Kennon-Green & Co. Global Asset Management and Value Investing

One of the most famous value investors of the past 100 years was a man named Christopher H. Browne.  His father started a small firm, Tweedy, Browne & Company, that was Benjamin Graham’s stockbroker.  It was through Tweedy Browne that Warren Buffett bought his personal shares of Berkshire Hathaway, taking control of the textile mill he would transform into one of the richest conglomerates on the planet.  Legendary value investor Walter Schloss worked by the Tweedy Browne water cooler where he ran his investment partnership with some index cards and a copy of Value Line.  This was a place where they all hung out when they were young, poor, and learning the ropes of capital allocation.

Chris BrowneLater, Tweedy Browne turned itself into a money management firm.  They first started an investment partnership and then launched a mutual fund called the Tweedy Browne Global Value Fund.  Up until that point, it was the only mutual fund I ever allowed my own family to own.  It remains the only mutual fund that I’ve ever owned personally.  When I was off at school, I had my parents setup accounts for their own retirement, taking their profits from the manufacturing business and buying shares in the portfolio that Chris Browne, his brother, and a few other directors managed using a strict value discipline.  That way, I could focus on studying classical music, history, philosophy, accounting, finance, economics, and other topics without having to worry about allocating their savings at the same time I was busy.  A few times a year, I’d go through the SEC disclosures, run my own intrinsic value analysis on their holdings, and decide I was happy with the situation.  I even helped some of my parents’ employees setup their own retirement accounts in the fund.

They held onto their shares during a time when the fund was in the top 10% of all global funds for more than a decade.  To this day, the profits on the Tweedy Browne portfolio, coming in the form of both capital gains and dividends, amount to more than 25.5% of their retirement holdings even though they no longer own a single share*.  From Johnson & Johnson to Novartis, Heineken to Nestle, the blue chips they indirectly owned through the fund itself did their job extraordinarily well.

I have tremendous affection for the people at Tweedy Browne.  When I was still in high school, I would write their office and request copies of their papers and speeches, which they would mail to me in the Midwest.  The documents would arrive in these green envelopes, all of which are still highlighted, marked, and sitting in my file cabinet.  I read, re-read, and over-analyzed nearly everything their office had published, going back decade after decade during which they compounded their partners’ money at 15%+ per annum by purchasing lower-risk assets.

[mainbodyad]I’d order the annual reports of the new stockholdings they acquired, trying to reverse engineer their logic.  Later, when I was in college, I wrote their office and they invited me to visit for a day, have lunch with one of their analysts, and poke around to see how it worked behind the scenes.  (I had a chicken salad sandwich with an analyst named Laura Jereski in a little conference room.  She was in the middle of a battle with a corporate tycoon named Conrad Black, who would later go to prison.  I very much doubt she’d remember the oddly-enthusiastic-music-major who peppered her with questions for a couple of hours about the structure of the fund, but it meant the world to me.  Seeing Will Browne in his pink cashmere sweater surrounded by all that investment research, quiet as a library, made me realize that, without a doubt, this was what I wanted to do with my life.  To my inner numbers geek, this was as close to paradise as one could find on Earth.)

Christopher Browne’s Death and the Inheritance War That Followed

Sadly, Chris Browne developed severe health problems a few years ago and died shortly after retirement at only 63 years old, though he continued to be productive, writing the bestselling Little Book of Value Investing and giving speeches.  His final days were not all roses as he reportedly battled severe alcoholism until the end and left in his wake a series of events that sound like something out of a Spanish soap opera.  Court documents say he passed away alone, in a bar, leaving behind a $260,000,000 net worth, almost all of which went to his significant other of ten years, an architect by the name of Andrew Gordon.  The two lived in their dream home in the Hamptons.  The house sat on an 18-acre estate and had a private beach, formal gardens, and pond.  They also had an apartment on Park Avenue.

Christopher Browne Little Book of Value InvestingAfter he drew his last breath, a dozen of Chris’s relatives and acquaintances, including his private chef (who wanted $4,000,000), sued Andrew, contesting the will and attempting to seize the assets.  Given that Chris and Andrew had never married despite spending a large part of their lives together (it had only been legal in Connecticut for a blink of an eye and New York was still two years away from offering equality), the whole thing was messier than it should have been had they simply tied the knot.  Ultimately, Andrew prevailed with a settlement secured in the midst of his own battle with cancer.  He (Andrew) held on for a few years before succumbing to his illness, passing away last autumn at the age of 52.  As per the terms of the estate plan, the property reverted to Chris’s family because he and Andrew had no children together.

The family got their hands on the house, put it on the market, and it just shattered real estate records, becoming the most expensive private home sale in the history of the United States, going for $145,000,000 as hedge fund manager Barry Rosenstein took possession of the keys.  While it is a nice home, it’s wildly overvalued, having no connection to any sort of intrinsic justification based on the numbers.  The irony is sublime.

The whole thing strikes me as sad.  To have accomplished that much in your life, and contribute so significantly to your field of work, yet die alone in a bar, have your last wishes contested by those supposed to care about what you wanted as they attempt to throw your significant other out on the street in the middle of a cancer battle that he will ultimately lose, and then have the estate you spent your final years building hawked to the highest bidder at auction seems like something out of a Charles Dickens novel.

It also proves Charlie Munger’s point that the age to which you live determines, to a great degree, your ultimate net worth and reputation.  Had he lived to be Munger’s age, and earned perfectly boring rates of return, Browne could have easily ended up with more than $4,000,000,000 as the compounding rate worked on a larger pool of capital.  Would anyone have known who Munger was if he had died at 62?  I’m not sure.  There’s a big element of random probability in life.  It’s not fair, but that’s the way it is.  We all have to suck it up and deal with it.

[mainbodyad]Additionally, the situation proves the wisdom, in some cases, of distributing assets prior to death and / or using iron clad trust funds with enough teeth to make those who would fight them think twice, as well as demonstrating how dangerous addiction is.  Addiction can take down even the most impressive intellects.  I think the man or woman who finds a way to cure addiction will be one of the most important figures in human history.  Almost no other endeavor could indirectly prevent so much human unhappiness, death, and destruction.

* Following the death of Christopher Browne, some retirements, and the most recent move from New York to Connecticut, most people I know have divested.  Update July 31, 2016: In the case of our family, ultimately we intend to make Kennon-Green & Co., the global asset management firm we are in the process of opening and that should begin taking clients within a couple of months if all goes expected, the central investment structure in our lives; the firm through which we seek to grow, preserve, and protect the capital we’ve earned and that will ultimately serve our future children and grandchildren.