Much like a flower, a value opportunity sometimes takes longer than expected to blossom. So, as both an avid gardener and a stock picker, Philippe Brugere-Trelat knows a lot about patience. He learned the importance of being a methodical investor from value pioneers Max Heine and Michael Price during the early days of his career at Mutual Shares. Now an executive vice president and portfolio manager for Franklin Mutual Series®, Brugere-Trelat has had his patience tried through a variety of market conditions. In an interview with Beyond Bulls & Bears, Brugere-Trelat reflects on those economic ups and downs, and admits that whether in his yard planting trees or in the field visiting companies, he likes getting his hands dirty.
Executive Vice President
Franklin Mutual Series
Beyond Bulls & Bears: When did you first become interested in the mutual fund industry?
Philippe Brugere-Trelat: In 1984, I met Max Heine, the founder of Mutual Series, then called Mutual Shares, and Michael Price (who later became president and chairman of Mutual Series). I came from a French private-banking professional background, and was living in London at the time although I was eager to live and work in the United States. I met Michael through a mutual friend. Michael and Max, at that time, were not managing a great deal of money, maybe about $500 million, but they already had a terrific track record and a very good reputation. Both were very curious people. Max was always searching for new angles to discover value. At that time, they were looking at whether they could find investment opportunities in Europe that were similar to those they were finding in the United States. I showed up one day on their doorstep. Being French, having lived in London, with pretty good connections in the city of London— the rest is history.
Beyond Bulls & Bears: What did you learn from Max and Michael ?
That’s easy. I learned absolutely everything from Max and Michael. I learned how to be contrarian, to be thorough, how to be patient, how to keep my emotions in check. I really learned everything about value investing from them. Max, sadly, passed away a few years after I joined the company, but when Michael took the mantle, it was the same thing. I had two wonderful professors.
Beyond Bulls & Bears: What defines your approach as a portfolio manager?
Philippe Brugere-Trelat: Value and stock-picking. Whether value is in vogue, whether it’s popular or fashionable or not, at Mutual Series we’ve done only one thing—value—since 1949, when the company was still known as Mutual Shares. That’s what we know, that’s what I think we’re good at, and that’s what I practice every morning.
By value, I mean we look for stocks which we believe look cheap from, for example, a price-to-earnings1 standpoint. At the same time, we look for catalysts at the time of the investment decision which may reduce or eliminate that discount. It’s easy in theory, but it’s sometimes more difficult to achieve in practice.
Beyond Bulls & Bears: You have been quoted as saying that you aren’t an activist investor, but that “it pays to be a little forthright with a portfolio.” What did you mean by that?
Philippe Brugere-Trelat: Most of the time, we have very good relationships with the management of companies that we’re invested in. We never invest in a company where we haven’t met management. And once we’re invested, one of the key parts of our investment process is to keep in close contact with the management of that company. As stock-pickers, we build a portfolio company story by company story. Contact with management is absolutely key in our process. Most of the time, we have an excellent relationship with management, because they know we are long-term investors. They know that we’ve done our homework, and that we’re supposed to ask the hard questions.
When we think management is not doing what they should do in the interest of the shareholders, we’re not shy. We let them know what we believe they should be doing. That can take a variety of forms, including public letters and proxy battles in order to change the management. That has happened not only in North America but also, more occasionally, in Europe, where we have been instrumental in pushing for better-quality management and more shareholder-friendly management.
Beyond Bulls & Bears: What is the toughest or most frustrating part of your job?
Philippe Brugere-Trelat: The toughest part, I would say, is to sell a holding. To me, it’s much easier to buy a stock which is attractively valued than to sell one which has done well. Investors tend to fall in love with their positions, particularly those that do very well. But we try to be disciplined. We try to sell when our fair-value target has been reached and there’s no particular reason to change it, but sometimes it’s difficult. Selling is always much more difficult than buying.
The frustrating part of my job? Every day’s a frustration! But every day also is a big excitement. The wonderful thing about the mutual fund business, the investing business, is that it’s never the same. You learn something new every day. When the time comes that I’m no longer learning, I will realize that it’s time for me to go. But I think it’s the greatest job in the world. You meet smart people. You’re on