Legendary value investor Martin Whitman says Wall Street has it all wrong when it comes to investing. Whitman tells WealthTrack’s Consuelo Mack that the Street overemphasizes earnings, short-term issues, macroeconomics, and the alleged efficiency of markets, while being oblivious to other key factors like creditworthiness. He says it’s a “dangerous game to invest in poorly capitalized firms. His “growth at dirt cheap prices” (GADCP) approach requires a firm to have a “super strong financial position”, he says. He also has three other key requirements: The security must be trading at “very, very steep discounts” to readily attainable asset value; must provide full disclosure and trade in a market in which regulations are very protective of minority shareholders; and should have a compound growth rate of at least 10% per year, factoring in dividends. Whitman also says that unlike many value investors, he doesn’t require his investments to have some sort of catalyst that looks like it will spark the firm. In fact, he says it’s hard to find the type of discounts he targets that have known catalysts. But to him, price is more important than a catalyst.
Whitman also talks about the current environment, saying he’s finding tremendous values in East Asia, where he’s focusing on companies that trade in Hong Kong but do a lot of business in China. And he discusses why politicians have it wrong when it comes to debt.