In his first quarter 2009 letter to investors, Marty Whitman explains where the Third Avenue Value Fund (TAVFX) is currently finding the best buys. He's highly invested in corporate debt with yields to maturity between 30% and 50%, noting, "These are far higher yields for performing loans than anything we can remember in our careers, which stretch back to 1950."

The fund is also buying common stock in undervalued companies like Forest City (FCE-A ) and Korean steelmaker POSCO (PKX) at prices that "reflect deep depression economic conditions." In particular, Whitman is focusing on "Net-Nets."

Value investing pioneers Benjamin Graham and David Dodd introduced the concept of Net-Nets in their 1962 masterpiece, Security Analysis. Net-Nets are companies where the market value of the current assets (an estimate of liquidation value), exceeds the market value of the company's equity minus all liabilities.

Net-Net stocks make up 3/4 of the fund's common stock position.

Read full article...