Investment Philosophy

Traditional Investment Philosophy

The investment management principles practiced by Tweedy, Browne derive from the work of the late Benjamin Graham, professor of investments at Columbia Business School and author of Security Analysis and The Intelligent Investor. Tweedy, Browne’s research seeks to appraise the worth of a company, what Graham called “intrinsic value,” by determining its acquisition value, or by estimating the collateral value of its assets and/or cash flow. The term “intrinsic value” may also be referred to as private market value, breakup value or liquidation value. The process is more closely related to credit analysis, for as we have said, we are as concerned with the return of our capital as we are with the return on our capital. Investments are made at a significant discount to intrinsic value, which Graham called an investor’s “margin of safety.” To the extent market conditions warrant, investments are generally sold as the market price approaches intrinsic value, with the proceeds reinvested in other investments that offer a greater discount to our estimate of intrinsic value. Adhering to the principles of intrinsic value and margin of safety results in an investment policy that runs counter to the general market psychology, and seeks to reduce the decision to purchase or sell securities to a discipline rather than an art.

In determining intrinsic value, our research focuses on fundamental principles of balance sheet and income statement analysis, and a knowledge and understanding of actual corporate mergers, acquisitions, and liquidations. From more than 20,000 publicly traded corporations worldwide, we research and select for investment, those issues selling at substantial discounts to our estimate of intrinsic value. To minimize errors in analysis or events which could adversely affect intrinsic values, we adhere to a policy of broad diversification within individual portfolios, with no one issue generally accounting for more than 4% at cost of portfolio assets, and no one industry group generally accounting for more than 20% of portfolio value. Portfolios are not constrained by market capitalization considerations with the result that a significant portion of portfolio assets may be invested in smaller (generally under $2 billion) and medium (up to $10 billion) capitalization companies.

Most investments in Tweedy, Browne portfolios have one or more of the following investment characteristics: low stock price in relation to book value, low price-to-earnings ratio, low price-to-cash-flow ratio, above-average dividend yield, low price-to-sales ratio as compared to other companies in the same industry, low corporate leverage, low share price, purchases of a company’s own stock by the company’s officers and directors, company share repurchases, a stock price that has declined significantly from its previous high price and/or small market capitalization. Academic research and studies have indicated a historical statistical correlation between each of these investment characteristics and above-average investment rates of return over long measurement periods.

Investments in Value Stocks that Pay Higher than Average Dividends

On September 5, 2007, Tweedy, Browne launched a new fund, the Tweedy, Browne Worldwide High Dividend Yield Value Fund. While this fund is steeped in our value philosophy, it is somewhat different from our more traditional value mutual funds. This Fund seeks long-term growth of capital by investing in companies around the globe that the Adviser believes to have above-average dividend yields, an established history of paying dividends and reasonable valuations. The firm has managed some accounts with this strategy since 1979 and began to offer it more broadly beginning in 2006.

There are a number of reasons why we believe dividends are important:

Past performance of markets or of any individual security is not indicative of future results.