap" At Third Avenue Management

Basic investing criteria

Firms must meet strict value-oriented metrics to qualify for consideration by Chip Rewey and the Third Avenue Management team. “We’re in search of companies that combine three main features: creditworthiness, a meaningful discount to a conservatively estimated net asset value [NAV], and the ability to consistently compound that NAV over time. Our mindset is always long-term, with a targeted holding period of three to five years.”

Chip Rewey on energy

Rewey notes that 11-12% of Third Avenue’s Value portfolio is currently in energy, including stakes in Total, Apache and Devon Energy. He points out that “All are producers, focused on oil, with for want of a better phrase, good rocks. They are in plays with multi-year production inventory that they can scale at relatively low cost. They’ve been shedding assets and fortifying their balance sheets. We think they’re all well managed and will not only weather this storm, but likely use their balance sheets to acquire strategic properties or companies that encounter financial distress.”

Researching the possibilities surrounding the Internet of Things

One theme Rewey is exploring today is the rapidly emerging “Internet of things.” The Internet of Things refers to the the proliferation of networked “smart devices” such as alarm systems, hot water heaters, coffeepots and refrigerators that send and receive data in real time.

The research is still pretty basic at this stage: “Who’s involved in that? Who’s staking out interesting positions? What will be the second-order effects? We’ll work on many more companies than we’ll ever own, but this type of research builds up our knowledge base, to draw on when a company misses a quarterly earnings report or hits a down cycle and there might be an opportunity.”