When it comes to position sizing, concentration, diversification, etc everyone will be different. There is no right or wrong. You find a strategy that gives you an edge and position sizing that keeps you emotionally neutral. Just like a fingerprint each one of us will be different. Don’t be afraid to be unique. Be afraid if you’re not.
Turtle Creek Asset Management has produced 18.6% annual compounded returns for its investors over the last 20-years. I encourage you to read their 2019 Annual Letter [HERE]. Andrew Brenton, co-founder and CEO of Turtle Creek recently came out of his shell (sorry couldn’t help myself) and gave a rare presentation entitled:
A Different Type of Value Investing (H/T recorded by valueDACH)
Andrew Brenton articulates Turtle Creek’s four-step investment process.
- Picking the Right Kind of Company – Unique businesses that are hard to understand but not impossible to understand. “We are looking at companies through a lens of ‘This one might get mis-priced at times”.
- Valuation: Intrinsic Value – “We are discounted cash flow investors, but where we are different is we are not conservative in our forecasts. We are trying to get it right. We are not making the most conservative assumptions.”
- Portfolio Construction: Sizing Positions – “We have a logical methodology to size a position appropriately. If we size it correctly at the onset, we know what to do when the price goes down or increases.”
- Continuous Portfolio Optimization – Every day they are buying/selling small bits of their positions based on 1% increases/decreases in stock price. Over a 12-month period on average they turn 55% of the portfolio. “We are buy and hold until the price changes. Our willingness to systematically add as prices drop and sell as prices rise is a big driver of our outperformance.”
If you only read the bolded words above you probably thought, “That doesn’t sound unique”, but if you read the descriptions you would think, “hmmm that is different”. Alpha is often generated by being just a little different in a disciplined and thoughtful way.
How are you different?
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