I wanted to devote an article to a legendary guru Christopher Browne who recently passed away. Christopher Browne passed away of a heart attack this past sunday Decembember 13th. Browne joined Tweedy Browne in 1969 and became a director in 1974. He remained at this position until two years ago when he stepped down due to health problems. According to the New York Times Christopher Browne helped Warren Buffett take control of Berkshire Hathaway in the 1960s.
Tweedy Browne was founded as a brokerage in the 1920s for inactively traded stocks and bonds. Benjamin Graham noticing that the brokerage had many securities trading below their intrinsic value decided to use Tweedy Browne as his broker. Graham became their prime customer and Tweedy Browne opened up an office next to Graham. Howard Browne (Christopher’s father) joined the firm in 1945. Warren Buffett joined the firm several years later as did Tom Knapp. Knapp did not want to buy and sell securities and make a few dollars on the spread, he wanted to hold them as investments. After his arrival Tweedy Browne transitioned itself from a broker into an investment firm. Tweedy Browne is a classic value fund it uses Benjamin Graham’s approaches for its investments. This includes stocks with low P/B, and low P/E ratios. Christopher Browne described Tweedy Browne as “the Vatican City of value investing”. Tweedy Browne’s value fund has domestic and foreign stocks. In addition the firm has several mutual funds that are devoted to foreign securities.
Christopher Browne walked into the firm one day in 1969 to borrow $5 from his father to pay for a train ride. Edward Anderson who worked at the firm lectured Christopher for the next two hours about value investing. Edward offered him a summer job from which he never left. University of Pennsylvania lowered their degree requirements and Christopher was able to complete his degree without returning to college. Christopher spent most of his time working with Ed scanning through Standard & Poor’s, Moody’s, and bank directories looking for stocks trading under book value or net asset value.
Christopher is the author of two books. One book which Christopher is a co-author of, is a manual entitled What Has Worked In Investing. The manual is free from Tweedy Browne’s website tweedy.com. The manual describes five different approaches the firm uses in evaluating securities.
1. Low Price in Relation to Asset Value
2. Low Price to Earnings Ratio
3. A Significant Pattern of Purchases by Insiders
4. A significant Decline in a stock’s price
5. Stocks with a small capitalization
The manual provides extensive data regarding the out performance of stocks possessing any of these criteria in relation to the market averages. In addition many of stocks which posses one of these criteria posses several if not all of them. A stock that has a low P/E is likely to also have a low P/BV, to have experienced a significant decline in price, to be purchased by directors and officers and many times to have a small capitalization and ignored by the market. In addition these stocks will have a large margin of safety relative to its intrinsic value in terms of earnings power, and asset value. The manual is excellent and is free with Tweedy Browne’s prospectus, and application, I highly recommend it.
The other book authored by Christopher Browne is titled The Little Book of Value Investing. The book is not a detailed account of how to analyze securities. Some of the ideas in the book might appear simple to advanced investors, however I think Christopher Browne’s personal insight and the way he presents these ideas makes the book valuable even to sophisticated investors. The best part of the book is chapter 14 titled Send Your Stocks to the Mayo Clinic. In this chapter, Browne provides an excellent list of questions that an investor should ask oneself before investing. These questions provide a good insight into Christopher’s thinking and gives an investor a good mind frame for what type of company to buy. I think for this chapter alone the book is worth purchasing. He goes into more depth then I do here, but here is a brief summary of his questions:
1. Does the company have the ability to raise its prices 2. Can the company sell more units 3. Can the company increase profits on existing products( ie. by using different suppliers to cut costs) 4. Can the company control its expenses 5. Can the company raise sales without increasing its costs 6. Is the company as profitable as competitors or as profitable as it used to be 7.Does the company currently have one time expenses, which will not occur in the future 8. Can the company get rid of unprofitable divisions 9. How much can the company grow over the next few years, and how will it achieve this growth 10. What does the company plan to do with excess cash 11. What does the company anticipate its competitors will do 12.What is the company’s return on capital 13. Is the company in good financial shape 14. What is the P/E ratio relative to competitors and why 15. What price would the company be sold at 16. Does the company plan on share buy backs 17. Are insiders buying stock
Anyone who wishes to purchase the book on amazon.com can find it by following this link The Little Book of Value Investing (Little Books. Big Profits)
I hope this article was a tribute to the memory of Christopher Browne. The man was not only a great investor but more importantly a great person. He gave money to charity, and tried to improve our society by helping educational institutions, this is the most important less on of all.