We are not a typical value investor. The first thing we want people to know about us is that we do things differently: our approach is different; our methodology is different; and the companies we invest in tend to be different. We were founded on a novel idea—a new way to invest in public equities over the long term—with a focus on seeking to lower risk. Some may wonder if our obsession with mitigating risk translates into unimpressive returns. To the contrary: we believe risk and return can be inversely correlated.
We are an independent investment management firm with a 24-year history that is focused on long-term capital growth for a clientele of high-net-worth families, institutions and wealth advisors. We seek to minimize risk through a deep and thorough understanding of each of our investments and a unique process that enables us to continuously optimize our portfolios. The partners are aligned to a degree that few other firms can match—all of their investable wealth is invested alongside our clients’.
Turtle Creek is where the partners have all of their investable wealth, and it is where a number of investors who know us well have had the bulk of their wealth for many years. Turtle Creek is not run by “salaried” money managers who will simply move on to a new job if their returns are poor. Turtle Creek is run by us—its founders and largest investors. We are investing our own wealth here, to the best of our ability, which we believe creates strong alignment and mitigates concerns around conflicts of interest or lack of focus and attention from one’s wealth manager. In essence, we believe it removes a number of the risks of choosing a manager and allows you to focus on a more limited set of criteria—such as whether the manager is capable, experienced and hard-working. Rest assured, we are.
Identify the right companies.
We believe the single most important decision we make is choosing which of the thousands of public companies deserve our ongoing time and attention. We strive to identify highly intelligent companies—sound businesses with strong, honest management that drive their Business Value3 higher over time. If you look at all public companies through this lens, we believe most do not pass.
Get to know the companies extremely well and determine Business Value.
We spend considerable time and effort assessing the risks and opportunities available to each company and incorporate those assessments into a financial model to determine its Business Value. This value roughly coincides with the price a buyer would pay for the entire entity—we are not trying to be conservative; we are trying to get it right. We also pay attention to company financial leverage and believe the price of an investment is the biggest risk factor. While developing a view of value requires a great deal of effort, doing so prepares us for events that inevitably occur (either market-related or specific to the company) that cause meaningful changes in company share prices.
Diversify, but not too much.
In theory our optimal portfolio is diversified over approximately 25-30 companies in largely unrelated industries, with the size of each holding determined by many factors—the most important being how attractively priced it is.
Don’t sit back and put your feet up: continuously optimize.
Changes in the relative weightings over time are primarily driven by our response to changes in company traded prices. The cheaper a company gets, the more of it we want to own; the more expensive a company gets, the less of it we want to own. We believe risk and return can be inversely correlated.
We do not try to time the market, and we think investors shouldn’t attempt this either.
Furthermore, we do not take a stance on whether the stock market is overvalued or undervalued. To be sure, if we could time the market and know for certain that stock prices were going to fall, then we would simply sell everything, wait for the decline and then reinvest all of our money. We do not believe, however, that it is possible to forecast the direction of the stock market in the short term. Instead, we take a stance on whether each of our companies is overvalued or undervalued. Therefore, as long as we can find companies that we believe are generating strong cash flows, have excellent growth prospects and are trading below Business Value, we are likely to be a fully invested fund. We believe that the best way to earn strong investment returns in the long run is to stay invested.
|↑1||Of course, mid-size companies may also involve greater risks than larger companies.|
|↑2||TCAM has expressed its own views and opinions on this website, and may differ from its peers.|
|↑3||Business Value (which is TCAM’s intrinsic value calculation) reflects TCAM’s best estimate of the present value of a relevant company’s future cash flows and is necessarily comprised of many assumptions, the use of which includes a number of risks and uncertainties that may cause actual values to differ.|