By Al Shams
The name Tweedy Browne will not resonate with many readers. When I first heard the name, I thought it was a stuffy New England company that made old-fashioned tweed sports coats with leather elbow pads.
Tweedy Browne, in fact, is a highly regarded value investor that closely follows the teachings of Ben Graham, the father of value investing. Graham laid the foundation for the approach that is widely used by most institutional investors in today’s markets. Warren Buffett, for example, is the best-known value investor of our day.
Tweedy Browne has been in existence since 1920 and manages over $15 billion in various mutual funds and private accounts.
Below are some select comments Tweedy Browne made in its recent reports to fund holders. These comments should be thought-provoking and provide rare insight:
- Volatility begets more volatility and benefits the few at the expense of the many.
- As disciplined investors with strong stomachs, Tweedy Browne believes that volatility will produce good investment opportunities.
- Tweedy Browne’s performance has trailed the popular benchmark indexes the past few years largely because of the massive flow of money into index funds. Tweedy Browne believes that the prices of popular growth stocks have far outstripped their growth in earnings. This period for growth stocks is similar to 2000 and 2004 to 2006.
- In 2015, four stocks — Amazon, Facebook, Netflix and Google — accounted for half of the S&P 500’s return. At year’s end, the price/earnings ratios for those four stocks were 82, 544, 402 and 33, respectively.
- Tweedy Browne has found over the years that a precondition to a good, long-term track record is the ability to withstand long periods of underperformance. It can be very difficult to go through such a period.
- Studies show that the best time to invest with Tweedy Browne is after a period of underperformance. For those with patience and fortitude, the potential for better results is enhanced.
The Wisdom of Great Investors
- Be patient and think long term.
- The stock market is a device to transfer money from the impatient to the patient.
- View a market downturn as an opportunity.
- Keep your emotions in check.
- A lot of people with high IQs are terrible investors because they are too emotional.
John Kenneth Galbraith:
- Disregard the short-term forecast.
- The function of economic forecasting is to make astrology look respectable.
- Make a habit of investing regularly under all market conditions.
- Markets fluctuate, so stay the course.
- History has shown that over the long term, equities are a good way to build wealth.
As an investment professional, I have learned that even the best investment ideas from the best investors will have periods of sharp price drops. It’s not a question of if, but when. What you do at that point — throw in the towel in disgust and panic or buy more with some fear and trepidation — will have a huge impact on your ultimate returns.
We are all impatient and want good things to happen quickly; in life, rarely is that the case.
Patience in investing, as in much of life, is a real virtue.
Those interested in the value approach should search online for Tweedy Browne.
Al Shams is a Sandy Springs resident, a former CPA and an investment professional with over 36 years’ experience.