Martin J. Whitman
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Martin J. Whitman (September 30, 1924
September 05, 1993
– April 16, 2018) was an American investment adviser and a strong critic of the direction of recent changes in
Generally Accepted Accounting Principles Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...
(GAAP) in the U.S. He was founder and Co-Chief Investment Officer of Third Avenue Management, and Portfolio Manager of the Third Avenue Value Fund.


Early life and education

Whitman was born to a
Jewish Jews ( he, יְהוּדִים, , ) or Jewish people are an ethnoreligious group and nation originating from the Israelites Israelite origins and kingdom: "The first act in the long drama of Jewish history is the age of the Israelites""The ...
familyAmerican Friends of Tel Aviv University: Whitman Family Inaugurates New Scholarship Fund for Arab-Israeli Students at TAU
May 21, 2008
in the
Bronx The Bronx () is a borough of New York City, coextensive with Bronx County, in the state of New York. It is south of Westchester County; north and east of the New York City borough of Manhattan, across the Harlem River; and north of the New Y ...
, New York.Gawker Bio: "Marty Whitman"
retrieved March 26, 2018
He served in the
US Navy The United States Navy (USN) is the maritime service branch of the United States Armed Forces and one of the eight uniformed services of the United States. It is the largest and most powerful navy in the world, with the estimated tonnage ...
in the Pacific during
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposing ...
. Returning to New York state, he graduated from Syracuse University with a B.S. in business administration in 1949. He held an M.A. in economics from the
New School of Social Research The New School is a private research university in New York City. It was founded in 1919 as The New School for Social Research with an original mission dedicated to academic freedom and intellectual inquiry and a home for progressive thinkers. ...
. He worked for various investment firms in New York City before setting up his own company in 1974, M.J. Whitman & Co. His first big successful investment was his purchase of $100,000 in mortgage bonds issued by the bankrupt
Penn Central Railroad The Penn Central Transportation Company, commonly abbreviated to Penn Central, was an American class I railroad that operated from 1968 to 1976. Penn Central combined three traditional corporate rivals (the Pennsylvania, New York Central and the ...
. He later sold the bonds for five times his original investment.


Views on Generally Accepted Accounting Principles

Whitman used the quarterly shareholder letters of his fund as a running critique of what he called the "primacy of the income account" ("primacy of the income account" means that corporate wealth is created only by flows, i.e., having positive earnings, and/or cash flows for a period), which he argued serves only short-term speculators rather than long-term investors. For example, in his July 31, 2004 lette
Wayback Machine
he wrote that recent developments in GAAP "...increasingly impose unneeded and counter-productive burdens on American corporations, American management and American capital markets. GAAP... ought to be geared toward meeting the needs and desires of creditors rather than the needs and desires of short-term stock market speculators... e amount of money invested in credit instruments of all types in our economy dwarfs the amount of funds invested in equities." Furthermore, "Most private companies, given a choice, seek to enhance et Asset Valueby means other than having reported operating income, which is taxable at maximum rates." He argued that "in GAAP... material facts houldbe disclosed in a conservative, consistent, and reliable manner", and that "Financial statements houldbe prepared under the assumption that the users of such financial statements are reasonably intelligent, reasonably diligent, and are people who understand not only the uses, but also the limitations, of GAAP... e most GAAP can give... are objective benchmarks which the analyst then uses as a tool to determine his, or her, version of economic truth and economic reality." As an example of the difference in these perspectives, he discussed the current () controversy over whether
stock options In finance, an option is a contract which conveys to its owner, the ''holder'', the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified da ...
ought to be expensed using " fair value method" or " intrinsic value method" and points out that the issue of stock dilution is "a stockholder problem, not a company problem". He pointed out that to a creditor there is "a world of difference in the credit-worthiness of an issuer who... pays out... $200 million per annum in cash for executive compensation... nd one whoissues stock options on a non-dividend-paying common stock with a "fair value" of $200 million" (the point being that the latter is of almost no concern to a creditor). In particular, he cited as wrongheaded an advertisement in the ''
Wall Street Journal ''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' of April 27, 2004, which argued that "financial statements exist to help investors make informed investment decisions". He responded, "That statement is just plain wrong from either a public policy point of view or a creditor's point of view. Financial statements exist to fulfill the needs and desires of many constituencies: managements, creditors, governments, customers, ''etc.''" (italics in original).


Economic views

Although a strong advocate of
capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, priva ...
, Whitman was a critic of
free market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
s in the sense advocated by
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
and
Friedrich Hayek Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
. For example, in a discussion of
John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
, Friedman and Hayek, Whitman wrote that the three "…great economists… missed a lot of details that are part and parcel of every value investor's daily life." While calling Hayek "100% right" in his critique of the pure command economy, he wrote "However, in no way does it follow, as many Hayek disciples seem to believe, that government is ''per se'' bad and unproductive while the private sector is, ''per se'' good and productive. In well-run industrial economies, there is a marriage between government and the private sector, each benefiting from the other." As illustrations of this, he points at " Japan after
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposing ...
,
Singapore Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, bor ...
and the other Asian Tigers, Sweden and China today… Government has a necessary role in determining how control persons anagement, boards of directors, etc.are incentivized… He argued, in particular, for the value of government-provided credit and of carefully crafted tax laws.''Ibid.'', p.4. Further, Whitman argued (explicitly against Hayek) that "a free market situation is probably also doomed to failure if there exist control persons who are not subject to external disciplines imposed by various forces over and above competition." The lack of these disciplines, said Whitman, lead to "1. Very exorbitant levels of
executive compensation Executive compensation is composed of both the financial compensation (executive pay) and other non-financial benefits received by an executive from their employing firm in return for their service. It is typically a mixture of fixed salary, varia ...
… 2. Poorly financed businesses with strong prospects for money defaults on credit instruments… 3. Speculative bubbles… 4. Tendency for industry competition to evolve into
monopolies A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...
and
oligopolies An oligopoly (from Greek ὀλίγος, ''oligos'' "few" and πωλεῖν, ''polein'' "to sell") is a market structure in which a market or industry is dominated by a small number of large sellers or producers. Oligopolies often result from ...
… 5. Corruption." For all of these he provides recent examples from the U.S. economy, which he considers to be in some respects under-regulated, although in other respects over-regulated (he is generally opposed to Sarbanes-Oxley ). He believed that an apparently "free" relationship—that between a corporation and its investors and creditors—is actually a blend of "voluntary exchanges" and "coercion". For example, there are "voluntary activities, where each individual makes his or her own decision whether to buy, sell, or hold" but there are also what he defined as " ercive activities, where each individual security holder is forced to go along…provided that a requisite majority of other security holders so vote…" His examples of the latter included proxy voting, most merger and acquisition transactions, certain cash tender offers, and reorganization or liquidation in bankruptcy. Whitman also states that "Corporate America would not work at all unless many activities continued to be coercive." "I am one with Professor Friedman that, other things being equal, it is far preferable to conduct economic activities through voluntary exchange relying on free markets rather than through coercion. But Corporate America would not work at all unless many activities continued to be coercive."


Retirement

In February 2012, Whitman announced that he was retiring from active management of the $3.2 billion Third Avenue Value Fund. he will hand over responsibility to his longtime co-manager and protégé, Ian Lapey on March 1, 2012.


Philanthropy

In 2003, Whitman donated $23 million to Syracuse University which renamed its School of Management after Whitman, becoming the
Martin J. Whitman School of Management The Martin J. Whitman School of Management is the business school of Syracuse University in Syracuse, New York. Named after Martin J. Whitman, an alumnus and benefactor of the school, the school was established in 1919. The Whitman School offer ...
. The same year, he was elected member of the board of trustees at Syracuse University. He was also an adjunct faculty member at
Yale School of Management The Yale School of Management (also known as Yale SOM) is the graduate business school of Yale University, a private research university in New Haven, Connecticut. The school awards the Master of Business Administration (MBA), MBA for Executiv ...
In 2008, he and his wife founded The Lois and Martin Whitman Scholarship Fund at
Tel Aviv University Tel Aviv University (TAU) ( he, אוּנִיבֶרְסִיטַת תֵּל אָבִיב, ''Universitat Tel Aviv'') is a public research university in Tel Aviv, Israel. With over 30,000 students, it is the largest university in the country. Locate ...
to support the educational needs of
Arab-Israeli The Arab citizens of Israel are the largest ethnic minority in the country. They comprise a hybrid community of Israeli citizens with a heritage of Palestinian citizenship, mixed religions (Muslim, Christian or Druze), bilingual in Arabic an ...
students. Whitman related his experience as a Jew in the United States, “I spent half my life as a second-class citizen” and his inability to attend
Ivy League The Ivy League is an American collegiate athletic conference comprising eight private research universities in the Northeastern United States. The term ''Ivy League'' is typically used beyond the sports context to refer to the eight school ...
colleges at the time. Sympathizing with their situation, he told the students it is important “to give scholarships to Arab students at Tel Aviv University." Whitman was a supporter of the Two state solution in Israel.Israel Policy Forum: "negotiated resolution to the Israeli-Palestinian conflict based on two states for two peoples"
February 12, 2014


Personal life

Whitman's wife, Lois Whitman, is an attorney and social worker. Since 1994, she has been the founder and director of the Children's Rights Division at the international rights monitoring organization
Human Rights Watch Human Rights Watch (HRW) is an international non-governmental organization, headquartered in New York City, that conducts research and advocacy on human rights. The group pressures governments, policy makers, companies, and individual human r ...
. They have three children and six grandchildren. He died on April 16, 2018, at the age of 93 in New York City. His daughter is
Tony Award The Antoinette Perry Award for Excellence in Broadway Theatre, more commonly known as the Tony Award, recognizes excellence in live Broadway theatre. The awards are presented by the American Theatre Wing and The Broadway League at an annual ce ...
-winning producer
Barbara Whitman Barbara Whitman is an American theatrical producer. She won a Tony Award for Best Musical for producing ''A Strange Loop'' (2022). Biography Whitman is the daughter of investment advisor Martin J. Whitman, namesake of the Martin J. Whitman Sch ...
and his son
Yale Law School Yale Law School (Yale Law or YLS) is the law school of Yale University, a private research university in New Haven, Connecticut. It was established in 1824 and has been ranked as the best law school in the United States by '' U.S. News & Worl ...
professor James Whitman.


Works

*Whitman, Martin J. (1999). ''Value Investing: A Balanced Approach''. New York: John Wiley & Sons. . *Whitman, Martin J. & Shubik, Martin (2005). ''The Aggressive Conservative Investor'' (2nd ed.). Hoboken, NJ: John Wiley & Sons. . *Whitman, Martin J. & Diz, Fernando (2009). ''Distress Investing: Principles And Technique''. Hoboken, NJ: John Wiley & Sons. . *Whitman, Martin J. & Diz, Fernando (2013). ''Modern Security Analysis: Understanding Wall Street Fundamentals''. John Wiley & Sons. .


Notes


References

* Martin Whitman's letter to the SEC

* Martin Whitman Stock Picks
Stock Picks


External links



{{DEFAULTSORT:Whitman, Martin J. 1924 births 2018 deaths American money managers Jewish American philanthropists Martin J. Whitman School of Management alumni Syracuse University trustees Yale School of Management faculty Yale University faculty Philanthropists from New York (state) 20th-century American philanthropists United States Navy personnel of World War II 21st-century American Jews People from the Bronx