Value investing legend Marty Whitman was one of those to speak at the recent Columbia Investment Management Conference, and The Manual of Ideas blog offered a good summary of Whitman’s comments (which came during a discussion with Columbia’s Bruce Greenwald).

“At several points in the discussion with Prof. Greenwald, Mr. Whitman came back to a central theme:  It is not sufficient for a security to be ‘cheap’,” writes Ravi Nagarajan for The Manual of Ideas. “It must also possess a margin of safety as demonstrated by a strong balance sheet and overall credit worthiness.”

Traditional “cheapness” measures like trailing 12-month price/earnings ratios, or current year cash flows, can be misleading, Whitman said, according to Nagarajan. “If the business does not have a durable balance sheet, adverse situations that are either of the company’s own making or due to macroeconomic factors can determine the ultimate fate of the company,” Nagarajan writes in summarizing Whitman’s comments. “A durable balance sheet demonstrates the credit worthiness a business needs to manage through periodic adversity.”

The piece also discusses Whitman’s interesting, updated take on Benjamin Graham’s “net-nets” approach, and provides a glimpse into how Whitman evolved into the investor he is today.