Tweedy, Browne - Why Value Investing Will Continue to Thrive
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Tweedy, Browne — Why Value
Investing Will Continue to Thrive
By Robert Huebscher rency hedging. Please refer to that value mix has always had exposure
June 8, 2020 interview for information on those to some higher quality companies
topics. that are business compounders,
This year marks the 100th anniver- where the price is still fair in rela-
sary of the renowned investment Bob: I’d like to talk about the tion to our estimate of intrinsic val-
firm Tweedy, Browne. The firm unique investment and economic ue as well as some economically
was originally a broker, and one of climate we are facing. Your fund sensitive businesses.
its clients was Benjamin Graham, has done exceptionally well thus
co-author and author of the sem- far this year on a relative basis. The financial and energy compo-
inal textbooks on value investing: As of May 1, it outperformed the nents of the fund’s portfolio were
Security Analysis (1934) and The MSCI ACWI ex-U.S. value index hit hard in March. Many of the in-
Intelligent Investor (1949). The firm by 803 basis points and the dustrial companies in our portfolio
also had brokerage relationships Morningstar foreign large-value have also been smacked during
with Walter Schloss and Warren peer group average by 634 basis this crisis. But we do have some of
Buffett. points. To what do you attribute those other high-quality names.
that?
As of April 30, 2020, its flagship John Spears: It’s hard to compare
fund, the Tweedy, Browne Global Bob Wyckoff: It’s sad that it has the fund to those indexes. These
Value Fund (TBGVX), has returned come on the heels of a pandem- are stocks that the fund largely
8.17% annually since its inception in ic, but we’re happy that we have doesn’t own. It’s a question per-
1993. That is 261 basis points bet- been able to add some value of taining to a large group of com-
ter than the hedged MSCI EAFE late. To a great de-
index and 278 basis points bet- gree, the stocks that
ter than the foreign stock fund have been smashed
average (which is calculated by during this crisis have
Tweedy, Browne based on data been the economical-
provided by Morningstar and re- ly-sensitive compa-
flects average returns of all mutual nies, including some
funds in the Morningstar Foreign of the deeply cyclical
Large-Value, Foreign Large-Blend, businesses. The high-
Foreign Large-Growth, Foreign er quality companies
Small/Mid-Value, Foreign Small/ and the interactive
Mid-Blend, and Foreign Small/Mid- media and technol-
Growth categories). ogy companies that
the fund owns have Bob Wyckoff
I interviewed six members of held up better.
Tweedy, Browne’s investment com-
mittee: John Spears, Tom Shrager, The fund has a fairly significant panies, but we’re focusing on one
Bob Wyckoff, Roger de Bree, Frank exposure to branded consumer company at a time. We’re buying
Hawrylak and Jay Hill. products companies, companies interests in businesses in the stock
like Nestle, Heineken, Unilever market.
The interview took place on May and Diageo. Those companies in
14, 2020, over Zoom. I previously general have held up better than Bob Wyckoff: Emerging mar-
interviewed the members of the the deeply economically sensitive kets have been hit pretty hard.
investment committee at Tweedy, businesses. The Tweedy, Browne Global Value
Browne, on February 5, 2019, when Fund has approximately 7 to 8%
we discussed their investment phi- This has also held true for our phar- of its assets in the emerging mar-
losophy, how they differentiate maceutical holdings where the kets. We know our competitors
themselves and their views on cur- fund has significant exposure. Our have higher exposure there. That’s
1
another reason why we’ve held up monal treatment. We believe that It has a port business that will be
relatively better than many. it’s going to be approved. It could suffering because of the decline
be a big drug. in world trade. But a big part of
Bob: You wrote in your March the earnings power and value is in
31 commentary, “It may seem The most exciting part of Astel- the telecommunications and the
counterintuitive, but at times las’s future could be a drug for dry utilities. There’s debt on the bal-
like this, we begin to feel better age-related macular degeneration. ance sheet, but a lot of the debt is
about our prospects for future The market for such a drug—and non-recourse, related to those very
returns.” What were some of the there is no treatment now—could steady businesses—telecommuni-
opportunities you saw following be a minimum of $10 billion. Some cations and utilities, that typically
the market decline that began on people put the total market size have debt as part of their capital
February 19? higher than that. It’s a new cell structure. The earnings yield is
therapy. It has a type of stem cell largely useful free-cash-flow-type
Tom Shrager: We found opportu- to use in this treatment that is ex- earnings, and the analyst who val-
nities in some smaller companies pected to reduce the chance of the ued the company came up with an
in Japan. We got an opportunity to product being rejected. estimated intrinsic value of $108
invest smaller amounts and hope- which is approximately double the
fully there will be bigger opportu- Last but not least, we valued the
current stock price.
nities later. business at 14-times its EBIT and
we bought it in the market at Its stated book value is $120 a share
Over time, we’ll probably buy around 10-times EBIT. In addition, and it is very interesting to see that
more Japanese companies that in over the last couple of years it the insiders are buying millions and
our view have rock-solid balance bought back a lot of shares. It is a millions of dollars of the stock. One
sheets and significant international of them is the wealth-
exposure, and that are cheap on an iest man in Hong
absolute basis relative to intrinsic Kong—Li Ka-shing. Li
value. Those companies that have Ka-shing and his son
a history of paying deference to have been buying
their shareholders, either through millions and millions
dividends or share buybacks. of dollars of the stock
at current prices,—
We began looking at Astellas Phar- recently post-coro-
ma in the fall of 2019, but got our na and pre-corona.
pricing opportunity during the That’s a very good
pandemic sell-off in March 2020. It sign statistically. Em-
is a story about a couple of drugs, John Spears pirically, a lot of ac-
some that are already being sold, ademic studies have
like Xtandi, which is a prostate Japanese company that appears to indicated that when insiders buy
cancer drug. It has another seven act in the interests of its sharehold- their own company’s stock, the
years to run on its patent. Because ers and has been relatively good in stock tends to beat the market.
it’s going to be approved and has discovering new drugs.
been approved for additional in- Bob Wyckoff: From a big picture
dications--the probability is that it John Spears: CK Hutchison Hold- perspective, we’ve been very busy
will continue growing. ings is a Hong Kong company. Its for the last eight weeks given the
symbol is 1HK and its price is about volatility in the market, particularly
Then there is a drug that has been $55. At purchase, the company had during that late-March period when
recently approved for bladder can- a 5.7% dividend yield. It’s priced at prices were coming down sig-
cer. Bladder cancer is an area of rel- five-times earnings. If we owned nificantly. But we’ve approached
atively high need that we believe is the entire business, the reciprocal things thoughtfully, deliberately
going to grow. As far as Astellas’s of that five multiple is a 20% af- and incrementally. We don’t know
pipeline is concerned, there are a ter-tax earnings yield. The company how long this is going to go on or
couple of interesting compounds it is a conglomerate. A large number how deep it will get.
is working very hard on. One is a of its businesses are stable—tele-
treatment for hot flashes for post- communications and infrastructure, We’ve had a lot of activity on the
menopausal women. It’s not a hor- which is a utility businesses. buy side in a short period of time.
2
We’ve also trimmed and sold some sonable. In addition to that, on the bering presentation this year at the
securities. Anytime we’re looking buy side, we bought a couple of Berkshire conference. I agree with
at a new security, we have to weigh stocks, but we had redemptions. Andrew Ross Sorkin’s comment
it against what we already own. Is The fund’s cash went down com- that Warren didn’t seem quite as
there something about the new se- pared to the end of 2019 as a per- ebullient, and there’s a tremendous
curity we like better? We consider centage of a total portfolio. We amount of uncertainty, health-wise
whether we have available cash. will continue to deploy the cash as and for the economy. That was re-
opportunities arise. The backlog flected in Buffett’s demeanor.
Often during periods like this, we of ideas on the international side
add to existing positions that we is still very large. John Spears: In his array of busi-
have in the portfolio. We did a nesses, Buffett is seeing some get
good bit of that in late March and Bob Wyckoff: If this volatility stays hit. He talked a lot about changes
into April. Who knows what the fu- with us, my bet would be that the in psychology that may continue
ture holds. We didn’t spend all of fund’s cash level is going to come to affect consumer demand in a
the fund’s cash overnight. It’s been down over time as we take ad- negative way. He expressed ear-
an incremental approach, but we vantage of pricing opportunities nest uncertainty.
have been very active. we’re seeing in the market. Inves-
He was asked why the stock price
tors sometimes get skittish during
Bob: Your cash position was 11.9% of Berkshire was down. Why Berk-
periods like this. We’ve had re-
as of March 31. When we spoke shire wasn’t buying more shares?
demptions in the fund, so we have
last year, on March 4, it was ap- The company had paid more in
maintained some cash to fund re-
proximately 6.5%, about half of the past than its current stock
demptions.
its current size. You mentioned price. Warren basically said he’s
that it has been as high as 20% or less certain about some of the
Tom Shrager: But as of now the
25%. What should investors infer intrinsic values within Berkshire.
cash has continued to go down.
from your 11.9% level? Short run, it looks like in his view,
Berkshire’s intrinsic value has de-
Tom Shrager: The cash is residual. Bob: One of your largest holdings clined. He doesn’t see it as quite a
But what happened was in the sec- has been Berkshire Hathaway. bang-up bargain, even though the
ond half of last year we had a take- Andrew Ross Sorkin reported on price is down.
over in the portfolio. It was a com- Buffett’s recent annual meeting
pany called Axel Springer, which in the New York Times. Sorkin But long run, we’re bullish on Berk-
was a 2.5% position. In addition to compared Buffett’s attitude to shire. Across all the assets we man-
that, we sold some stocks to real- 2008, when Buffett was a vocal age, Berkshire is among our largest
ize tax losses to reduce potential advocate for buying U.S. stocks. holdings, and it’s a holding in many
distributions resulting from real- Now, Buffett has been reticent to of our personal accounts as well.
ized capital gains and appreciation allocate capital and, according to
Sorkin, is fearful that things will Jay Hill: One of the things that I
in the currency forwards.
get worse. Do you share Buffett’s took from that meeting was Buffett
The result was that distributions pessimism? Are you still bullish talking about the 2008 and 2009
at the end of the year were rea- on Berkshire Hathaway? experience. He observed that over
that time period, all of the prob-
Bob Wyckoff: Buffett lems that became evident weren’t
is generally an opti- evident in the beginning. It took
mistic guy. It depends time for some negative events to
on your horizon. Over trip other negative events.
the long term, he
made that very clear The whole world is interconnected,
at his Berkshire meet- and it’s very possible that things
ing. If you’re a long- get worse over time. All of the
term investor, never problems aren’t visible on day one.
lose faith in America. Buffett was saying that there’s a
That was his message. reasonable possibility that things
could get materially worse. He’s
He’s a long-term bull, still bullish long term, but he’s
Tom Shrager observing that in the short term
but it was a more so-
3
there’s a wide range of possible ness interruption claims, but so far looking at the airlines. He bought
outcomes. at least, the banking system seems 10% each of United, American,
unaffected compared to what was Southwest, and Delta. When he de-
Tom Shrager: There was an inter- happening back then. scribed it in the shareholder meet-
view with Charlie Munger before ing, he said, “The way I looked at it,
Berkshire’s annual meeting. He I find it mysterious and somewhat I was paying $8 billion for $1 billion
said that their phone isn’t ringing scary, but there it is. of earnings.”
very much. There is a lot of support
from the government, from the It was reported that Buffett sold He was getting a 12.5% owner-
Federal Reserve, and an enormous 18% of his stake in Delta Airlines earnings yield after tax from this
amount of money for distressed in the first quarter. Your March 31 investment. He expected, long-run,
companies. In the past, more com- commentary states that you took that the airlines would be in a better
panies would approach Berkshire a position in Delta. What was position than they had been in the
during a time of distress like this, your rationale for buying Delta past. That the industry was more
and they could get very attractive at a time when Buffett consolidated and management is
terms on convertible preferreds. was selling it? smart. They would do good things
with the cash generated—buy back
Frank Hawrylak: The government John Spears: Buffett’s sales oc- stock or pay a dividend.
has been giving out better deal curred very late in the quarter after
terms than what Warren Buffett we had established our position in He was more confident in the in-
finds acceptable. It’s also helpful the Tweedy, Browne Value Fund. dustry than he had been. It was
to remember a Buffett quote from We noticed in an insider filing that particularly interesting to see War-
one of his annual re- ren Buffett, who has often said
ports written a long that investors in airlines would
time ago: “To finish have been better off if the Wright
first, first you must brothers had not invented the air-
finish.” plane because so much money had
been lost in the airline industry. As
Buffett has a lot of an owner of NetJets and Precision
shareholders who Castparts, which supplies the avia-
have their entire net tion industry, it was interesting to
worth tied up in Berk- see him buy into airlines at eight-
shire Hathaway. He’s times earnings and a 12.5% earn-
not going to put up a ings yield.
“zero.” He will wait for
better terms. We’re Frank Hawrylak Now, we have the coronavirus and
only two months into we see him selling. We reassessed,
what most people be- Berkshire Hathaway, which had a and we are out of it. We sold it. We
lieve will be a deep recession. 10% position in Delta Airlines, was saw him selling also. We saw him
buying more in late February. It was selling in the low $20s. We sold
Roger de Bree: There is a huge dif- around the same price. As Buffett
going above 10% and you could see
ference between what happened in says, you don’t have to make it
that Berkshire was reporting each
2008 and what is happening now. back with the stock that lost it.
transaction. You could see what it
Back then, the financial system was
was paying—around $50.
in trouble and it started to have an Bob: We’re speaking on May 14.
effect on the real economy. Now If you look at the other insider The S&P 500 is down 11.1% for
it is the opposite. I was speaking transactions, there were a cluster of 2020. The MSCI ACWI ex-US in-
to a company yesterday that had buys. The Delta CEO had bought as dex is down approximately 20%.
drawn on an existing credit line out well as a former investment banker But we are in a world character-
of prudence. The bank told them, who sits on Delta’s board. He had ized by extreme uncertainty—
“If you need more, let me know.” bought a considerable amount of with respect to the medical and
We are in a very different situation stock. You had those expressions epidemiological outcome, the
now. We may have issues in insur- of confidence in the company. economic outcome and the polit-
ance companies this time related ical landscape. Do those market
to uncertainties surrounding busi- Buffett was describing how he was corrections properly reflect the
4
depth of the crisis, specifically out not to be cheap now. However, tially more net debt than it did en-
the degree to which corporate all our stocks go through our rigor- tering the crisis.
cash flows have been impaired ous financial stress-tests and that
and the degree to which inves- should help. We think that this year That was one reason to ultimately
tors should demand a higher risk is a write-off because that’s what sell Delta. That was so even if we ul-
premium? most companies we speak to think. timately convinced ourselves that,
We believe that things should get “Hey, domestic flying will recover
John Spears: We’re spending our better next year. first and then ultimately interna-
time looking at one business at a tional flying will recover whenev-
time trying to think and analyze like Although we don’t like to make er we have a vaccine.” The critical
business owners. What’s the com- macro calls, the positive attitude point was that this was a company
pany really worth as a business? that we have implies some long- that was going to burn free-cash
term optimism about what will flow every day for an uncertain pe-
We’re not really spending much happen. riod of time. Even if the business
of our time on opinions about the survives, it is very possible that
overall market. But our heads aren’t Jay Hill: We’re not trying to value Delta could have net debt that is
in the sand. We see statistics about businesses based upon coronavi- multiples of its pre-crisis net debt.
the overall P/E ratio on the S&P 500. rus-depressed 2020 earnings. This
It is around 21-times earnings—less year is going to be very negative Roger de Bree: Don’t forget that
than a 5% after-tax earnings yield. for many businesses. It would be a the companies that we own tend to
The earnings are, of course, very mistake to try to value companies be strong players in their industries.
iffy given the economic climate. on depressed 2020 earnings and That may very well create great
then try to buy companies at two M&A opportunities or great com-
The individual stocks in the Global thirds of that valuation. That would petitive opportunities for them.
Value Fund portfolio, especially be too conservative.
some of the ones we’ve been buy- Bob: I recognize that you are
ing recently, are a lot less expen- We believe that the impacts of the value investors and use a bottom-
sive, in our view. We believe they coronavirus are going to be tempo- up analytical framework, and that
give our investors higher earnings rary, but unfortunately we can’t de- you, to some degree, insulate
fine that timeline. We yourselves from macroeconomic
don’t know when or considerations. But surely the
whether businesses coronavirus has affected your
are ultimately going thinking. For example, when you
to recover. We believe look at the different countries
most will at some where your investments are do-
point. But the science miciled, are you factoring in that
is going to determine country’s response to the virus?
the timeline of when Tom Shrager: The science is very
the economy reopens complicated. It’s very difficult to
and begins to recover. say if a country, say Sweden or Ita-
ly, is doing it right. Is New York do-
The best way that we
Jay Hill ing it right? There is no cure. There
can defend ourselves
are medicines that can lessen the
against that unknow-
number of deaths. And at some
and more assets for every dollar able timeline is to focus on busi-
point, perhaps in 2021, we may
that we invest than you would get nesses that in our view are more
have a vaccine.
in the S&P 500 or some of the likely to not be permanently im-
other indexes. paired by the coronavirus. Second- We do not know how infectious the
ly, we focus on businesses that have disease is. We know that it affects
Roger de Bree: Our thinking incor- sound balance sheets and positive elderly people more, but we don’t
porates normalization. We are, and free-cash-flow generation ability know what the effect is on other
we have to be, optimistic. If we are to try to assure ourselves that they groups because we haven’t done
going to have 15 or 20 years of an can not only survive, but come out enough testing. There are too many
economic depression, some of the of this downturn with a balance uncertainties for us to say, “Italy did
stocks the fund owns will likely turn sheet that doesn’t have substan- it right or Sweden did it right.”
5
We are aware that, with lockdowns, omy seems to be coming back Bob Wyckoff: The anomaly of my
certain countries’ economies are reasonably well so far in April and investment career, and I started
worsening more than others that May. A lot of companies are talking back in 1980, is negative interest
may have had less stringent lock- about positive organic sales rates. Who would have thought
downs. Italy is going to suffer more growth year-over-year by late April we’d ever see zero to negative in-
because of how stringent its lock- or early May. terest rates? Part of that has to do
down has been. But that doesn’t with the unprecedented stimulus
mean that we are going to look at That may be a blueprint to how our we’ve had since the financial crisis
Italian companies and their balance economy or other countries are and actions that the Fed has taken
sheet differently, beyond their gen- going to ultimately recover. There to bring down interest rates.
eral economic background. is some optimism that China could
be viewed as a blueprint and things It’s unclear what the long-term im-
Roger de Bree: It’s relatively easy are getting better in general there. pact of negative rates will be and
to decide to go into a lockdown, whether or when we’re going to
but it’s not easy to get out. That’s Bob: How has the Fed’s unprec- get more normalized interest rates.
what we’re experiencing. We’re edented intervention in the But that has had an enormous im-
aware that certain countries seem markets affected your analytical pact on the valuations of risk as-
to be doing better than others framework? sets. You name it—junk bonds, eq-
with the coronavirus. In our analy- uities, private equity, real estate,
Tom Shrager: During the econom-
sis, we take those things into con- venture capital – leading up to this
ic crisis 12 years ago, there was a
sideration as background infor- pandemic, they had full to high val-
period of time when people were
mation when looking at specific uations. A lot of people might say,
afraid that the whole thing would
businesses. “Well, with flat to negative interest
collapse. But this time the federal
rates, those valuations are not too
Sweden as a coun- high.” But of course it is subject
try is doing well. But to debate whether those rates are
does that then mean going to be with us for a long peri-
that you should be od of time.
looking at Swedish
stocks? Any large, When you get big declines in rates
global Swedish com- like we’ve had over the last 10
pany you study will years, it does cause us to stretch
only have five or 10% the rubber band a bit in terms of
of its sales in Sweden. the multiples we use to calculate
the intrinsic values of business-
Its valuation will be es. When I first came to Tweedy,
affected similarly, irre- Browne in the early 1990s, Frank
spective of what Swe- Roger de Bree
Hawrylak used enterprise value to
den does in dealing EBIT multiples of six-, seven- or
with the virus. That’s true for Italian government quickly injected a lot eight-times to value businesses,
companies too. of liquidity and spent a lot of mon- and we were trying to buy those
ey to try to counteract the reces- businesses in the stock market at a
Jay Hill: Consider the sequence of sion that we are in. discount to those multiples.
the virus. It started in Asia and then
slowly went to Europe and then to When I got into this business in
the United States. That is also evi- We don’t have to worry as much
1980, I showed up in New York and
dent in corporate earnings. about banks or the financial sys-
the prime rate was 20%. Paul Vol-
tem collapsing, compared to 12
cker had just become head of the
If you’re a global industrial with years ago. On a net basis, in the
Federal Reserve and was trying
business in China, your Chinese short term, that was a positive. The
to choke off inflation, and interest
business in February and March effect of huge budget deficits on
rates were at very, very high levels.
was terrible. But many people are the future growth of the economy
Since then, we’ve been in an al-
becoming a little bit optimistic will probably be a negative, but at
most 40-year bull market in bonds.
about the observation of green least we dealt with a very serious
shoots in China, which was the first situation when almost everything Certainly the multiples we use to
place that was affected. Its econ- stopped. value businesses have gone up
6over the years as interest rates have stock-by-stock. That’s what we do. We had a dramatic cliff drop in the
come down. Over the last 10 years, market in March. As the pundits on
it’s expanded a little bit more, but It’s been a tough stretch for val- television say, we’ve been in an in-
we tend to be pretty conservative ue investing, particularly for those credible bull market in the month
on that front. When we look at deal who take a statistical or a fac- of April and into May.
multiples—what’s happening in tor-based approach. The value fac-
mergers and acquisitions and take- tor has underperformed for a very, We’ll have to see where it goes
overs – we often see those happen very long period of time. There are from here. Looking at previous
at very, very high multiples. different ways to think about value. tough environments, the dot-com
We use enterprise value multiples bubble began to burst in March
Sometimes we’ll step away and we much more than book value, when of 2000. The carnage was not un-
won’t use quite those multiples to calculating intrinsic values. done until late 2002 in terms of the
value our businesses. We’ll haircut impact that it had on stock market
them a bit because we may not We still use book value when we indexes.
believe they’re sustainable. We’ve look at cyclical-based businesses.
taken a little bit of a conservative But book value still plays a consid- When you think back to the crisis
erable role in the definition of val- in 2008, the first cracks began to
approach, despite those low inter-
ue indexes and the like. As a per- develop when those Bear Stearns
est rates and unprecedented cen-
formance metric, book value has funds started breaking down in
tral bank intervention around the
been very difficult for a long time, late summer of 2007. We began
world.
going all the way back to 2007. It’s to learn that we might be in a sub-
This is not just an American phe- been a long, difficult stretch for prime, housing crisis. Sure enough,
nomenon. It’s happened in the UK, book value. we didn’t see the bottom until
in Europe and in Japan. It remains March of 2009.
Using enterprise multiples in a val-
to be seen what this is going to ue-based approach has worked We’ve been in this pandemic-af-
mean for the future. better over the last 13 years. But fected market for about eight
the last five to six weeks. Everybody has an opinion.
years have been par- Have we seen the new lows? Have
We believe that the impacts of ticularly tough, as we not? My advice to investors is
the FAANGs have as- to stay tuned to value investing. As
the coronavirus are going to cended and claimed Frank said, this recession is likely to
be temporary, but unfortunately we some dominance in be very deep and Warren Buffett’s
the marketplace. As skepticism is real. We could be in
can’t define that timeline. a result, value relative for a grind, and if that happens, we
to growth investing is believe value investing is likely to
The Fed’s balance sheet is growing, at a pretty extreme spread today. prove its mettle during and coming
and may grow even more. As you out of the grind.
heard from Chairman Powell yes- Quants like Rob Arnott, Cliff As-
terday, the Fed may have to step ness and others have noted that Bob: Looking at the range of risks
in and do more at some point. And value has rarely if ever been we face, from a medical or epide-
this is on top of a massive amount cheaper than it is today relative to miological perspective, an eco-
of fiscal stimulus. We don’t have growth. This has come up of late nomic perspective and a political
the answers. Your crystal ball is as because, during the downward leg perspective, is there a scenario
good as ours. of the crisis in March, the technolo- that worries you? I am not asking
gy stocks continued to do well and about a doomsday scenario at
We wonder what this means the more economically sensitive, the first percentile, but a remote-
post-crisis, in terms of very large so-called value stocks performed but-still-possible scenario at the
deficits and unprecedented bal- poorly. There was a big differential fifth percentile.
ance sheets for our Fed, and what between growth and value even
Tom Shrager: The negative sce-
that may mean for the future of during the downdraft.
nario is one in which in the fall we
interest rates or the value of our
Value has typically outperformed have a second wave of the corona-
currency, et cetera. But those
during a downdraft. But stay virus. It combines with the typical
thoughts work in the background.
tuned. A bomb has gone off. We’ve flu season and hospitals get over-
We do our business every day,
been at this for only eight weeks. whelmed. Add to that a vaccine
7not coming until the end of 2021. tions. Because of the severity of to turn out, but you rationally have
the financial crisis and the actions to be an optimist. If we can avoid
There are some signs of hope, that were taken post-2008, the nuclear war and terrible things like
however. Some drugs seem to banks are in much better shape to- that, including incredible pandem-
be reducing the number of days day. That doesn’t mean if the econ- ics that kill a lot of people, human
somebody is hospitalized and may omy remains shut down and peo- beings are going to keep improv-
reduce the death rate. Those are ple can’t make payments on their ing, building on the knowledge of
Remdesevir and a drug that is be- loans it won’t be a problem. the past, looking for innovation
ing tested in Japan from Fuji called and adapting, and creating new
Avigan. We have lots of governmental things that will improve our stan-
backstopping. I take some com- dards of living.
As far as the immune response, fort in Buffett’s lessons and the
you have Actemra from Roche, in fact that our financial system and The great experiment in working
addition to some other ones that banks are stronger today. I surely remotely, like we are doing now,
are being tested. There are some don’t hope we see a fifth percentile using Zoom and having meetings
drugs that may result in lowering experience, but we could see a big- that may not require the wear and
the severity of a renewed attack. ger decline in the equity market. tear of travel, may change the na-
ture of our economy, especially
There are the people who are Part of it will depend on the length to promote green causes. It may
talking about a vaccine coming at of this shutdown. Parts of the econ- reduce carbon emissions. I’m an
the beginning of 2021. Those are omy are running. I’m not thinking optimist.
the positives. The negatives are Depression, but I’m one person
the second wave. You have to look with one view. Tom Shrager: I have an aunt who
at outcomes as possibilities on a is 104 years old. She was born in
continuum. Bob: This year marks the 100th 1916 and she was a baby during the
anniversary of Tweedy, Browne. First World War, and remembers
There are billions of dollars being Coincidentally, the firm was the terrible years of suffering that
spent by the government, private founded just after another global followed, particularly for the coun-
firms and charitable organizations pandemic, the Spanish Flu. Look- tries in Europe. For many of them,
to narrow this gap between ex- ing back at its 100-year history, the 1920s were a lost decade, and
treme negative and positive events. how do the risks your investors those years were soon followed by
face compare to those in the the rise of Nazi Germany.
Bob Wyckoff: Deep stock market
past? What makes you most
declines and recessions go with
optimistic about the future? My aunt described her century of
the territory. Buffett did a wonder-
life to me as one in which you could
ful job at the Berkshire conference John Spears: I haven’t lived 120 have been very pessimistic about
going through the economic and years, so I can’t go back to the the future of humanity. That said,
stock market history of the coun- Spanish Flu. Reading history, the Cold War eventually became a
try, going back to before the great though, there have been some very bit warmer. The Chinese developed
Depression. One of the things I’ve tough and uncertain times. Just economically. They’re more asser-
gained solace from is that 40% to imagine what this country faced in tive now in foreign policy.
50% declines in the stock market World War II. Just terrible.
can and will happen, but the mar- But from the standpoint of nucle-
kets eventually recover. The fifth Think of the loss of lives and the ar annihilation, of having World
percentile disaster that your ques- risk. We had Nazi submarines off War III, the probabilities have
tion suggests is a Depression-like Nantucket. I’ve been an investor diminished.
environment. One thing that I took since about age 12. I’m 71. This is
away from Buffett’s history lesson the most uncertain thing I’ve ever The pandemic of 1918 was much
was the run on the banks that we experienced – the medically-in- more destructive than it seems this
had during the Depression, and the duced, global government shut- pandemic will be. People learned
devastating impact bank failures down of the private sector. What how to live with it. We are now in a
had on the economy. an incredible economic experi- phase during which there’s a lot of
ment we have. confusion. But I’m optimistic that,
Out of the Depression period we with science involved and with
got legislation for the FDIC to dis- It’s like a chemistry experiment. the money being spent on trying
courage runs on financial institu- We don’t know how this is going to find solutions, the sense of fear
8that people have now may in time the history of America, is that it’s Assuming we live to see anoth-
be overcome. a story of resilience. Value invest- er day, and we are in an uncertain
ing capitalizes on that resilience. period, we expect value investing
Jay Hill: I remind myself of what As value investors, we’re ultimately to continue to thrive. I have great
I’ve learned from the more senior optimists. hope for Tweedy as well. We are
managing directors at Tweedy, 48 people. We were a lot smaller
Browne. I know that fear breeds As a firm we had the incredible in the old days. But if a small firm
bargains. You can’t have a bargain good fortune way back in our ear- like Tweedy can make it 100 years,
in the absence of fear. All great in- ly days to have relationships with it speaks a great deal about our
vestments start with discomfort. people like Benjamin Graham, framework that has served us so
Often the very best investments Warren Buffett, Charlie Munger incredibly well during that period.
with the best returns are made and Walter Schloss. We basical-
during recessions when there are ly adopted a framework – with all John Spears: We’re still investing
big, mass sell offs. credit to Ben Graham – that allows in our own product. As of the end
for great resilience over time. of March, the current Managing Di-
Ultimately, it has always paid over
rectors and retired principals and
time to be an optimist. You’ve got
It was a risk-management frame- their families, as well as employees
to be selective, but it’s the fear it-
work, going back to Warren Buf- of Tweedy, Browne, had more than
self that allows you to be able to
fett’s comment, “To finish first, $1.1 billion in portfolios combined
exploit large differences between
you first must finish.” That lies at with or similar to client portfolios,
current stock price and intrinsic
the heart of our value framework. including approximately $113.8 mil-
value. You don’t get those oppor-
If there’s one thing we’ve learned lion in the Tweedy, Browne Global
tunities unless there’s serious fear.
over 100 years, it’s that price mat- Value Fund.
Bob Wyckoff: My understanding of ters in investing.
9Disclosure
Investment performance and portfolio data for the Tweedy, Browne Global Value Fund (the “Global Value Fund”) in the attached
article is as of April 30, 2020 (unless otherwise indicated) and is subject to change.
The average annual total returns of the Global Value Fund for the 1-, 5-, and 10-year periods ending June 30, 2020, were -11.69%,
1.81%, and 5.92%, respectively. The Fund’s total annual operating expense ratio, as disclosed in its most recent prospectus, was
1.37%.
The preceding performance data represents past performance and is not a guarantee of future results. Investment return and principal
value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Current performance may be lower or higher than the performance data shown. Please visit www.tweedy.com to obtain performance
data that is current to the most recent month end. The Global Value Fund does not impose any front-end or deferred sales charge.
Tweedy, Browne has voluntarily agreed, effective May 22, 2020 through at least July 31, 2021, to waive the Global Value Fund’s fees
whenever the Fund’s average daily net assets (“ADNA”) exceed $6 billion. Under the arrangement, the advisory fee payable by the
Global Value Fund is as follows: 1.25% on the first $6 billion of the Fund’s ADNA; 0.80% on the next $1 billion of the Fund’s ADNA
(ADNA over $6 billion up to $7 billion); 0.70% on the next $1 billion of the Fund’s ADNA (ADNA over $7 billion up to $8 billion);
and 0.60% on the remaining amount, if any, of the Fund’s ADNA (ADNA over $8 billion).
As of June 30, 2020, the Global Value Fund and the Tweedy, Browne Value Fund (the “Value Fund”) had each invested the following
percentages of its net assets, respectively, in the following portfolio holdings: Nestle (6.4%, 4.7%), Heineken (4.2%, 3.8%), Unilever
(3.6%, 4.0%), Diageo (4.2%, 3.8%), Astellas Pharma (0.5%, 0.5%), CK Hutchison Holdings (0.5%, 0.5%), Axel Springer (0.0%,
0.0%), Berkshire Hathaway (0.0%, 5.8%), Delta Airlines (0.0%, 0.0%).
Current and future portfolio holdings are subject to risk. The securities of small, less well-known companies may be more volatile
than those of larger companies. In addition, investing in foreign securities involves additional risks beyond the risks of investing in
securities of U.S. markets. These risks include economic and political considerations not typically found in U.S. markets, including
currency fluctuation, political uncertainty and different financial standards, regulatory environments, and overall market and econom-
ic factors in the countries. Force majeure events such as pandemics and natural disasters are likely to increase the risks inherent in
investments and could have a broad negative impact on the world economy and business activity in general. Value investing involves
the risk that the market will not recognize a security’s intrinsic value for a long time, or that a security thought to be undervalued
may actually be appropriately priced when purchased. Dividends are not guaranteed, and a company currently paying dividends may
cease paying dividends at any time. Diversification does not guarantee a profit or protect against a loss in declining markets. Investors
should refer to the prospectus for a description of risk factors associated with investments in securities held by the Funds.
Although the practice of hedging against currency exchange rate changes utilized by the Global Value Fund and the Value Fund
reduces the risk of loss from exchange rate movements, it also reduces the ability of a Fund to gain from favorable exchange rate
movements when the U.S. dollar declines against the currencies in which a Fund’s investments are denominated, and, in some interest
rate environments, may impose out-of-pocket costs on a Fund.
The information presented in this reprint is designed to be illustrative of the general investment philosophy and broad investment
style overview of Tweedy, Browne Company LLC. It contains forthright opinions and statements on investment techniques, eco-
nomic and market conditions and other matters. These opinions and statements are as of the date indicated, and are subject to change
without notice. There is no guarantee that these opinions and statements will prove to be correct, since some of them are inherently
speculative. The information included in this reprint is not intended, and should not be construed, as an offer or recommendation to
buy or sell any security, nor should specific information contained herein be relied upon as investment advice or statements of fact.
The Managing Directors and employees of Tweedy, Browne Company LLC may have a financial interest in the securities mentioned
herein. The financial interest stems from the fact that, where consistent with the Firm’s Code of Ethics, the Managing Directors and
employees may own these securities in their personal securities trading accounts or through their ownership of various pooled vehicles
that own these securities.
Price/earnings (or P/E) ratio is a comparison of the company’s closing stock price and its trailing 12-month earnings per share. Earn-
ings before interest and tax (or EBIT) is an indicator of a company’s profitability, calculated as revenue minus expenses, excluding
tax and interest. Enterprise Value is a measure of a company’s total value (market value of common stock +market value of preferred
equity + market value of debt + minority interest – cash and investments). Owners earning yield is the net profit after tax divided by
enterprise value.
10The MSCI EAFE Index is an unmanaged, free float-adjusted capitalization weighted index that is designed to measure the equity
market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index (Hedged to US$) consists of the
results of the MSCI EAFE Index 100% hedged back into U.S. dollars and accounts for interest rate differentials in forward currency
exchange rates. Index figures do not reflect any deduction for fees, expenses or taxes. The MSCI ACWI Index is a free float‐adjusted
market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets
consisting of 46 country indexes comprising 23 developed and 23 emerging market country indexes. The MSCI ACWI Ex-U.S. Index
is the MSCI ACWI Index excluding U.S.-based companies. Investors cannot invest directly in an index.
The Morningstar Foreign Large-Value Average reflects average returns of all mutual funds in the Morningstar Foreign Large-Value
category. The average assumes reinvestment of dividends. The funds in the category may or may not be hedged to the U.S. dollar,
which will affect reported returns.
© Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content pro-
viders; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its
content providers are responsible for any damage or losses arising from any use of this information. Past performance is no guarantee
of future results.
Tweedy, Browne Global Value Fund and Tweedy, Browne Value Fund are distributed by AMG Distributors, Inc., Member FINRA/SIPC.
This material must be preceded or accompanied by a prospectus for Tweedy, Browne Fund Inc. Investors should consider the Tweedy,
Browne Funds’ investment objectives, risks, charges and expenses carefully before investing. Investors may obtain a free prospectus,
which contains this and other information about the Tweedy, Browne Funds by calling (800) 432-4789. Please read the prospectus
carefully before investing.
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