29 Nov 2009 Tweedy Browne - Q3 2009 Commentary ( Portfolio )
Many people incorrectly assume that value investors only own the “cigar butts” of the stock market; companies with just one puff left, albeit a free one. That is simply a misconception. As Warren Buffett always says, value and growth are joined at the hip, it is simply a question of price. When given the opportunity, we love to own better quality businesses. Today, our portfolios consist of companies that we believe for the most part can weather virtually any storm and produce products people require as opposed to the “stuff” people desire; products that people eat, drink, smoke, the gas people put in their cars, the medicines they take, etc.

Investment capital has again been flowing aggressively back into the emerging markets, driving some valuations in those equity markets to levels that do not make sense to most value- oriented investors. You might be surprised to learn that our Funds have significant exposure to these faster growing markets. Much of it is indirect and at valuation levels that we believe are more attractive than the majority of opportunities available from most direct investments in these markets.

For those of you who believe more direct exposure to these (emerging) markets would be advantageous, it might surprise you to know what you are getting for the most part when you invest in an emerging market fund, index or otherwise. These markets are emerging, and as a result they generally lack breadth. For instance, in each of the BRIC countries (Brazil, Russia, India, and China), the top five holdings in their constituent indices constitute between 40% and 60% of the index and are largely banks and oil and gas companies. These stocks often sell at premium valuations. Despite this concentration and apparent lack of “value,” from our perspective the BRIC indices have performed extraordinarily well at times. Value investors such as ourselves, however, prefer to pick and choose, and look for value, company by company. Investing indirectly in some of these pricier markets as we described above, is perhaps a safer and cheaper way to participate in the rapid growth in the third world. So despite conventional wisdom that a value investor is not likely to be exposed to the rapid growth of emerging markets, we believe we have a meaningful, if largely indirect, exposure to these areas of the world through the businesses we own.