Value investing legend Marty Whitman built his reputation by buying down-and-out stocks. And today, he says he still believes that’s the way to go.

“You’re trying to figure out what the masses think are going to happen to the securities’ prices. Stock markets can be capricious,” Whitman tells Forbes. By investing in out-of-favor sectors of the market — and bargain-priced debt of companies going through bankruptcy restructuring — “you can buy things at 10 or 20 cents on the dollar,” he says.

Whitman also talks about his criteria for picking stocks. He wants to see companies with strong financial positions and easily attainable regulatory disclosures that trade at a 20%-plus discount to his calculation of net-asset value, Forbes says.

The Third Avenue Value fund Whitman still helps run currently has a very global look to it, with 52% of assets overseas. The bulk of that overseas allocation is in Asia, with a big chunk in housing stocks in Hong Kong, an area Whitman is bullish on, Forbes reports.

For average investors, Whitman also offered a warning: “If you are going to be a passive, minority investor, don’t do it with borrowed money,” he said. “Bubbles are bound to occur, and you can’t insulate yourself from those events if you have large amounts of borrowings.”