Investment Process

“We believe that getting lost in too many details and information does not necessarily mean higher profits. We like to keep things simple.”

Idea generation

Our investment universe is the Turkish Stock Market with over 400 listed companies, but our research universe is made of around 150 companies, due to  corporate governance, asset quality or liquidity concerns. Our idea generation comes from our own research & company visits, not from broker reports or market rumours.

Stock selection

We frequently monitor our research universe to detect inconsistencies between market values and our intrinsic value estimates, driven by analysing business characteristics, financial statements & audit reports and public disclosures. We filter companies which we believe trading at an attractive valuation (especially on net asset value), and try to identify the reasons for undervaluation. We are not interested in relative values.

Portfolio construction

We include a company in our portfolio usually after we make a company visit, which is one of the best ways to evaluate management quality and find out what is really going on in the business (especially in a less efficient market).  We believe that if we can not summarise an investment case simply in just 3 or 4 bullet points, probably it is not a good idea.  Sometimes we may buy a company without clearly seeing any catalyst, most probably the reason why it is so undervalued. As one of the legendary investors, Walter Schloss said: “If a business is worth a dollar and I can buy it for 40 cents, something good may happen to me”.

Portfolio management

We believe that over diversification is a major hindrance to the portfolio performance. We would rather prefer to own a concentrated portfolio of around 20 stocks with strong investment convictions (after all, how many good non-consensus buy ideas can go unnoticed by smart investors?). We think the decision to sell a portfolio position should be based on a change in those frequently monitored investment convictions or in a situation where proceeds can be re-invested into a stock offering a greater discount.  If we believe the valuations do not look appealing any more, we might increase our cash level and/or hedge the portfolio if necessary.