By Sean Goldsmith in the S&A Digest:

Value investor Marty Whitman built his firm, Third Avenue Funds, on the principle of buying "safe and cheap" stocks. While 2008 was a rough year for the firm – and for nearly all value investors – over the long-term, Third Avenue has produced outstanding results. The flagship Third Avenue Value Fund (TAVFX) has returned, on average, 12% a year since its 1986 inception.

In his latest letter to investors, Whitman reminds us stocks need to be more than just cheap...

For Third Avenue cheap never was, nor ever will be, a sufficient condition for investing in equities. Cheap, for Fund purposes, has to be combined with credit-worthiness if a common stock is to be viewed as an attractive investment.

Whitman also says not to invest in the common stocks of companies that need continual access to credit markets and not to borrow money to buy common stocks or mezzanine securities – prices in markets populated by "Outside Passive Minority Investors" are too volatile. If you're going to take on leverage, you need to be involved in the investment.

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