Marty Whitman 49, pictured here at the Lubin House celebration
held in their honor, are longtime supporters of the School of
49 rarely looks the part of a high-stakes investor with a
reach that stretches around the globe. His dress code has been described
as extreme casual, and it says as much about him as
his preference for being called Marty. He generally
arrives at his midtown Manhattan office in sweatpants and a sweatshirt
that has his name embroidered on it. On occasion, he grudgingly
dons a suit and tie. Tuesday, June 24, 2003, was one such special
Whitman and his wife, Lois, prepared to leave their Upper West Side
apartment for Lubin House, Syracuse Universitys headquarters
in New York City. There, before a throng of SU officials, alumni,
friends, family, colleagues, and members of the press, the University
would formally announce his multimillion-dollar gift to the School
of Managementone of the largest gifts in SUs history.
In his honor, the school would be named the Martin J. Whitman School
of Management. What shall I say? he asked Lois. Jokingly,
she replied, Tell them you owe it all to your wife.
Whitman says, Lois doesnt know how close she came to
the absolute truth of the matter. But as he told the Lubin
House audience that day, Syracuse University gave me my start.
Its the sine qua nonthe one absolutely essential
element of my career and success. Without it, I would have remained
the equivalent of a U.S. Navy enlisted man, which is where I came
from in the beginning.
In the course
of more than a half-century, Whitman has scaled the heights of his
profession with a gutsy finesse, playing the role and deploying
the talents of theorist, practitioner, innovator, and maverick as
the challenge demands. He has refined the principles of classic
value investing, and is widely regarded as its foremost proponent.
He presides over a diverse, innovative, and highly successful financial
services organization that he built from scratch. He has pioneered
strategies in bankruptcy and other forms of distress investing
that others have only begun to recognize. And more than once, he
has been the lone voice of investors and consumers, standing up
to unresponsive bureaucracies and vested interests.
career reveals not only a farsighted, intellectually adept, and
socially aware investor and entrepreneur, but also a professional
with a reputation for downright, old-fashioned honesty. In 2002,
when Manhattan District Attorney Robert Morgenthau was asked who
the next chairman of the Securities and Exchange Commission should
be, he replied without hesitation: Someone like Marty Whitman.
Characteristically, Whitman acknowledged the compliment, but dismissed
the possibility. And he seized the opportunity to observe that the
recent wave of corporate scandals is a natural outgrowth of
the trend in which power has been ceded by stockholders to boards
of directors. In his inimitable style, he asserted, If
investors depend on the business smarts of directors, I wish them
lots of luck. If anything, he is bluntly truthful.
Whitman is a positive model for every would-be leader, Chancellor
Kenneth A. Shaw says. He possesses the qualities of mind and
character that all schools strive to instill in their graduates.
His career is a benchmark of achievement and integrity not only
for students in the Whitman School of Management, but for all of
us. He has raised the bar of loyalty and generosity for every graduate
of Syracuse University, and we are proud to claim him as one of
the Trail of Deep Value
Born and reared in the Bronx, Whitman attended DeWitt Clinton High
School, where, by his own account, he was a middling student,
with no driving interest in business or finance. He graduated
in June 1942, six months after the attack on Pearl Harbor, and entered
the Navy in December. He was assigned first to an ammunition depot
in Nebraska, and then to a transport ship in the Pacific. In February
1948, after transferring from a junior college, he enrolled at Syracuse
University under the GI Bill of Rights. In 1949, he graduated magna
cum laude from the College of Business Administration, as the school
was then called. I developed a love of learning and an interest
in business and economics, he says. What more could
a late bloomer ask for?
he worked for a string of investment firms in New York City and
Philadelphia, earning a masters degree in economics from The
New School for Social Research (now New School University) in New
York City. He founded M.J. Whitman & Company in 1974 and created
the first of the Third Avenue mutual funds in the 1980s. Today he
serves as co-chief investment officer of Third Avenue Management
LLC, the successor firm to M.J. Whitman & Company, and as chairman
of M.J. Whitman Inc., a full-service broker-dealer specializing
in the research, sales, and trade of distressed securities. The
Third Avenue entities manage more than $6 billion in assets.
As a value investor,
Whitman views the risk-reward relationship quite differently than
conventional investors do. They believe risks must be taken to realize
rewards, and that the degree of risk assumed in any given situation
is directly related to the anticipated reward. In Whitmans
view, there is no such trade-off. The lower the price an investor
pays for a particular security, he says, the less the
risk and the greater the potential reward.
He urges investors
to scout for companies that are safe and cheap. Safe comes
before cheap! he exclaims. For the most part, he looks for
companies whose stocks trade at 50 percent or less of what their
value would be as the equity of a private company or in a takeover.
It is a risk-averse strategy, to say the least. In fact, it gives
an entirely new spin to a comic dialogue between a card shark and
a patsy that originated with W.C. Fieldsa classic exchange
from the film Never Give a Sucker an Even Break (1941) that
Whitman is fond of reciting: Is this a game of chance?
asks the patsy. Not the way I play it! responds the
card shark. Elegant in its simplicity, Whitmans approach to
value investing has rewarded investors handsomely over the years,
earning him the coveted Mutual Fund Manager of the Year accolade
in 1990 from Morningstar Inc., the global investment research firm.
In his pursuit
of value, Whitman has carved out a special niche for himself in
the field of bankruptcy, or distressed-debt investing,
as it is also known. Years ago, when the big bond houses thought
it beneath their dignity to deal with bankrupt firms, Whitman recognized
deep value in the debt of certain troubled companies, especially
those that possessed substantial physical assets or performed vital
services. During his first foray into this field, in the early 70s,
he bought $100,000 worth of mortgage bonds in the bankrupt Penn
Central Railroad and quintupled his money in a year, thus launching
a specialty in which he has become a leading practitioner.
growing role and reputation in distress investing has led to his
occasional involvement in public policy. In the 80s, he was
a major player in the prolonged and contentious bankruptcy of Public
Service Company of New Hampshire (PSNH), the first American public
utility to declare bankruptcy in 50 years, and the first under Chapter
11 of the U.S. Bankruptcy Code, which protects distressed companies
from creditors. Whitman reasoned that an electric utility serving
millions of consumers would not be allowed to collapse. But while
the companys comeback might be assumed, its restructuring
involved balancing the conflicting interests of ratepayers and creditors.
With a sizeable
stake in PSNH, Whitman was among those who presented a restructuring
plan for the company. Impartial observers agreed that his plan would
have resulted in lower energy rates for consumers. But it was rejected.
(In the years that followed, New Englands energy bills were
among the highest in the country.) I was Don Quixote tilting
at windmills, Whitman says, but, all the same, I learned
a valuable lesson.
In the late 90s, Whitman conducted what The New York Times
described as a crusade to convince the Japanese to adopt
legislation similar to Chapter 11. What triggered his action was
a plan by Japans distressed Long-Term Credit Bank (LTCB) to
forgive 520 billion yen ($3.7 billion) of defaulted loans, with
no consideration for the interests of investors and the bank itself.
Because he was substantially invested in LTCB, Whitman sued the
company for not managing its bad loan portfolio in the
interest of the bank and its shareholders. The outcome was a Pyrrhic
victory for Whitman. I won the suit and the Japanese government
forbade LTCB from pursuing its plan, he says. But it
didnt make a difference because the bank went belly-up, and
the investment was a wipeout.
Even so, Whitmans
views found a sympathetic hearing among Japanese investors and within
Japans opposition party. If Japan fails to come up with
a template for rescuing troubled companies and banks, he warns,
the countrys financial and economic system will collapse
and bring the rest of the world economy down with it. With
an instinctive sense of the future, Whitman is ahead of his timea
globalist concerned with investors rights in an increasingly
borderless world economy. Once again, as in the PSNH bankruptcy,
he finds himself siding with those who have no voice in matters
that affect them profoundly.
broad experience in investing and his insights into related policy
issues have proved to be invaluable grist for his teaching and writing.
He has served for 28 years as a Distinguished Management Fellow
at the Yale School of Management, and in 2001 he was an adjunct
professor at the Columbia Business School. By his own admission,
he is a frustrated academic. At the same time, he is
an avid reader whose tastes range from Frank McCourts gritty
tales of the Irish American experience to Robert Caros definitive
biography of Lyndon B. Johnson.
Promise of Opportunity
making a generous gift to the campaign for the new School
of Management building, Lois and Marty Whitman have created
two scholarship endowments to support M.B.A. students who
are members of minority groups. Fifteen students currently
hold Whitman scholarships, including Stephen Harrell G04,
who is president of the M.B.A. Student Association and a member
of the search committee for the schools new dean. Harrell
interned with J.P. Morgan Chase & Company in London last
summer and plans to work in international finance after receiving
an M.B.A. degree. The Whitman scholarship has enabled
me to stay focused on what really matters to my career,
Harrell says. With the Whitmans support, Ive
been able to concentrate on my studies, as well as play an
active role in the association and other school activities.
recent naming gift to the School of Management
is the capstone of the schools Higher Ground campaign.
The gift will have a profound impact on virtually every
activity in the Whitman School, says Sandra N. Hurd,
interim dean. It will enable us to compete for the very
best students and faculty; it will enhance every program and
service; and it will position the school to attain the higher
ground weve been striving for.
the gift will create a named professorship in finance and
a clinical professorship in the Program in Entrepreneurship
and Emerging Enterprises. It will support an ambitious new
series of seminars intended to serve as a bridge between academics
and practitioners. And it will also establish the Whitman
Teaching Fellows and the Whitman Research Fellows programs,
which will encourage and reward those who make outstanding
contributions in the classroom and their professions.
Whitmans have been the schools strongest supporters
in our 80-year history, Hurd says. Their commitment
reflects their conviction that the American Dream is the promise
of opportunity. And when you translate their gifts into human
terms, the magnitude of their generosity really hits home.
The ultimate payoff will be reflected in our graduates
lives, careers, and contributions to society for as far as
any of us can see.
Whitman singles out his own books as his proudest professional achievement.
He has published The Aggressive Conservative Investor (Random
House, 1979) and Value InvestingA Balanced Approach
(John Wiley & Sons, 1999), as well as many articles. In his
first book, he established himself as an investor in the tradition
of Benjamin Graham and David L. Dodd, whose 1934 work, Security
Analysis, is the value investors bible. In his second
book, he updated Graham and Dodds methodology for evaluating
corporations. In a third book, which he is about to undertake, he
will focus on distress investing, bringing it under the value
For Marty Whitman, reflection and action are inseparable. Last May,
he and finance professor Fernando Diz
(see related story in SU People "Fernando Diz, Finacial Wiz")
led a four-day, intensive seminar in distress investing at the School
of Management. The course was terrific, Whitman recalls.
The students were absolutely super. Looking back, I can say
I never had a better teaching experience. He plans to join
with Diz to launch the Whitman Seminars, one of the new activities
to be supported by his gift to the school (see The Promise
of Opportunity). The first seminar will focus on distress
investing, and Whitman is convinced it will shed new light on the
subject and encourage further research and collaboration. He also
envisions a day when the schoolalone and in collaboration
with otherswill possess the strengths required to make major
contributions to finance, economics, and public policy. And the
ever-present globalist within him expresses the conviction that
Syracuse researchers have a contribution to make in ameliorating
global economic problems, which are becoming more threatening.
While many other
finance and investment gurus project an attitude of self-importance
and crave the media spotlight, Marty Whitman remains true to the
unpretentious, rolled-up-sleeve mind-set and image that come naturally
to him. Turning his unflinching realism on himself, he says, After
all, Im just a poor man who happens to have a lot of money.
Ignoring short-term trends and the whims of the mob, he remains
true to his principles of value, calls his shots as he sees them,
and concentrates on the interests of his clients. Most important,
he remains focused on the futurein life, as in investing.
He is fascinated by possibilities, which for a creative mind are
endless. Giving back is a very satisfying experience,
he says. Lois and I are fortunate to be able to support the
causes that mean so much to us. But whats exciting is the
knowledge that by giving back, youre empowering others, mostly
young people. Youre leaving an imprint on the future.
face it, he adds, nothing beats seeing the results!