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TWEEDY, BROWNE COMPANY L.P.
What Has Worked in Investing
 (continued from preceding page)




Table 5:
Unleveraged Companies: Price in Relation to Book Value, and Stocks Priced at 66% or Less of Net Current Asset Value, April 30, 1970 through April 30, 1981

                                                                     Holding Period
                                              6 months        1 Year         2 Years            3 Years

Stock
Selection
Criteria

140% - 120% of book value
120 - 100% of book value
100 - 80% of book value
80 - 70% of book value
70 - 60% of book value
60 - 50% of book value
50 - 40% of book value
40 - 30% of book value
30 - 0% of book value
66% of net current asset value


Average
Return
1.6%

0.2

0.8
2.0
1.0
1.0
1.4
6.7
8.6
7.5


S&P
500
1.1%

1.1

1.1
1.1
1.1
1.1
1.1
1.1
0.7
0.7


Average
Return
15.8%

18.0

19.4
24.3
19.8
19.8
23.7
18.2
32.8
34.9


S&P
500
8.5%

8.5

8.5
8.5
8.5
8.5
8.5
8.5
6.8
9.1


Average
Return
36.5%

36.7

39.4
45.5
42.1
49.7
53.7
52.1
60.2
63.5


S&P
500
18.2%

18.2

18.2
18.2
18.2
18.2
18.2
18.2
20.8
20.8


Average
Return
53.8%

56.4

56.8
63.1
68.4
73.8
83.0
70.1
113.7
98.8


S&P
500
27.7%

27.7

27.7
27.7
27.7
27.7
27.7
27.7
31.5
31.5

The results for the unleveraged companies were somewhat better than the investment results for companies in which debt to equity exceeded 20%.

Similar to net current asset stocks, other characteristics frequently associated with stocks selling at low ratios of price to book value are: (i) low price to earnings ratios, (ii) low price to sales ratios, and (iii) low price in relation to "normal" earnings, which assumes a company earns the average return on equity for a given industry or the average net income margin on sales for such industry. Current earnings are often depressed in relation to prior levels of earnings. The stock price has often declined significantly from prior levels. The companies with the lowest ratios of price to book value are generally smaller market capitalization companies. Corporate officers and directors often buy such stock because they believe it is depressed relative to its true value. The company also frequently repurchases its own stock.


In Tweedy, Browne's experience, stocks selling at low prices in relation to book value are often priced at significant discounts to "real world" estimates of the value that shareholders would receive in a sale of the entire company. By real world estimates we mean estimates made by individuals familiar with corporate valuation in the company's field of business.

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