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TWEEDY, BROWNE COMPANY L.P.
What Has Worked in Investing
(continued from preceding
page)
In Tweedy, Browne's experience, contrary to some proponents of the efficient market theory, it is possible to invest in publicly traded companies at prices which are significantly less than the underlying value of the companies' assets or business. Two very plain examples of undervaluation are: a closed-end mutual fund whose share price is significantly less than the underlying market value of its investment portfolio, or a company whose shares are priced at a large discount to the company's cash after the deduction of all liabilities. These types of easy-to-understand bargains do appear in the stock market recurrently. However, it cannot be said with certainly that a clear-cut bargain investment will produce excess investment returns, and it is impossible to predict the pattern, sequence or consistency of investment returns for a particular bargain investment. It can only be stated with certainly that repeated investment in numerous groups of bargain securities over very long multi-year periods has produced excess returns.
The partners of Tweedy, Browne have always been fascinated by studies which have examined the correlation between securities possessing a common characteristic, or combination of characteristics, and investment returns. Unlike science, where two parts hydrogen and one part oxygen always produce water, the partners do not believe there is an investment formula that always produces an exceptional return over every period of time. Investment returns, and likely favorable or unfavorable perceptions of progress on the part of many investors, have tended to vary greatly over periods of time that are quite long by human standards, but probably too short in terms of statistical measurement validity. However, as this paper has indicated, there have been recurring and often interrelated patterns of investment success over very long periods of time, and we believe that helpful perspective and, occasionally, patience and perseverance, are provided by an awareness of these patterns.
Tweedy, Browne believes it is likely that many of the investments which will generate exceptional rates of return in the future, over long measurement periods, will possess one or several of the characteristics which have previously been associated with exceptional returns. Tweedy, Browne intends to continue to keep its clients' portfolios and the partners' own portfolios "well stocked" with investments possessing these characteristics.
you may contact:
TWEEDY, BROWNE COMPANY L.P.
52 Vanderbilt Avenue
New York, NY 10017
(212) 916-0600
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