Martin J. Whitman
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Martin J. Whitman is an American investment advisor and a strong critic of the direction of recent changes in Generally Accepted Accounting Principles (GAAP) in the U.S. He is founder, Co-Chief Investment Officer, and Portfolio Manager of the Third Avenue Value Fund.
Whitman is a 1949 graduate of Syracuse University, which recently renamed its School of Management after Whitman, after a large gift from him in June 2003. He is an adjunct faculty member at Yale School of Management.
He has used the quarterly shareholder letters of his fund as a running critique of what he calls the "primacy of the income account" (that is to say, the cash account), which he argues serves only short-term speculators rather than longterm investors. For example, in his July 31, 2004 letter [link], he writes 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... [T]he 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 [Net Asset Value] by means other than having reported operating income, which is taxable at maximum rates."
He argues that "in GAAP... material facts [should] be disclosed in a conservative, consistent, and reliable manner", and that "Financial statements [should] be 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... [T]he 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 discusses the current (as of 2004) controversy over whether stock options 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 points 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... [and one who] issues 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 cites as wrongheaded an advertisement in the Wall Street Journal of April 27, 2004, which argues that "financial statements exist to help investors make informed investment decisions". He responds, "That statement is just plain wrong from either a public policy point of viewor 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).
Works
- Whitman, Martin J. (1999). Value Investing: A Balanced Approach. New York: John Wiley & Sons. ISBN 0471162922.
- Whitman, Martin J. & Shubik, Martin (2005). The Aggressive Conservative Investor (2nd ed.). Hoboken, NJ: John Wiley & Sons. ISBN 0471768057.
References
- Third Avenue Value Funds "[Letters To Our Shareholders]"
- Martin Whitman Stock Picks "[Stock Picks]"
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