Bob Wyckoff MANAGING DIRECTOR Highlights Bob Wyckoff, managing director of Tweedy, Browne Company draws on the wisdom of great investors over the last century as his company recently celebrated its 100th anniversary. The past can inform the future. We can all learn by revisiting two extended periods when value stocks underperformed on a huge scale and compare them with the current era when disruptive tech stocks have, once again, been outperforming value. The Nifty Fifty The first period (when value stocks underperformed growth stocks on a huge scale) can be highlighted in the years leading up to 1972 when an extended bull market had taken a group of growth securities to extraordinary levels. They were iconic companies known as the “Nifty Fifty” and included technology companies of that era such as IBM, Texas Instruments, and Xerox as well as a host of other companies including Walt Disney, Coca-Cola, and McDonald’s, which had been considered “one-decision” stocks that did not fall in stock price. But in the following two years, many of them lost two-thirds of their value. When thinking about today, it is also interesting to note the collapse of the Nifty Fifty happened amid rising inflation and an oil shock caused by the Arab oil embargo. The Dotcom Darlings The second period occurred in the years leading up to 2000, when a group of so-called “dot.com darlings” such as Cisco, Sun Microsystems, and Microsoft, several of which had achieved extraordinary price/earnings valuations of 100X earnings or more, then crashed even more spectacularly, brought down by the weight of excessive valuations. The Fabulous FAANGS + Microsoft (FANMAG) Over the last decade, we have had another group of innovative companies that have captured the imaginations of investors, and with the help of zero interest rate policies, helped lead equity markets to all-time highs. What Happens Next Growth investing always feels better, easier. Value investing requires the ability to look wrong for a while. Over the last decade, value investing did not prove to be as profitable as paying up for technology stocks. Articles in the financial press even reported, not that long ago, that value was dead, dying, or at the very least compromised. But we believe that if you look at the metrics differently—if you focus not just on price-to-book value, but instead on earnings-based enterprise multiples—then you see a different story. While value metrics such as price-to-book have performed poorly, value-oriented companies with low enterprise multiples have performed better. Looking back over the last 50 years, the resurgence of value should be reassured. And while it’s hard to know for sure, we believe we could be in the midst of that resurgence today, as rising inflation and the prospect of higher interest rates, once again, appear to be wreaking havoc with highly valued, speculative growth stocks. So, Lesson #1 is that price matters. Don’t give up on value investing. Stay on the Bus! If the past is indeed prologue, this time is not different, but simply a normal period of underperformance for an investment approach that has handily beaten its growth counterpart for much of the last century, albeit in a very lumpy manner. (Of course, past performance is no guarantee of future results.) Lesson #2 is simple enough: Don’t forget Lesson #1.