Volatility

Tweedy Browne: “Volatility Is The Friend Of The Value Investor”

The Tweedy, Browne Global Value Fund (TBGVX) has had an exceptional track record, outperforming its benchmark and peer-group average by over 300 basis points annually since its inception 25 years ago through December 31, 2018. It is an $8.3 billion international equity fund that currently invests approximately 90% of its invested assets outside the U.S.

Q4 hedge fund letters, conference, scoops etc

Volatility

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I interviewed the members of Tweedy, Browne’s investment committee: Will Browne, John Spears, Tom Shrager, Bob Wyckoff, Roger de Bree, Frank Hawrylak, and Jay Hill.

The interview took place on February 5 at Tweedy, Browne’s offices in Stamford, CT.

What is Tweedy, Browne’s philosophy and approach to value investing?

Will Browne: The essence of what we do comes from what some people refer to as Benjamin Graham’s big idea. Our focus is on determining the value of a business. That is a relatively objective exercise. It’s ascertainable within a reasonable range. The share of stock is nothing more than a fractional interest in the business.

If you can get comfortable with the valuation of the business, then you look to the marketplace and see at what price that business is changing hands. We don’t subscribe to the idea that market price is the efficient price. It is the result of all sorts of people bringing all sorts of factors to the marketplace to trade those securities. Our investment philosophy gives us an anchor and a framework to think about what we want to do with regard to our investments.

That is the essence. I don’t believe that it differs entirely or to a great extent from a number of other people who employ or speak about this approach.

Sometimes the term “value investing” is a bit overused. Even if you ask someone who’s got an algorithm or a momentum approach, he’ll probably try and weave in the concept of value. No one wants to say that they don’t pay attention to value. It’s just a question of how you determine value.

What differentiates you from other value investing funds?

Bob Wyckoff: When thinking about how Tweedy’s approach to value investing may differ from that of others in the marketplace, I’d point out a few facts. By reputation, we’re considered one of the purer practitioners of the Graham and Dodd style of investing. We tend to be conservative appraisers of businesses. We seek very significant discounts off of our conservative appraisals of business values. We’re debt-averse investors. We pay a lot of attention to debt levels in the companies in which we invest.

We pay attention to what’s being paid in the real world in terms of multiples of operating income, net income, book value, etc., for businesses when we go to value them. We pay a lot of attention to merger and acquisition “comps,” if you will, around the world. We use that as a benchmark for the multiples we use to value businesses in the stock market. We’re typically trying to buy at a significant discount (often as much as a third to 40%) off of our estimate of intrinsic value.

In our flagship fund, the Tweedy, Browne Global Value Fund, something that makes us significantly different from many, if not the bulk of our competitors, is the fact that we hedge our perceived foreign currency exposure back to the U.S. dollar.

John Spears: In reading other value managers’ annual reports, occasionally people will talk about buying at a discount to intrinsic value. But they don’t normally go into much detail about how they calculate it, or what intrinsic value is. Some people use a discounted future cash flow model. But things like that are less straightforward than using industry merger and acquisition comparables to value a company.

Read the full article here by Robert Huebscher, Advisor Perspectives


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