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Andrew Brenton

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2023-12-08
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2023-12-08
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  1. “larger companies, we have found no correlation between call it market cap and market efficiency. I think they're all inefficient. They're all mispriced at times. But you're right. And you think about that 20 to $25 billion market space in North America. That's a big space. That's a lot of companies. And so we are pretty busy, as I mentioned earlier, still working our way through the scale and size of the US market is substantial. We've still got a lot of work to do to call it if there is any finish to continue to at least get close to finishing our work of identifying and flagging the kind of companies in the US that we might want to own in a game, which is that first step in our investment process.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  2. “Our experience in the smaller cap space, I'm not sure that investors get compensated for the risk they're taking. So when we look at that mid-cap space, when you've got a 10 or $20 billion market cap company, market cap meaning they have earnings that justify that market cap. I don't mean earlier stage or some of the tech companies. So well-built out companies that are trading at attractive valuations. They've gotten past a lot of that earlier company risk. And at least in our experience, they're very attractively valued at times. Not all of them. A lot of companies we follow today are trading above our view of their intrinsic value, but the ones that we own today are trading at significant, I'd say, remarkable discounts to their intrinsic value. And as we grow our AUM over time and as we've interact with”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  3. “Yeah, I mean, part of it is, if you think about our approach, we need access to management. We need to be able to reach out to them. We need to be able to have a call with them after the quarter. We need to be able to go to their investor day. And as I mentioned, we're having dinner with one of our companies tonight, a U.S. company that is in Toronto. Those just a private dinner with them. Those are valuable things for us, just that interaction of just picking up, understanding how they think. And so the market cap, in a sense, falls out of the size of Turtle Creek. You know, think about when COVID hit, we were able to get on the phone with all of our companies within the first week or two. And that was very helpful for us to understand not only what they were doing, but the implications for the other companies that we own. And then I would also say,”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  4. “All you can do is figure out if that this management team, this board, this culture is something that is suited for us today. The expectation that can remain or be retained for the next generation of management, it might happen, and we've seen it happen, but that is a really tough, tough thing to bank on. So like I said, instead, we just think of it as we're looking for generationally great companies and we can find a company that at least for the next 10, 20 years is aligned with their shareholders in doing impressive things and outcompeting the competition. That's as much as anyone can ask for.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  5. “companies that we owned at some point that we don't own today. And what I find interesting is if you put those companies into different three buckets as I think about it, they're almost equal buckets. So one bucket are companies that have been taken private. Somebody's bought them. So you lose them. They may have been great, but you can't own them anymore because they're owned by somebody else. Another third are companies that we still think are great. We're following them closely. They're just not as cheap as the ones we own in the flagship fund today. And then the other third is that bucket of companies that have lost their edge. And it's not surprising over 25 years, you would expect some companies to not be as good as they were 20 years ago. And I always say we're trying to find generationally great companies. And so”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  6. “And you start drilling down and asking questions about the company and this part and how do you incent your salespeople just in a sense the cream rises to the top. So it's just asking questions, being curious. And you just know it over time. Or I shouldn't say know it because we're constantly tweaking our views. We're elevating our views on some of our companies, but we're also decreasing our views on other of our companies. And sometimes our view decreases to the point where we, as we call it, voted off the island. So if you think about the history of our firm in the main fund, I always preface if I say we've only, but we've only owned 115 companies over 25 years, and we own 30 today. So if you think about that, there are, what's the math, there are 85.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  7. “You know, there isn't a checklist. Sometimes I think of it as, well, we're just waiting for them to say something stupid. And when they do, then we realize it's not a great company. There are lots of companies that are great at telling their story and pitching their story. So it's more ongoing conversations or reminds me of recently with one of our longer time holdings where the CEO, they're now under their third CEO, which is transition in a very orderedly way over 20 plus years. He is kind of promotional may not be the right term, but in the quarterly calls and things, he's somewhat just standard in the way he talks.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  8. “above average and a lot of them that we follow are great companies that a company that has five very comps as they say comparable companies or a company where there's really nothing else like it in the public market and so in that step we're really drawn to one of a kind unique companies and because our view is if you're going to do all that work and we do do a lot of work over the years wouldn't it be great to own companies that get more mispriced in both directions and that's really been our experience and i i think you know to a small extent that is one of the sources of our outperformance over time”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  9. “It's just trying to find those highly intelligent organizations. By the way, they don't always stay highly intelligent. You think of over 25 years. We've watched some companies lose their edge. People retire. And frankly, on the reverse, we've seen companies we didn't think were great 20 years ago become really fantastic companies with governance and board renewal and different management. That is a first step when we talk about a different kind of value investing. I'd say the only thing that might be distinguishing in that first step is versus call it a standard or traditional value investor is that I'm really drawn to unique companies, one of a kind companies because I look at the public market and think, what's more likely to get mispriced in both directions? A great company. So assume they're all at least”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  10. “We thought. And so, in essence, we've brought that background to meeting with public companies. Unfortunately, there is no button on Bloomberg that you can hit and say, give me the highly intelligent owner mentality, honest, shareholder-focused for the long-term companies. You have to find them, meeting them one by one. And that's why I mentioned earlier in the first decade when you look at us, it's correct to think of us as overwhelmingly a Canadian equity fund. And then as we 15 years ago said, let's now do the same thing in the US, we found not surprisingly equally remarkable companies and a lot of them in the US and now our main fund is over two-thirds US and therefore less than one-third Canadians.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  11. “Sure. I mean, the first step really is the application of our prior parts of our career, right? If you think about over the years prior to setting up Turtle Creek, I've seen my partners and I have seen hundreds and hundreds of companies gain first as advisors being in the inside, working with management, and then in our phase of private equity, frankly, meeting thousands of opportunities and winnowing that down to 100 that might be interesting enough. And then we ended up investing in around 15 companies back in the 1990s. So we have a lot of scar tissue. We have a lot of experience of saying, that's a good company and that's not. And it's never black, 100% black and white. And then you might think you found a good company. And then as time passes, you realize it's not as good as.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  12. “Just confirmatory that, oh, look, there are other people who think the same way that we do. It's not like we read other people's approaches and said, let's apply that to us.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  13. “Cash in, cash out. It's all about cash in, cash out. And so it wasn't until years into Turtle Creek as I would meet other investors outside because we started on a very tight group. And then as we've grown, we now have investors from around the world. And people would start saying, you're a value investor. And I'd heard the term, but I'd never read any of the value investing material. I have to admit at that time, I did read one of the better biographies of Buffett. And when I read it, I read it over the holidays one year and I thought, gosh, I wish I'd read this 10, 15 years ago because would it have changed? And then I thought, no, in my view, you have to live it. And so the path that we've taken has made us the investors that we are. And as I say, it was only later as I go back.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  14. “Not where is the shares trading every day? As Turtle Creek pivoted to the public market, we continue to marvel at what people are doing out there. It is extraordinary. And it might work. I mean, there are studies that show momentum perpetuates. That might be true. I've never worried about that. Our approach is just fundamental investing. And there is no other way to invest. It's the present value of cash flow. The first time I ever spoke for a prof asked me to go and speak to his investment class a long time ago. And I thought, what am I going to talk about? So I talked about complexity, how companies are really complicated. And you have to accept that and you have to be humble about it. But then I made the comment. And as I said it, I thought he's never going to invite me back. I said, I feel like everything I've learned about investing in business school was in my capital budgeting class.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  15. “I think that's true. Well, it is for sure true that I've never been to Omaha. And we developed our investment approach, which is I think I've heard this term from value investors saying there's only one way to invest. And so it never occurred to me that there might be other ways to invest. In other words, if you go back to the steps in our career. I think sometimes I'll describe it as”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  16. “And we're not activists, we're just engaged investors. And so the journey to me is logical in that, if you think about it, it's first advising, learning, watching good and bad companies, frankly, making bad acquisitions or great acquisitions, and then taking that experience and applying it to being a control shareholder as a private equity investor. And then taking that combined experience to now in the last 25 years being a minority investor, but in an engaged way with public companies that we own.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  17. “I kept seeing what I thought were better run companies. I traded a much more attractive valuations in the public market, and I thought, I don't want to spend my time sitting on boards. I'd rather instead spend my time sorting through the public market for us first in Canada in the first decade. And in the last 15 years now in the US, and if we ever finish with the US, we'll look to other parts of the world like Europe, perhaps. to identify the type of company that we wanted to potentially invest in.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  18. “And so if you think of the next phase of my, I guess our career was having the opportunity or being asked to look at setting up a separate division, subsidiary inside the bank we were at, the large Canadian, one of the large Canadian banks, to be a private equity investor, i.e. control investments typically on our own. And so we took that knowledge from acting as an advisor and now had to be a principal. We actually had to write checks and sit on boards and control the company. And I think through that period, we really developed an appreciation of the complexity of corporations. And that's one of the things I think we bring to the public market. But as we were doing that part of our career investing, and we had good returns, it's not like that didn't work out and we had to go try something else.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  19. “Company, and then we would go in often to meet with some of their big investors and talking about maybe they were looking at doing a deal or they want to lock up. I realized the accounts really didn't know the company very well. I mean, they were a shareholder. They owned it, but they didn't know it as well as by then I did, given the work I had done. So it put pay to my view that the efficient market thesis, if you think back to the 1980s, when I went to business school, I think that was the height of the efficient market theory. And I came through that process thinking, oh man, markets are far from perfect. They're far from efficient. There are a lot of inefficiencies. And so that thought was in my head even in that early period of my career. And in fact, my two co-founding partners at Turtle Creek were at the same firm. They were younger than me and they were both in M&A.”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT

  20. “Sure, happy to do that, Clay. I mean, when I was in business school here in Canada, I had concluded that I wanted investing was what I wanted to do. But especially back then, because that was a long time ago, there weren't a lot of what I'd call there weren't a lot of jobs like joining a firm like Turtle Creek at the time. Plus, I needed to make money. And so I turned and focused on joining one of the investment banks and as a mergers and acquisitions specialist or advisor because I thought, what better way to learn about what companies pay for other companies or divisions than to work in that world day one as a young kid fresh out of school? And it really was great schooling, if you will, over that time. You know, it was then that I noticed that as I got to worked with a client, or if I did even just a little bit of work with a”

    2023-12-08 · We Study Billionaires · TIP592: Outperforming the Market since 1998 w/ Andrew Brenton · IDENTIFIED FROM THE TRANSCRIPT