Stephen Schurr
As [Third Avenue funds manager] Marty Whitman points out, there are two types of investors: Those who are outlook conscious and those who are price conscious.
The future is uncertain. Only God knows, and he ain't telling us. (Laughs.) We don't really take a macroeconomic view into account in our investing. For all of our funds, we apply the same approach to foreign and domestic stocks. Drawing from Ben Graham, using his somewhat static balance sheet-based approach, we examine a company and try to figure out what a somewhat reasonable buyer would pay in cash for the entire business. That's the most difficult part -- determining what Graham called intrinsic value. We look for stocks selling at a significant discount. We try to be more flexible than the "trading at a discount of 40%-or-more" approach. If we are more confident in certain cases in our valuation of the company -- the odds appear reasonably good that our intrinsic value determination is correct -- then we're willing to put up with a modest or moderate discount. In rare instances, we've put up with no discount. If we are less certain, then we want to see a greater discount. OK, you are sticking with a classic Graham-and-Doddsville reply -- eschewing the market outlook and focusing on company valuations. I'll rephrase: How is Mr. Market doing these days? [Mr. Market is Graham's famous stand-in for market sentiment -- at times he overvalues the market, and times he undervalues the market.] If you ask like that, it's an entirely fair question (laughs). The S&P 500 was vastly overvalued -- incredibly so three years ago. The late 1990s was the bubble of the century -- bigger than 1920s', bigger than Japan. Because we didn't partake, half the shareholders in our Global fund abandoned us. [The Global fund posted a fractional loss in 1999.] We were looked at as obsolete -- I was even called senile. Not quite, not yet! (Laughs.) The U.S. has declined for three years. Nevertheless, the S&P 500 at large isn't attractive to us. But it's less expensive than it was three years ago. To me, it's still overvalued.
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