Hi. This is Matt Brundage here at Bridgehouse, and I recently had a chance to speak with Mark Costa, Director of the Investments Group at Brandes Investment Partners. In a world where everyone wants to know what stocks to pick, I asked him about what Brandes is looking to avoid. Here's what Mark had to say. That's a great question. You sound like Charlie Munger. He always talks about invert, invert, invert. And so how do you build a great portfolio? You avoid buying bad stocks.
So, you know, a big part of what we do is we look into the value deciles and we get rid of "cheap for a reason" names. We're not just knee- jerk sort of dumb value. We're not going in, looking at something that's trading at nine times earnings and assuming that it's a good buy. There are many companies that trade at low PEs that should trade at low PEs. And one of those would be, like, regional banks, for example, United States.
These is these are the companies we would characterize as secondary type businesses, where you are essentially buying a business that as is at a considerable competitive disadvantage against the scale large-cap players. And so when you think about, you know, a Hungarian wireless telco operator or an Irish beverage company that's got sixty, seventy percent market share, you are buying the dominant player that's scaled. Right?
And you can have confidence that it will survive the next ten, twenty, thirty years. But in this space, it's just, we just think that the the market's not assessing the risk correctly. And, you know, as you look at regulatory changes since the GFC in the United States, it's really given those regional banks a bigger and bigger scale disadvantage. and so what the result is is that in order for them to compete, they've got to take on more leverage. They've got to pursue worst credit.
And the combination of that, is you get really, really bad risk-reward at the buy price. And so from our point of view, there are better businesses to own. We don't need to own regional banks just because they're a big part of the benchmark. If you look at the Russell 2000, the regional banks are about eight to ten percent of the benchmark. They're closer to fifteen to twenty percent of the value benchmark. And we historically have had a very, very low allocation, to the space.
So not only are we active against the the overall benchmark, we're quite active even against the value benchmark.