If you’re a follower of Apollo Wealth Management or one of our longtime friends and clients you know of our affinity for the folks at Third Avenue Management.  It should come as no surprise, then, that the following resonates with us.

There is beauty in simplicity – a common sense that, sadly, is not too common.  We therefore need reminding from time to time.

Without further prefacing we share with you the wisdom of Curt Jensen – Third Avenue’s Chief Investment Officer and manager of theThird Avenue Small-Cap Value Fund:

The late, great actress Gilda Radner, in her role as the nasally Roseanne Roseannadanna on Saturday Night Live’s “Weekend Update”, would often reply to her counterpart Jane Curtin by Saying:  “It’s always something!”  For investors this year, like last, possessed plenty of “something.”  At this point last year, for example, that “something” included the European debt crisis, the tragic Deepwater Horizon oil spill and May’s Flash Crash in the markets.  This year’s “something” is more momentous and historic when one considers world events such as:  The ‘Arab Spring’ of civil unrest that continues to spread across North Africa and the Mideast; the massive earthquake and tsunami in Japan that killed tens of thousands, caused a nuclear crisis and disrupted a major economy; the threatened shutdown of the U.S. government and the potential downgrade of its credit obligations by a major rating agency, to name just a few.  Despite it all, global equity markets have generally performed admirably, perhaps not so surprisingly.  In this letter last year I noted, for example:

“It would be easy to get swept away by such headlines and ignore the fact that capitalism, on a very long-term basis and especially as practiced in the United States, has been remarkably resilient, surviving war, depression, inflation/stagflation, terrorism, social unrest and political upheaval.  In fact according to a study by Credit Suisse, ‘the very long-run trend of real equity returns is apparently around 6% to 6.5% per year reflecting a long-term equity premium of roughly 5% over Treasury bills’.”

I suppose there will always be “something” to worry about when it comes to global macro events.  But equity investing has proven itself as a way to preserve and build wealth over long periods of time.  Given events globally this year, it is worth reminding you, our fellow shareholders, about central tenets of Third Avenue’s approach to equity investing:

  • We do not borrow money in order to invest, or to boost our returns.  In the presence of lots of leverage, even a small downward twitch in the associated asset value can wipe out the investor’s equity in a heartbeat;
  • Our focus is on capital preservation.  We invest in attractively-priced securities underpinned by conservatively financed and well-managed businesses;
  • We expend little money or energy trying to avoid market risk (i.e. short-term market price fluctuations in our holdings), but we do spend an inordinate amount of time and energy trying to minimize investment risk (a loss of capital created by a permanent impairment of the business);
  • While we keep a close eye on our investing “compass”, we also scan the horizon for potential “macro storm clouds;” while eschewing predictions about macro trends, we remain cognizant of them and attempt to understand their broader meaning as it might relate to our portfolio investments;
  • We strive to share new developments in the Fund by writing these shareholder letters every quarter.  We highlight new investments, dispositions and discuss both positive outcomes, as well as mistakes, so that you know what you own and why;
  • Our mutual funds provide shareholders with daily liquidity at readily ascertainable net asset values which, in the case of the Fund, rely upon publicly quoted stock prices;
  • We are personally invested alongside of our shareholders, an investment made on the same terms as those available to you.

Our investment philosophy has proven to be durable and reliable over the long term, in a world that changes every day.  We might not be able to predict the future, or even know with certainty what big stories of the day will reverberate throughout the years to come and which will be forgotten; but, we take comfort that we can meet any uncertainty with a time-tested investment approach.