Jonathan Tepper, CIO of Prevatt Capital, discusses investing in global monopolies. He explores buying undervalued companies post-COVID, navigating portfolio management, and personal influences on his career. Tepper emphasizes financial literacy, bravery in investing, and the strategies behind his unique approach.
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Quick takeaways
Jonathan Tepper's unique upbringing in Spain influences his investment approach and focus on quality global monopolies.
Prevatt Capital's investment strategy involves concentrated portfolios to maximize stock performance impact and minimize risk.
Diversification by industry and geography, strategic position sizing, and capital allocation based on expected returns are vital investment principles.
Deep dives
Jonathan Tepper's Upbringing and Unique Education in Spain
Jonathan Tepper's childhood growing up in Spain involved unusual experiences due to his parents' mission work with heroin addicts. Living in Madrid's area of high crime and heroin use, his family helped addicts, and Jonathan distributed flyers to raise awareness. His education included self-learning from an extensive home library, studying advanced topics from his brother's college textbooks, and achieving advanced placement test credits.
Investment Strategy Development and Company Evaluation Process
Tepper's investment strategy focuses on quality companies that offer value and are considered natural monopolies due to providing essential services efficiently. He and his team conduct thorough industry and company analysis, mapping out value chains, reading extensively, and engaging with management. The strategy involves investing in companies with intrinsic value below market price, assessing potential opportunities during market downturns, and monitoring for any changes in thesis.
Concentration and Diversification in Portfolio Management
Tepper maintains a concentrated portfolio of 10 to 20 stocks, averaging around 16, to ensure meaningful impact from stock performance. This approach contrasts with excessive diversification, allowing for an in-depth understanding of each company. Balancing maximum concentration with diversification enables Tepper to focus on strategic investments while minimizing risk across a diversified range of industry sectors and geographies.
Importance of Industry and Geographic Diversification
Diversification by industry and geography is emphasized to avoid overexposure to specific factors like tech or consumer staples. Allocators prefer alpha over beta exposures, making diversification crucial to ensure multiple streams of potential returns.
Position Sizing and Management Strategy
Position sizing involves starting below the full desired position to allow buying opportunities during market fluctuations. Trimming or adding positions based on performance is preferred over stagnant holdings. Avoiding over-trading and optimizing portfolio by allocating capital based on expected IRR are key principles followed in managing positions.
Jonathan Tepper is the CIO of Prevatt Capital, a $450 million long only firm he founded in 2020 that takes a quality and value approach to own a concentrated portfolio of global monopolies. He is also the author of The Myth of Capitalism, a book we discussed alongside his career path on the show five years ago. That conversation is replayed in the feed. Our conversation this time around bookends our prior discussion, covering Jonathan’s unique upbringing and education on one end and his creation of Prevatt Capital to apply the lessons from The Myth of Capitalism on the other.
As a disclaimer, I so took to Jonathan when we first met that I’ve been an advisor to him and Prevatt Capital since launch and am an investor in the strategy.