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


It has not been uncommon for the investments in our portfolios to simultaneously possess many of the above characteristics. For instance, companies selling at low prices in relation to net current assets, book value and/or earnings are frequently priced low in relation to cash flow, have a high dividend yield and are smaller in terms of their market capitalization. More often than not, the stock price has declined significantly from prior levels; corporate officers and directors have been accumulating the company's stock, and the company itself is engaged in a share repurchase program. Furthermore, these companies are often priced in the stock market at substantial discounts to real world estimates of the value shareholders would receive in a sale or liquidation of the entire company. Each characteristic seems somewhat analogous to one piece of a mosaic. When several of the pieces are arranged together, the picture can be clearly seen: an undervalued stock.

Dr. Josef Lakonishok (University of Illinois), Dr. Robert W. Vishny (University of Chicago) and Dr. Andrei Shleifer (Harvard University) presented a paper funded by the National Bureau of Economic Research entitled, Contrarian Investment, Extrapolation and Risk, May 1993, which examined investment returns from all companies listed on the New York Stock Exchange and American Stock Exchange in relation to ratios of price to book value, price to earnings and price to cash flow between 1968 and 1990. In their abstract, the authors state, "This paper provides evidence that value strategies yield higher returns because these strategies exploit the mistakes of the typical investor and not because these strategies are fundamentally riskier." This paper and the other similar studies described in the Assets Bought Cheap and Earnings Bought Cheap sections of What Has Worked in Investing demonstrate that, at the extreme, investors over value and under value individual stocks, and that the best returns come from buying stocks at the extreme end of the value spectrum.


Sincerely,


Christopher H. Browne
William H. Browne
James M. Clark, Jr.
John D. Spears


General Partners
TWEEDY, BROWNE COMPANY L.P.


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