'Value' Managers Dispute the Term

If the fund industry's value managers agree on anything, it's that "value" has ceased to be a useful term, in and of itself.

"I think we're growth investors," said Marty Whitman, chairman of Third Avenue Funds and manager of the (TAVFX Quote)Third Avenue Value fund, at the Morningstar Investment Conference in Chicago last week.

Whitman pointed to the well-capitalized bank stocks he's favored in the past as an example. His fund paid 80% of book value when these stock prices were depressed. But because of overall good financials, the companies recovered, and so did the stocks. "We sold them for 10 times their book value. Most bank stocks sell for no more than two or three times their book value."

Still, better to be thought of as a value investor, since stocks with a growth following can get expensive. "Growth is a dirty word," Whitman said. "You have to pay up for that. And 'paying up' is the very antithesis of value investing."

Value managers strive to achieve their return by refusing to overpay for stocks now, frequently betting on turnarounds. Whitman, for instance, never pays more than 10 times peak earnings for earnings-driven companies, and he buys asset plays at a 20% discount to their net asset value.

"Value and growth are mind-sets," said Christopher Browne, manager of the (TWEBX Quote)Tweedy, Browne American fund. "We'd all rather buy 'growth' companies than what my brother calls 'the hospice patients of corporate America.' But companies and sectors cycle in and out of the growth and value categories."