Low-Turnover CompoundingThe Acquirer's Multiple
During his recent interview with Tobias, Elliot Turner, Managing Partner at RGA Investment Advisors and Twitter guru discussed Low-Turnover Compounding. Here’s an excerpt from the interview:
Tobias: How do you characterize what you do now? How would you describe an optimal opportunity or your process for getting to that optimal opportunity?
Elliot: Yeah. There are two things that I’d say are important to me. I started in this professionally in the day trading world, except I’m what you call low turnover now. This is the first year we’ll have exceeded 20% turnover in the portfolio. Once again, rewiring my brain, from hitting buttons like that, to holding things for a long time. 20% turnover means a couple things to me. One is, it means that you really only need to come up with a handful of ideas in a year, if you have an average position size of about 5%. Slow things down, be methodical, take a slow approach toward it.
The other means when you have a 20% turnover, roughly speaking, you’re talking about holding a position on average five years. So, I’m really looking for long-term investment opportunities. I’m looking for businesses who– like my return is going to be driven far more by the business itself, than it will be by a rerating of the multiple or anything of that sort.
When I describe myself, I hate labels, I hate having to categorize myself, but one of the beauties, I think like a label, like GARP, which I fully subscribe to. I mean, depending on the market environment, I could end up more on the value side of the GARP-y spectrum, or the growthier side of the spectrum. I don’t have to be beholden to one or the other, but I do have to, at all times, anchor myself to valuation, that’s a religion. I’m indoctrinated there.
I can’t just say like, this business is qualitatively awesome, and I’m willing to buy it at any price. On the other end of the spectrum, on the other hand, I also do have to say like, “Okay, I’m not willing to purely by a melting ice cube that doesn’t fit my setup. I have to have some sort of structural growth in this business, some sort of opportunity for them to be a little bigger tomorrow and thereafter than they are today.” I think that’s really important to me.
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Article by The Acquirer’s Multiple