Interview #112 : Brett Dorendorf (Shadowridge Value)
Knowing yourself is key
For this issue we have the pleasure of interviewing Brett Dorendorf from Shadowridge Value.
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Hi Brett, thanks for taking the time out to do this interview.
Can you please tell readers about your background, and how you got involved in investing?
Hi Jon, thanks for your interest. I grew up in San Diego doing the usual things like playing sports and going to the beach, went to college locally at UCSD, and remain here to this day.
My introduction to investing came late and was somewhat serendipitous. I started working in defense contracting after school and simply wanted to learn about stocks and investing for retirement purposes since I found myself in charge of a 401k account.
From there I went down the proverbial rabbit hole and became enamored with the stock market. I had found my passion and read as much as I could from all the investing greats – Buffett, Greenblatt, Lynch, Klarman, etc.
Having no accounting or finance background, I was incredibly green and even a bit skeptical the opportunities they discussed to make money really existed. But after an Australian net-net worked out for me and I made a few bucks, I was hooked and wanted to learn more.
That’s when I sought out a local mentor who’s become a friend, Axel Krohne, of Krohne Capital. He provided some ideas on how to break into the investment management industry.
In short, 1) read everything about investing you can get your hands on, 2) enroll in the CFA program, 3) continue to make investments in your personal account, and 4) network. By the way, if you’re looking for an adventurous portfolio manager, Axel has run his fund for over 20 years and nobody does more on-the-ground research in frontier markets than him.
After I passed level II of the CFA still working in defense, I leveraged that as an indicator that I had the minimum background necessary for equity research work.
I was fortunate enough to get the attention of Brandes Investment Partners here in San Diego where I would subsequently work as an Equity Research Associate covering financials, real estate, and industrials for five years. The team at Brandes was fundamentally rigorous and valuation oriented so I learned plenty, including:
the importance of knowing an industry’s cycle and that it may not align with the broader economic cycle;
how to avoid optically cheap companies that are overearning due to a factor they don't control (such as commodity prices);
capital cycle theory, where it’s more important to pay attention to what's happening with industry supply vs. demand;
companies need a clean balance sheet in order to survive downturns; and
management and corporate governance can make or break an investment
However, while working on the institutional side, I also found liquidity constraints and other institutional mandates somewhat limiting, which led me to follow through on my dream of managing my own RIA, which is where Shadowridge Value came in.
At the end of 2024 you decided to close down Shadowridge Value. What led you to take this decision?
Two primary factors contributed to the decision. First, returns for clients were just mediocre. While everyone made money over the course of a couple years from 2021 to 2024, compared to the S&P 500, I didn’t really think my returns warranted continuing to charge fees for clients.
Perhaps I’m a harsh grader and should’ve given myself more time to execute, but the world has so many investment managers. The second part of the equation was that my firm was extremely subscale and didn’t exactly pay the bills. I lived off of savings for a few years initially, but in 2023, I joined a local public company as part of their Investor Relations team to provide an income while continuing my work on the RIA on nights and weekends.
Going out on my own was something I felt I had to try, dating back to my first thoughts of getting into the industry and I’m glad I did. However, my approach was never centered on capital raising or marketing. Instead, I only ran several accounts for some friends and family members.
My plan was to produce returns better than the S&P 500 and then use the track record after several years to increase AUM and scale. Unfortunately, I didn’t accomplish the goal of beating the index.
What was the hardest part of managing a fund? And what are the lessons you learned from the experience?
Oh geez, there are so many lessons learned…how much time do you have?
First, I’d say investing is a personal endeavor so knowing yourself is key. What I didn’t know about myself was how much more I would feel it when investment performance was lagging. In my personal portfolio, I can watch a stock decline by a meaningful amount, even 50% without it really bothering me as long as the business is fine.