Interview with Todd Ahlsten of Parnassus Investments
Jan 24, 2024
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Todd Ahlsten, Chief Investment Officer and Portfolio Manager of Parnassus Investments, discusses his background, investment process, and market insights. Topics include becoming CIO of Parnassus, qualities of successful investors, Parnassus' operation, 'short shelf-life information,' macroeconomic analysis, and valuation criteria.
Parnassus Investments focuses on finding socially responsible stocks with sustainable competitive advantages.
Todd Ahlsten emphasizes the importance of narratives and math in assessing stock potential and encourages creative thinking.
Valuation is a crucial factor at Parnassus Investments, with a focus on justifying premiums and aiming for 8-20% returns over three years.
Deep dives
Parnassus Investments: A Focus on Quality and Sustainability
Parnassus Investments is a unique company that focuses on finding stocks that can outperform over the long term while also being sustainable and socially responsible. They prioritize investing in businesses that are innovative, treat their employees well, and have a positive impact on the environment. Their investment philosophy revolves around growth at a reasonable price, looking for companies that are relevant in the economy and have sustainable competitive advantages. They aim to find both long-term compounders and companies that are part of exponential industries with short-term dynamics, such as semiconductors and life sciences. Communication and collaboration are key within the team, focusing on narratives, math, and sentiment to make informed investment decisions.
Todd Alston: Chief Investment Officer at Parnassus Investments
Todd Alston, the Chief Investment Officer at Parnassus Investments, has been with the company for nearly three decades. He emphasizes the importance of finding stocks that go up, focusing on narratives and math to assess the long-term relevancy and potential returns of a stock. He believes in maintaining a balance between looking for new ideas and avoiding wasted effort, and encourages his team to think creatively and imaginatively. In terms of macro outlook, Todd spends about a third of his time thinking about macro trends, particularly central bank policies, liquidity, and interest rates. He sees the current macro backdrop as an inflection point, with rates peaking and a transition towards lower rates and higher liquidity in the future.
Valuation, Selling, and Portfolio Management at Parnassus Investments
At Parnassus Investments, valuation is a crucial factor in the investment process. They consider the starting multiple, justified current multiples, and potential multiples expansion over three years. The team focuses on justifying the premium or discount to S&P, looking for stocks with exceptional moats and relevancy that can provide long-term alpha. They underwrite stocks based on reasonable earnings estimates and aim for 8% to 20% returns over three years. Trimming or selling positions may occur when fundamental expectations are not met or when the return potential falls below 8%. Parnassus Investments also emphasizes communication and collaboration within the team, using quarterly and monthly meetings to discuss investment ideas, macro outlooks, and portfolio positioning.
Portfolio Construction and Risk Management
When constructing their portfolio, the speaker emphasizes a high conviction, bottoms-up approach. They focus on owning high-conviction stocks, with their top 10 holdings accounting for over 40% of the portfolio. Starter positions and watch positions are avoided as they are considered distractions. The speaker also highlights the importance of considering risk and evaluates quantitative factors, overweighting or underweighting certain factors based on market conditions and cycles.
Investing Team and Research Process
The podcast discusses the structure and process of the investing team at Hornassus. They have a deep team of 25 people, including 19 analysts and portfolio managers, spread across sector teams. Each analyst covers 10-20 stocks and is expected to pitch new ideas. The research process involves sector team meetings, where analysts pitch their ideas, backed by narrative and math. A deep dive is then conducted on promising ideas, resulting in investment summaries that follow a consistent template. Not all pitched ideas are bought, but the focus is on finding the best ideas that can improve the portfolio. Analysts are encouraged to find their own ideas, as creativity and curiosity are valued.
Todd Ahlsten is the Chief Investment Officer and Portfolio Manager of Parnassus Investments. Todd is also a panelist on the prestigious Barron's Roundtable. In this episode, we discuss Todd's background, investment process, and what he sees in the market today. Listen in for topics like:
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