The Culture of Value Investing

In a June interview with WealthTrack, host Consuelo Mack talked to the senior portfolio managers of Tweedy, Browne Company—a firm which in the past held brokerage accounts for both Benjamin Graham and Warren Buffett and has been described by Berkshire’s Charlie Munger as “spiritual descendants of Ben Graham.”

In the interview, Mack spoke to William Brown and John Spears about their traditional value approach to investing and how it has evolved over the years. Here are highlights:

  • Browne argued, “There’s still a tendency to reduce this whole idea of value investing down to a couple of simple quantitative metrics,” citing price-book and price-earnings ratios as examples. He added, “I think that’s a very incomplete definition of what this process is about,” explaining that he views investing as a process involving buying fractional interests in a businesses. “We refer to is as ‘Graham’s big idea,’ ” he explains, and argues, “If you accept that framework, that’s going to drive everything that you do every day when you come to the office.”
  • Spears explains that the top holdings in the firm’s Global Value Fund all have “a great deal of stability in their income and in their demand,” and boast strong competitive advantages. He emphasized the firm’s “basket approach” and how any single stock can significantly underperform but that, if you own a solid portfolio, “on average you’re going to be a winner as opposed to a loser.”
  • On their significant holding in Berkshire Hathaway stock, which has lagged the market over the past decade, Browne argues, “It’s a far better index fund than the index because you’ve had a person in there picking good businesses to put into his index and I don’t think anyone can question that he hasn’t been prudent and thoughtful about how he’s used his capital.”
  • Given what Mack described as today’s increased “firepower” in the industry in the form of big data and technological advances, she asked the managers whether they believe it’s harder to find opportunities that someone else hasn’t already identified. Browne responded: “I don’t think more data brings more judgement, and there’s a judgement aspect to all of this.” He underscored the importance of objectivity and said that, while news headlines are interesting, “a lot of what goes on in the world just isn’t’ relevant to what we’re trying to do from an investment perspective.” Spears added, “The concept of what we do is inherently simple.”