T2 Partners' founder and Tilson Focus manager Whitney Tilson says he's willing endure short-term volatility with a concentrated portfolio in exchange for hopefully higher long-term returns.
Ryan Leggio: In running your mutual fund, I know you run a very focused portfolio; a significant amount of your assets [are] in your top 10 holdings. How do you think about portfolio weightings in a portfolio like that?
Tilson: Well, we're not closet indexers, for sure. We're not trying to own the whole market or have exposure to every sector. It's very, very difficult to find deeply undervalued stocks.
We work really, really hard, my partner and I, and if we're lucky we find a dozen that we really have conviction in. We want our portfolio concentrated, focused, on our best ideas, hence the name, the Tilson Focus Fund.
About 65% of our fund today is in our top 10 ideas. Hard for me to think of any mutual fund more concentrated that that. In the short term, it can bounce around a lot in terms of value. This year, we're up 57%. So when it works, it really works.
Our absolute highest conviction ideas are going to be at 8%-12% position. Anything we want to own is going to be at least a 4%-6% position. If we don't have enough conviction to put that much of our fund into it, we don't want to own it.
We don't believe you can beat the market by owning hundreds of stocks and tracking the market. We're willing to endure short-term volatility in exchange for hopefully higher long-term returns.
