Turtle Creek investor presentation

[LC]

 

Pretty good 30 min presentation about how they think about value investing.

[mranski]

It sounds like they trade in and out of existing or previous holdings instead of buy and hold. Not very buffett like. It makes you wonder about tax drag, but they seem to overcome that. I think I read somewhere that they did well trading BRK.

[Liberty]

It sounds like they trade in and out of existing or previous holdings instead of buy and hold. Not very buffett like. It makes you wonder about tax drag, but they seem to overcome that. I think I read somewhere that they did well trading BRK.

 

They partially scale in and out as relative valuations change among their portfolio picks, it's not trading in and out fully like most do it. Maybe they have mostly non-taxable LPs?

 

Not being like Buffett doesn't have to be a bad thing. There's not just one way to invest well, especially since Buffett had a lot more churn when his AUM was still small (and I don't mean just cigar butts.. he sold stuff like Disney and Capital Cities (bought back in when they bought ABC, iirc), I think).

[CorpRaider]

Peter Lynch used to trade around his positions like that, I think. 

[TwoCitiesCapital]

It sounds like they trade in and out of existing or previous holdings instead of buy and hold. Not very buffett like. It makes you wonder about tax drag, but they seem to overcome that. I think I read somewhere that they did well trading BRK.

 

Even Buffett isn't very Buffett like when compared to his 40-year old self.

 

 

[K2SO]

Turtle Creek got in pretty deep with Home Capital group a few years ago. I would venture to say that if HCG didn't get the lifeline from Buffett it would have taken Turtle Creek down with it. They kept averaging down as the price fell and ended up owning a huge chunk of the company with essentially no exit plan. It worked out well for their investors but I'm not sure how many actually appreciated the risk at the time.

 

[LC]

Turtle Creek got in pretty deep with Home Capital group a few years ago. I would venture to say that if HCG didn't get the lifeline from Buffett it would have taken Turtle Creek down with it. They kept averaging down as the price fell and ended up owning a huge chunk of the company with essentially no exit plan. It worked out well for their investors but I'm not sure how many actually appreciated the risk at the time.

 

Very interesting - thanks for the context and a good lesson that one needs to be very, very wary of mid-cap credit risk.

 

A factor of Turtle creek's strategy is the relative valuation trades/re-balancing within their portfolio. This strategy only works IFF you own very high-quality businesses with zero/near-zero probability of capital destruction. A difficult ask, to be sure. But, it allows you to potentially trade quite profitably within your portfolio, perhaps even ignoring absolute valuation.

[Guest]

Turtle Creek got in pretty deep with Home Capital group a few years ago. I would venture to say that if HCG didn't get the lifeline from Buffett it would have taken Turtle Creek down with it. They kept averaging down as the price fell and ended up owning a huge chunk of the company with essentially no exit plan. It worked out well for their investors but I'm not sure how many actually appreciated the risk at the time.

 

I've wondered how many of these lucky breaks most famous investors get to make their name. I've mentioned it before but look at SEQUX. If Ruane didn't go to class with Buffett, there is a very good chance they wouldn't have purchased Berkshire. Without Berkshire, I think they would have barely beat (perhaps underperformed) the S&P 500 over the lifetime.

[Liberty]

Turtle Creek got in pretty deep with Home Capital group a few years ago. I would venture to say that if HCG didn't get the lifeline from Buffett it would have taken Turtle Creek down with it. They kept averaging down as the price fell and ended up owning a huge chunk of the company with essentially no exit plan. It worked out well for their investors but I'm not sure how many actually appreciated the risk at the time.

 

How deep? They seem to have many positions and not be *that* concentrated. Sounds like it could've hurt performance, but take the whole fund down? I'd need a bit more evidence or numbers to believe that against my priors that they have at least 15-25 positions at a time.

[K2SO]

Turtle Creek got in pretty deep with Home Capital group a few years ago. I would venture to say that if HCG didn't get the lifeline from Buffett it would have taken Turtle Creek down with it. They kept averaging down as the price fell and ended up owning a huge chunk of the company with essentially no exit plan. It worked out well for their investors but I'm not sure how many actually appreciated the risk at the time.

 

How deep? They seem to have many positions and not be *that* concentrated. Sounds like it could've hurt performance, but take the whole fund down? I'd need a bit more evidence or numbers to believe that against my priors that they have at least 15-25 positions at a time.

 

Yeah, maybe I overdid it with the hyperbole, thanks for calling me out. There's no leverage in the fund so one big position that went to zero would not have taken the fund down. They own 25 stocks (always 25!) but this one position had ballooned. I don't have the exact info on holdings so I won't speculate. This is all second-hand info on my part.

 

Turtle Creek sold to a lot of unsophisticated and pseudo-sophisticated families based on performance numbers. A collapse in HCG would have put a permanent huge dent in those numbers, and therefore would have done irreparable damage to the firm. I think that's what I was getting at.

 

 

[Rod]

Turtle Creek's strategy is reminiscent of Allan Mecham's--both of them carve out a group of superior companies from the market. In the case of Mecham, I believe it's about 100, and with Turtle Creek it's 25. Going by memory, Mecham tries to own the cheapest 10 or 15 from his universe at any given time and rotates them as valuations change, while Turtle Creek owns their whole universe, but adjusts the weightings. The Turtle Creek approach is essentially the same as Mecham's, but less bold.

 

I think the concept of identifying a universe of superior companies, following them long term, and getting to know them intimately is a great strategy. For individual investors it would be enough to find 10 or less and then just own the cheapest 4 or 5. And as a small investor, you could dredge up your own Top 10 from amongst the smaller and illiquid companies so you are not dealing with the well-followed, large cap compounders like Costco, for example.

[LC]

I think the concept of identifying a universe of superior companies, following them long term, and getting to know them intimately is a great strategy. For individual investors it would be enough to find 10 or less and then just own the cheapest 4 or 5. And as a small investor, you could dredge up your own Top 10 from amongst the smaller and illiquid companies so you are not dealing with the well-followed, large cap compounders like Costco, for example.

 

Hell, you could function as a hedge fund in the original sense of the term and buy the market with a % of your portfolio; then integrate your top 5/10 superior companies and trade around their relative values. At the very least it would appear to be a moderating factor to smooth out market gyrations, at best it would be a cause for out-performance.

 

Turtle Creek's strategy is reminiscent of Allan Mecham's--both of them carve out a group of superior companies from the market. In the case of Mecham, I believe it's about 100, and with Turtle Creek it's 25. Going by memory, Mecham tries to own the cheapest 10 or 15 from his universe at any given time and rotates them as valuations change, while Turtle Creek owns their whole universe, but adjusts the weightings

The other thing is that Turtle creek does limit their universe to mid-cap companies, so not the full market universe.

[nspo]

Turtle Creek's strategy is reminiscent of Allan Mecham's--both of them carve out a group of superior companies from the market. In the case of Mecham, I believe it's about 100, and with Turtle Creek it's 25. Going by memory, Mecham tries to own the cheapest 10 or 15 from his universe at any given time and rotates them as valuations change, while Turtle Creek owns their whole universe, but adjusts the weightings. The Turtle Creek approach is essentially the same as Mecham's, but less bold.

 

I think the concept of identifying a universe of superior companies, following them long term, and getting to know them intimately is a great strategy. For individual investors it would be enough to find 10 or less and then just own the cheapest 4 or 5. And as a small investor, you could dredge up your own Top 10 from amongst the smaller and illiquid companies so you are not dealing with the well-followed, large cap compounders like Costco, for example.

 

Well said! Great strategy overall

[K2SO]

FWIW, The Turtle Creek US and Canadian funds were down 29% and 33%, respectively, in the month of March.

 

[thowed]

Turtle Creek's historic performance was phenomenal (so good I was a little suspicious).  However, a few years back, people noticed - AUM rocketed, and they closed the fund.  I don't think they've done quite so well since then, so perhaps it's not working with all that extra money.

 

The OG fund now has a lot more US cos than they used to (size again?) - I suspect that their core circle of competence was Canadian firms, and they just don't have enough edge in US companies - lack of connections etc.

 

I have found their materials to be very interesting reading.

[shspyc]

latest interview of Andre Brentron (recorded Nov 2019)