The manager of a stellar small-company fund likes his stocks safe and cheap. By Andrew Tanzer, Senior Associate Editor July 16, 2008 "Safe and cheap" is a phrase that's synonymous with the style of legendary investor Marty Whitman and his firm, Third Avenue Management. Whether they're investing at home or overseas, in companies large or small, Whitman and his colleagues won't buy a stock unless it meets those strict criteria.Curtis Jensen, manager of Third Avenue Small-Cap Value, says a safe business is one that possesses a rock-solid balance sheet and the fortitude to weather unforgiving financial markets and rocky economic times. It helps, too, if company executives care about shareholders and the business is easy to understand. A cheap stock, Jensen continues, is one that sells for at least a 30% to 40% discount from a company's intrinsic value, which he describes as the price a "reasonable, knowledgeable businessperson" would pay for the firm in an arm's-length transaction. If you succeed in identifying safe companies selling at cheap prices, then you are minimizing investment risk. After being shuttered for more than two years, Small-Cap Value recently reopened to new investors. Under Jensen's leadership, the fund (symbol TASCX) returned an annualized 11% over the past decade to June 9, beating the Russell 2000 small-company index of stocks by an average of four percentage points per year. What stocks does Jensen like? One is Imation (IMN), the world's leading supplier of removable data-storage products. A relatively old technology company, Imation, based in Oakdale, Minn., was part of 3M before it was spun out in 1996. Advertisement Jensen is impressed by the way Imation is remaking and expanding its business. The company is redeploying robust cash flows from its mature enterprise business, which sells to other concerns, to consumer businesses with greater growth potential. Over the past two years, Imation has acquired three consumer brands -- Memorex, Memcorp and TDK's recording-media business. Shares of Imation, which has more than $100 million in cash on its balance sheet, traded at $26 in mid June, or 16 times estimated 2008 earnings of $1.67 per share. In Vail Resorts (MTN), Jensen spots a hard-to-replicate collection of assets sheltered by tall barriers to entry. Vail is a leading ski-resort company, with marquee properties that include slopes in Vail, Beaver Creek and Breckenridge, Colo. Jensen doubts that the stagnant U.S. economy will weigh heavily on Vail. The customer demographics are the top 2% of earners in the country. "People who buy $3-million condos don't flinch at paying $80 for a daily lift ticket," he says. Vail traded recently at $44, or 14 times estimated earnings of $3.12 per share for the four quarters ending next January 31. Since Jensen first invested in Brookfield Asset Management (BAM) in 2001, shares of the Toronto-based asset manager have vaulted tenfold. What attracted Jensen and other Third Avenue managers to Brookfield was their glowing assessment of Brookfield's chief executive, Bruce Flatt (Third Avenue funds, collectively, own more of Brookfield than any other mutual fund complex). Advertisement Flatt, 42, is a bit like a young Warren Buffett. He has a flair for capital allocation and value creation. Through acquisitions and internal growth, he has built Brookfield into a global asset manager focused on property, power, infrastructure and money management. Assets under management have climbed 250%, to $95 billion, over the past three years, helping Brookfield generate a rich return on equity (a measure of profitability) in excess of 30%.