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TWEEDY, BROWNE COMPANY L.P.
What Has Worked in Investing
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What Has Worked In Investing is an attempt to share with you our knowledge of historically successful investment characteristics and approaches. Included in this booklet are descriptions of 44 studies, one-half of which relate to non-U.S. stocks. Our choice of studies has not been selective; we merely included most of the major studies we have seen through the years. Interestingly, geography had no influence on the basic conclusion that stocks possessing the characteristics described in this booklet provided the best returns over long periods of time. While this conclusion comes as no surprise to us, it does provide empirical evidence that Benjamin Graham's principles of investing, first described in 1934 in his book, Security Analysis, continue to serve investors well. A knowledge of the recurring and often interrelated patterns of investment success over long periods has not only enhanced our investment process, but has also provided long-term perspective and, occasionally, patience and perseverance. We hope this knowledge will also serve you well.
The investment selection criteria described in What Has Worked In Investing have been incorporated in Tweedy, Browne's investment screening and decision making process since at least 1958, when Tom Knapp, a retired partner, joined Tweedy, Browne from Benjamin Graham's investment management firm, Graham-Newman Corporation. Most of Tweedy, Browne's investments have had at least one, and, more frequently, several of the investment characteristics which are described in this booklet.
The criteria and characteristics have been utilized by Tweedy, Browne because they pointed, like clues in the direction of truly undervalued companies; appealed to common sense; and because the partners have always believed that undervaluation, which is associated with low risk, would also be associated with satisfactory returns. In addition to the confirmation provided by our own historical investment results spanning more than thirty years, the extensive studies described in this booklet, in our judgment, have empirically confirmed that the fundamental approach to security analysis developed by Benjamin Graham, and long practiced by Tweedy, Browne, produces above average long-term rates of return. Most investments in Tweedy, Browne portfolios have had, and continue to have, at the time of purchase one or more of the following characteristics:
1. Low Price in Relation to Asset Value Stocks priced at less than book value are purchased on the assumption that, in time, their market price will reflect at least their stated book value, i.e., what the company itself has paid for its own assets. From time to time, we also have been able to find stocks selling at discounts to net current assets (i.e., cash and other assets which can be turned into cash within one year, such as accounts receivable and inventory, less all liabilities), a measure of the estimated liquidation value of the business. This was a stock selection technique successfully employed by Benjamin Graham.
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