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This was passed along to me,...I found it interesting
so I am posting it for the group. If too long for you,..
just hit the delete key.
Tweedy Browne is a VALUE oriented shop,..very
much focused on buying a dollar's worth of assets
for $.50,...etc. Their investment style is out of vogue,
..but their thoughts that follow are not what I would
have expected. Enjoy the rest of the weekend.
Regards, JIM Pilliod jpilleafe@xxxxxxx
**********************************************
Tweedy Browne - Words of Wisdom
Quotes from the March 31, 1999 Annual Report:
"Technology stocks are less of a factor in Europe and Asia than they are in
the U.S. In Europe, telecommunication stocks were the big movers. Anyone
who has tried to order a phone system in Europe or has paid a phone bill
there will understand why there is so much potential for growth in European
telecommunication stocks."
"The skewing of the indexes to large companies is further compounded by a
concentration in large technology companies. The S&P 500 was historically
an index of industrial America. Today, it is increasingly concentrated in
technology stocks, which for the time being are measured by a different
valuation model. Potential future earnings are much more important than
current earnings. The NASDAQ Index is even more skewed. The five largest
stocks are all technology issues. Again, stock portfolios are generally
built around diversification, not concentration. A typical portfolio will
have stocks in many industries; it will generally not have one-half of the
assets invested in one industry. This is done for the purpose of lowering
risk. While a concentrated portfolio could outperform, it could also
seriously underperform if the area of concentration goes out of favor."
"Railroads, autos and personal computers all grew to be large, important
industries. However, the stocks one could buy to participate in these great
growth industries for the most part were bad investments."
"Great growth industries often have the common characteristic of ease of
entry with low capital requirements. Despite the fact that the auto
industry today is a highly capital-intensive business, the opposite was the
case in the early part of this century. The same may be said for the
Internet. Add to this the fact that the pace of technological change today
is so rapid, what is cutting edge technology one day can be passe the next.
Ease of entry and low capital requirements draw competition and while
competition is good for consumers, it is bad for profits."
"We recently participated in The Program of Investment Decisions and
Behavioral finance at the Kennedy School of Government at Harvard
University, as we have twice a year for the past several years. The
speakers are some of the most prominent behavioral economists in the country
along with a few investment practitioners like ourselves. We feel honored
to be included. The economists are the theorists who perform all the
empirical studies on people's investment behavior. We are the lab rats who
put the theories into practice. We either come away wit some new insights
each time or feel as if we have been to a refresher course in rational
behavior as it relates to investing. One insight we picked up this year was
that in the investment world, ideas are dangerous. This may sound strange
at first, but it is actually true. Most investment ideas are based on
intuition or hunches and usually lack any empirical substantiation. Most
investment ideas are derived from whatever has worked well in the recent
past. What else could explain the euphoria surrounding Internet and
technology stocks? However, what has worked best most recently may not
always work well for long. As Ben Graham said, "In the short run, the stock
market is a voting machine. In the long run, it is a weighing machine."
"Stocks are bought merely because they have gone up and the approach becomes
self-fulfilling. Little or no consideration is given to whether there is
any investment value underlying the price that is being paid. Value does
not count for anything in the new paradigm. What is forgotten isthat not
everyone can get out if and when the game ends. There will be just as many
shares outstanding and someone will own them when the day of reckoning
comes."
************************
P.S. Two interesting (similar) articles on Warren Buffet on Bloomberg:
<A
HREF="http://www.bloomberg.com/bbn/topfin.html?s=2cd96eb8b68c64721a402cb53b25a
b22">Bloomberg.com : Top Financial News</A>
or cut and paste....
http://www.bloomberg.com/bbn/topfin.html?s=2cd96eb8b68c64721a402cb53b25ab22
<A
HREF="http://www.bloomberg.com/bbn/topsum.html?s=e69630cdd36f18129200f10c79b67
0c2">Bloomberg.com : Top Financial News</A>
or cut and paste...
http://www.bloomberg.com/bbn/topsum.html?s=e69630cdd36f18129200f10c79b670c2.
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