Tweedy Browne: Why Insider Buys + Low Valuation Stocks Outperform

In a recent interview on WealthTrack, John Spears of Tweedy, Browne shared the empirical research that led to the creation of their new ETF. “The big thing I think that tipped the scales was the empirical research that had been done before by Professor Seyhun,” Spears explained.

The findings were compelling: “When you copy the insiders and you also have a low price-earnings ratio and a low price or a low price to book value, you’re in the cheapest 20%… those stocks beat the market by an eye-popping amount, by typically over 10 percentage points.”

This phenomenon was not isolated to the U.S.; their own global study found it “repeated over and over and over again.”

This strategy hinges on differentiating meaningful insider purchases from routine transactions. Spears detailed their process: “It really has to be a free will purchase. They’ve already met their compensation, their employment agreement requirements for ownership of stock, and they’re buying more.”

He cited UnitedHealth as a prime example where the “signal just punched you in the face,” with a cluster of executives making significant, voluntary purchases. This is combined with a focus on robust stock buyback programs, which Spears noted, “seems to be correlated with excess returns at least over the next 12 months.”

When asked about the current state of the market, Spears was direct, pointing to a chart from Howard Marks that “just punched us in the face.” The data showed that when the S&P 500’s P/E is about 21 times or higher, “the forward returns are nothing or loss.”

With the market at a 28 multiple, he stated plainly, “This is a really high priced market… So I’d go elsewhere.” He contrasted this with international valuations, where metrics like a “4.4%” dividend yield and an “11 times” P/E ratio present a more compelling opportunity.

Throughout the discussion, Spears returned to a foundational principle from Benjamin Graham, calling it the best investment advice he ever received. “There are two prices for every stock. There’s the intrinsic value… and if that’s $100 a share and you can buy it, let’s say at 50, you’re getting 2 to 1.”

This arithmetic of buying at a discount remains, as Spears concluded, “elegant, beautiful to me and others at our firm,” in a market often driven by momentum rather than value.

You can watch the entire interview here: