26 Jul 2010 Tweedy Browne - Q2 2010 Commentary
Volatility returned to global equity markets in the second quarter in large part due to uncertainties surrounding the debt crisis in Greece and Spain and concerns about economic policies in the U.S. and Europe. As a result, the gains of the first quarter were largely erased in the second quarter. While unsettling for many, the silver lining is that volatility often brings with it investment opportunities to those with a longer term perspective. It’s hard to imagine that just a few months back, market commentators were talking about the pricing of oil being changed to Euros, given the rather grim outlook for the U.S. dollar. Instead, the mounting deficits in a number of southern European countries have increased pressure on the Euro, with the currency declining against the dollar by nearly 20% from its previous high late last Fall. Memories are indeed short.

We feel that our Fund portfolios are currently well positioned, particularly in light of some of the macroeconomic challenges we are facing around the globe. Our Fund portfolios have very little direct exposure to the PIIGS (Portugal, Ireland Italy, Greece, and Spain), our financial exposure in Europe is limited to a couple of insurance companies, and we have no investments in European bank stocks at this time. The bulk of our investments today in Europe and elsewhere are in larger, globally diversified, conservatively financed businesses that generate a considerable amount of their sales and profits in the emerging markets, and often pay an attractive dividend. While many of these companies, such as Nestle, Diageo, Heineken, Unilever, Kone, Novartis, and Total, among others, are headquartered in Europe, they are truly global enterprises. In our view, valuations remain reasonably attractive, and business is steadily improving. While many western governments wrestle with how to rein in large deficits, businesses have adjusted relatively well to the new economic realities.

10 May 2010 Tweedy Browne - Q1 2010 Commentary
As we mentioned in our last quarterly update, there is a quality bent to the portfolio today reflecting where value is showing up in global equity markets. While higher quality companies performed quite nicely during the last year, the bounce off the recession low was largely driven by lower quality stocks, led by financial, media and small cap securities as well as emerging market equities. The top 20 holdings across our four Funds continue to consist for the most part of larger, globally diversified high return on capital businesses that trade at very reasonable multiples of estimated earnings and have a dividend yield on average of nearly 3%. They generally have strong balance sheets, which should allow them to withstand any economic turbulence we may face, and many of them benefit significantly from sales into the emerging markets. So, while our direct exposure to the emerging markets may be modest, our indirect exposure is quite significant and we think at much better prices than those available investing on a direct basis.

As a value-based, bottoms-up investment manager, our market view is a function of individual security values, and given the advance of global equity markets over the last year, global equities in general are pretty fairly valued today. Finding opportunities as a result has become more challenging. Nevertheless, we are still uncovering opportunities, albeit at a slower pace. Despite the healthy returns we enjoyed over the last year, we feel that our Fund portfolios are still very reasonably valued and well positioned for the future.

29 Mar 2010 Webinar: A Discussion With the Managing Directors of Tweedy Browne
Will Browne, Tom Shrager, John Spears and Bob Wyckoff of Tweedy Browne share their perspective on value investing in today's global equity markets (1hr. 32min.)...

28 Jan 2010 Tweedy Browne - Q4 2009 Commentary
With global equity markets up approximately 73%(MSCI World Index) from the market bottom in early March of last year, stocks today in general appear to be fairly to fully valued. That said, from our perspective, it is more a market of stocks and not so much a stock market with some stocks more attractively priced than others. As with previous stock market collapses, the bounce off the bottom was led by lower quality stocks, those that suffered the worst declines during the downturn. While most stocks were up nicely for the year, steadier, higher quality businesses, particularly those that pay a dividend, significantly underperformed lower quality non-dividend paying issues, and today we believe offer investors much better value. For example, in 2009 the 370 stocks in the S&P 500 that paid some kind of a dividend were up 27.7% on average versus a return of 82.4% for the stocks that did not pay a dividend. The same held true for global equities with the stocks that pay a dividend in the MSCI World Index up 32.3% versus a return of 75% for the stocks in the index that did not pay a dividend. In general, the higher the dividend yield the lower the return in 2009. As we got closer to year-end, dividend stocks perked up, and were in part responsible for our Funds’ strong 4th Quarter results.

For the most part, the top 25 holdings in our Funds’ portfolios, which account for approximately 75% to 80% of the portfolios, are chock full of these steadier dividend-paying companies with more sustainable demand characteristics. On average, as of December 31, 2009, they were trading at approximately 15x current year estimated earnings and had a dividend yield on average of over 3%. This compares favorably to indexes such as the S&P 500 and the MSCI World, which were trading at over 17 times earnings. These are companies that are for the most part globally diversified, have solid balance sheets, sell products to an aspiring and growing global middle class, and pay an attractive dividend. Many of these companies such as Heineken, Unilever, Nestle, Diageo, Phillip Morris International, and Novartis, among a host of others, derive a surprising amount of their revenues and profits from the emerging markets, and from our point of view this indirect approach is a cheaper and safer way to invest in these rapidly growing Third World economies. So despite the robust returns we enjoyed in 2009, we feel that our Funds’ portfolios are still relatively well positioned, and attractively valued.

16 Dec 2009 A Top Value Investor Dies - A Career Spent Finding Value
To thrive as a value investor, Christopher H. Browne once said, you have to "risk being called a dummy from time to time."

"Investment management is for us a 'grunt work' business," Mr. Browne wrote in a 2001 letter to shareholders. "Were you to visit our offices, you would be reminded more of the reading room in a college library than some frenetic trading room at a major brokerage firm."

14 Dec 2009 Christopher H. Browne of Tweedy Browne Company dies
We would like to extend our heartfelt condolences to his family, friends and colleagues at Tweedy Browne.

-- Dataroma team

29 Nov 2009 Tweedy Browne - Q3 2009 Commentary
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.

27 Jul 2009 Tweedy Browne - Q2 2009 Commentary
...the 2nd quarter presented us with a welcome respite from unprecedented equity market volatility and economic turmoil. The snapback in equity markets over the last three plus months has been fast and furious, and was not unlike that which has occurred from past recession lows. That said, the market has come a long way awfully fast despite the continuation of deep economic problems. Should equity market volatility return, we still have a modest level of cash reserves to take advantage of pricing opportunities. While we have no idea what the near term holds in terms of equity market performance - and stocks could certainly go lower before they go higher - we are quite optimistic about the long term, and continue to view this environment as a buying opportunity.

20 May 2009 Tweedy Browne annual letter
...unprecedented flight to a “safe harbor” on the part of investors, with government bonds or money market funds being the preferred parking spot whether you were American, French, German or Singaporean. (Money market funds currently hold approximately $3.8 trillion dollars – a trillion dollar increase from 2007.) Investors quickly discovered the problem was not just a US problem as large quantities of these “toxic” debt securities were found on the balance sheets of financial institutions all over the world, particularly in Western Europe. In a matter of months, financial markets and economies experienced what Warren Buffett has termed “cardiac arrest,”...

There is no doubt that many economies face enormous challenges. There is not going to be a simple or quick fix to solving the economic problems, nor are economists likely going to be able to pinpoint which decisions started the economy on a recovery path once it begins. Today, the old adage in the media that “airplanes landing don’t make news; airplanes crashing make news” has never been truer. We are overwhelmed by negative news, which no doubt affects people’s behavior and makes a bad situation worse. Comparisons are routinely drawn between the 1930s on the one hand and Japan’s “lost decade” on the other. There is no dearth of “informed” opinion on these matters, only a dearth of consensus of opinion. Some observers even debate the future of capitalism. Without in any way suggesting we are trivializing the problems, we don’t subscribe to a 1930s or Japanese comparison.
The current environment is neither one. Nor do we subscribe to the end of capitalism. To paraphrase Winston Churchill, capitalism is the worst economic system except for all the others that have been tried. While no doubt there will be regulatory steps aimed at dampening some of the current excesses, there will be plenty of room to tempt the “animal spirits.” When all of the uncertainty associated with these problems is combined with unprecedented volatility in markets around the globe, the psychological stress can reach a breaking point. Without a framework to ground you in objectivity, the stock market will inform your investment decisions, which carries the risk that the volatility of your thinking will reflect that of the market. As Jeremy Grantham recently observed, this could also lead an investor to become paralyzed and unwilling to make any decisions...

Recent examples of companies whose stocks we have been accumulating in our Funds’ portfolios and which illustrate our thinking are Norfolk Southern Corporation (United States), Krones AG (Germany), Henry Schein Inc. (United States) and Guoco Group Ltd. (Hong Kong).

A stock that we own in the Tweedy, Browne Value Fund and have recently been buying for our Worldwide High Dividend Yield Value Fund is Norfolk Southern Corporation (“NSC”), which is one of the seven remaining Class I US freight railroads. (We have also made investments of late in both Burlington Northern Santa Fe Corporation and Union Pacific.) Norfolk Southern transports raw materials, intermediate products, and finished goods across a rail network covering primarily the Eastern and Southeastern part of the United States. It stands out not only because it is one of the statistically cheapest of the railroad stocks, but it also has a very attractive dividend yield.

Our interest in the rails is driven primarily by the pricing power they now have as a result of a significant reduction in rail capacity over the last 20 years. Since the rails were deregulated in 1980 they have consolidated, shed employees, and taken significant track out of the rail system which, when combined with slow but steady increments in traffic volume, has resulted in a tripling of track utilization. The pricing power of the railroads really emerged when volume growth resumed coming out of the 2001 recession. By then, the dust had settled on rail consolidation and integration issues had stabilized. The industry was left with only six Class 1 railroads (down from about 23 in 1980 and 76 in 1965) and it became apparent that the industry was capacity constrained. Today, the primary focus of the railroads is on improving returns on invested capital. They have shown that they are completely unwilling to sacrifice price for volume or invest in their networks unless they can earn economic returns on their investment. In addition to tight capacity, NSC’s ability to raise prices is aided by high levels of shipper captivity. Between 50% and 70% of NSC’s shippers have no alternative means of shipping their freight. Lastly, we like the fact that there are high barriers to entry and virtually no risk of technological obsolescence. These factors, when taken together, have allowed the rail industry to raise prices and thus increase returns on capital.

We think the railroads will be able to raise prices in the 5% to 6% price range for the next several years. With rail cost inflation averaging about 3%, we believe Norfolk Southern will experience increasing margins, returns on invested capital, and free cash flow. As volumes pick up, and the railroads continue to take market share from trucks, we think that Norfolk Southern should be able to grow operating income in the low double digits for the next several years. For these reasons, we think Norfolk Southern is intrinsically worth at least 10x EBIT, and feel comfortable buying it in the stock market at 6x to 7x EBIT...

23 Feb 2009 The Graham & Dodders
...there is a whole generation of value investors that are following in the footsteps of Benjamin Graham, David Dodd and now Buffett.

Today, Tweedy, Browne is again buying stocks, but it does not make the sort of big bets that Buffett does in individual companies.

...One such company is Burlington Northern Santa Fe Corp, in which Buffett has a significant stake. The reason: Railroads are seeing an operating improvement and are getting reasonable rates of return on capital. They also have an enormous advantage over other freight movers, such as trucks. According to Tweedy, Brown's managers, it costs about a penny to move one ton of coal one mile, but as much as 15 cents to move it one mile on a truck.

If there was ever a legendary fund, it's Sequoia (SEQUX), managed by New York-based Ruane, Cunniff & Goldfarb. This mutual fund was co-founded by Richard Cunniff and William Ruane, Buffett's stockbroker, in 1970. It got a boost right from the beginning because Buffett, who was liquidating his own investment partnership, advised his clients to take their cash to Sequoia.

Among the companies that Sequoia currently holds are Martin Marietta Materials, Idexx Laboratories and Mohawk Industries.

20 Jan 2009 Tweedy Browne Q4 2008 commentary
We have no idea how the stock market will perform in 2009, although we suspect that the market will be characterized by ongoing volatility given the negative economic and corporate news flow. On the other hand, we do know that our portfolio is trading at a significant discount to our estimate of the underlying intrinsic values...