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


In Tweedy, Browne's experience, officers, directors and large shareholders often buy their own company's stock when it is depressed in relation to the current value which would he ascribable to the company's assets or its ongoing business in a corporate acquisition, or to the likely value of the company in the near to intermediate future. Insiders often have "insight information": knowledge about new marketing programs, product price increases, cost cuts, increased order rates, changes in industry conditions, etc. which they believe will result in an increase in the true underlying value of the company. Other examples of insider insights are: knowledge of the true value of "hidden assets", such as the value of a money-losing subsidiary which a competitor may have offered to buy, or the value of excess real estate not required in a company's operation, or knowledge of the likely earning power of the company once heavy non-recurring new product development costs stop. It is not uncommon to see significant insider buying in companies selling in the stock market at low price/earnings ratios or at low prices in relation to book value.

United Kingdom: The Impact of Insider Accumulation
Mervin King and Aisla Roell from London School of Economics examined the relationship between overall market returns and returns on U.K. stocks which had been purchased by a company's own officers and directors. The study sample consisted of companies reported in the weekly "Shares Stakes" section of The Financial Times between January 1986 and August 1987 in which an open market purchase had been made by a company insider. The study assumed that the same number of shares which had been purchased by an insider were acquired for the "Buy" portfolio at the stock price on the day of publication. The investment returns in excess of The Financial Times-Actuaries All Share Index were computed over periods of one month, three months and one year following the publication date. Table 27 shows the results.

Table 27:
Investment Returns Above the Market Index on United Kingdom Stocks Purchased by Insiders, January 1986 through August 1987


Companies in
Buy Group
109
103
52


Weeks
in Sample
46
43
22


Time Span
from Publication Date
1 month
3 months
1 year

Return
in excess of
Market Index
2.47%
6.10
53.05


Page 30 of 42

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