The Aggressive Conservative Investor

I am a fan of value investing in all of its different variations, and so when I run across a book on the topic, particularly from a skilled practitioner, I buy it. I'll do more book reviews on value investing, but one of the first that I wanted to do was Value Investing, by Marty Whitman. So, I start looking around for my copy, and I can't find it. Arrrgh, I can guess what happened. I lent it out, I can't remember who I lent it to, but the borrower never gave it back to me. Annoyed at myself, I do notice a book that was just as good, The Aggressive Conservative Investor, by Marty Whitman and Martin Shubik. Even better, it is back in print, after being out of print for 20+ years. So, what's so great about the book? (Most of this applies to both books.) Marty Whitman has a strong "What can go wrong" approach. He realizes that he, and most other investors, will be outside passive minority investors. We only ride on the bus. The inside active control investors drive the bus, and if we are going to make money with reasonable safety, we have to understand the motives of those that control the companies. They benefit somewhat disproportionately from control. They receive wages and benefits that other shareholders do not receive, can gain cheap outside financing, and limit tax exposures, in addition to other benefits. Like me, Whitman doesn't care much for modern portfolio theory. More notable for a value investor, he has a few criticisms for the traditional "Graham-and-Dodd" type of value investing. * Typically, it works best for "going concern" situations, and not situations where activism could be necessary to unlock value. (Though, Graham did do things like that in his career; he just didn't try to teach amateurs about it.) * He doesn't always stick to high quality companies, if enough information can be obtained about the target. Information allows for more risk to be taken. There are four things that he insists on in equity investments: 1. Strong financial position 2. Honest management that is creditor-aware and shareholder-oriented 3. Adequate disclosure of information relevant to the success of the company 4. The stock can be bought for less than the net asset value (adjusted book value) of the firm. If you have these items in place, you won't lose much, and if the management team makes value enhancing decisions, one can make a lot of money on the stock. Whitman places a lot of stress on reading through the documents filed with the SEC. They may not be perfect, but managements know that they need to provide adequate disclosure of material information, or they could be sued. A lot gets revealed in SEC filings, and not every investor sees that. He also places great stress on understanding the limitations of the accounting, whether under GAAP, Tax, or any other basis. Comparing the various accounting bases can sometimes illuminate the true financial well-being of a company. (Note: this is what killed me on Scottish Re. I

After reading this book years ago, I was interested in reading it again for the new release. Though it is not really an updated main text version, it does have a new forward by Eugene Isenberg (current Chairman of Nabors Industries) and new introduction by the original authors of Martin Whitman and Martin Shubik. Irrespective, it was still an enlightening experience to go over the material again. Since the original printed edition, I believe Mr. Whitman's record speaks for itself, in that the "safe and cheap" methods espoused originally in The Aggressive Conservative Investor are good foundations to start or extend your investment education in what the authors call "the outside passive investor". However, as some other reviewers have pointed out, this book is not your average investor book structured for easy reading with quick formulas. The book is for the more serious investor as its authors clearly state, for example, "In presenting our position, considerable space is devoted to describing the real world faced by both outsiders and insiders." Their point is that in understanding the viewpoints of both the insider, whether corporate management, the banker and/or financier, the directors, the short-term trader, and that of the outside passive investor will help you along your way in understanding what may be happening in the market and why. Why? - because of the interested parties perspective and that one may temporarily have leverage over the other. Though the book is a little more rough sailing because of this background perspective, to assist, one (after reading the introduction) may first want to start in Section 5 , then go back to the beginning and dig in a little more. This should help one read it more like a traditional investment book. The two (2) case studies in the Appendix sum up the book with narratives of why some insiders (and outsiders) may act as they do. As for the safe and cheap method, considerable time is spent with emphasis on the importance of the financial position of the security under consideration. This Financial-Integrity approach is detailed and viewed from all the players perspectives in the transaction of a security purchase (or seller) to emphasize the concept of the "guaranty". In addition, even though the authors do state their differences with the Graham & Dodd methods, I feel in the end they are more connected at the hip than their stated differences may imply or indicate. All in, if you are willing to spend the time and do the work, whether reading annuals, 10-Ks, 10-Qs, then reading this book will assist you in becoming a better investor in your investing activities, but the trip is not recommend for the casual weekend reader.

The most extraordinary part of The Aggressive Conservative Investor is that it tells the reader how minority investors can benefit by knowing and understanding how control investors make investment decisions. If one is smart enough to realize how insiders and control investors made fortunes by taking advantage of the market cycles to do the arbitrage between private and public market, one will come to appreciate the beauty of the safe-and-cheap approach as detailed in this book. I have come across a few negative comments on the book regarding the use of "out-dated" materials. This certainly does not take me by a surprise, as not everybody has 50 years of investment experience as Whitman does, so, naturally, not everybody can understand what "there is no new thing under the sun" means.

The author of this book, Martin J Whitman, runs Third Avenue Value Fund, one of the only mutual funds in the world to beat the S & P 500, after fees, over the 20-some years it has been running. This book helps explain how Whitman did it. Not an easy read, but a worthwhile one.

Marty Whitman is a master value investor who has been successful for 3 decades, though recently becoming known to the masses through his Third Avenue family of mutual funds. Anyone who has read some of his shareholder letters will recognize some of the concepts in the book, but they are presented in detail. This book teaches you to understand how "control" investors think, and to then learn how to evaluate annual and quarterly statements in a new light. Whitman is more than a value investor, of course, he is a vulture investor and proud of it. Though this book is as fresh today as it was in 1979, we await his new book eagerly for more wisdom from the master. Marty Whitman's approach is as different from Ben graham's as the Rolling Stones were from the Beatles! Both early rock bands from England, but clearly touched responsive chords in very different ways...If you can find this book, BUY IT!