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Value Investing With Turtle Creek Asset Management

Many traditional value investors will shy away from company management. Traditional value investing, as taught by Benjamin Graham, is based on the idea that the numbers themselves should do the talking. Therefore, there’s no need to waste time getting to known company managers (investors with other styles also adopt this approach, although for different reasons.)

But this hands-off approach isn’t for everyone. Andrew Brenton of Turtle Creek Asset Management prefers the hands-on approach. He has a skill for seeking out uniquely positioned companies, run by skilled managers, which are being undervalued by the market.

The results speak for themselves. Since 1998, Andrew Brenton’s firm has produced a net annualized 25.7% return, vs. 7.1% for equal weightings in the S&P 500 and S&P/TSX indexes.

Andrew Brenton recently sat down for an interview with the Value Investor Insight magazine, which was published in the September 30 issue. Here are the highlights from the interview.

Turtle Creek: Highly intelligent companies only

Andrew Brenton only invests in what he calls “highly intelligent companies.” These companies must understand the environment in which they operate and be focused on maximizing shareholder value even if that means, “harvesting capital from their business and returning it to their shareholders.” Companies must be ambitious, and focused on driving home their advantage over competitors.

Management is just as important. Andrew Brenton wants to know everything about the management team in place at the company. The longer they’ve been around, the better:

“We gravitate toward companies with relatively long management tenure. It sounds obvious, but you can look at what they’ve done. How did they manage through this rough patch? How did they integrate that acquisition? How did they respond to that competitor? Much of our research is around understanding history and context, not unlike piecing together a well-written story. We’re looking simply for operational excellence and great capital allocation, which are hard to find in the same...