Drew's Views

Insights from the CIO of Albert Bridge Capital
All Posts

Volkswagen and Porsche SE are stuck in Wall Street’s pits. Stock investors, start your engines.

In our view, Porsche SE, with a recent 14 billion euro market cap (and trading over €40 billion a day), is one of the most underpriced, liquid, listed assets available to investors.

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Stock Market History Illuminated, 2023 Style

An illuminating color-coded infographic showing the distribution of US stock market returns by decade and annually for a long, long, time.

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Hedge Fund Investing, Turnover, and Taxes

For taxable investors, the impact of taxes on long term post-tax returns really, really matters. But how much exactly do they matter? What sort of outperformance does one of your managers need to generate to offset the penalty of not buying and holding forever?

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Stock Market History, Illuminated, 2022 Style

I’ve been keeping a graphic of the long-term performance of the US stock market for many years now, and I’ve been sharing this information in the histogram below. I think it does a reasonable job of revealing how long-term returns are manufactured and the tilts over time. I’ve color-chunked the data by decade to highlight decades of historical weakness as well as periods of strength. I’ve also added additional tables and charts which I think are interesting, and in some cases, stunning.

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What Stands in the Way Becomes the Way

I don’t think that Aurelius, Frost or Zweig would disagree that the road less traveled might have a little more alpha in it.

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Interest Rates and Growth Stocks

It's very possible, if not likely, that the move in growth stocks from 2017 through 2020 probably wasn’t caused or justified by a move in interest rates, but that people believed, and acted like, it was.

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For Investors, a "Never-Sell" Mantra is a Song for Fools

On the misleading claims of Hendrik Bessembinder about diversification; and the convenient, post-hoc, and the spurious conclusion to always buy and hold.

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A Conversation between Drew Dickson and Morgan Housel

A discussion between Drew Dickson of Albert Bridge Capital, Morgan Housel of The Collaborative Fund; moderated by Jamie Catherwood of O'Shaughnessy Asset Management

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On the Disincentives of Investing in Public vs. Private Equity; and Implications for Pricing and Returns

Just as the public markets can be affected by short term flows, is it possible that private market valuations, and the periodic marks of particular private investments, have been affected by increasing allocation tilts toward private equity?

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Why European Stocks Might Win

In an op-ed for Marketwatch, Drew explodes the myth about European companies, and reveals where he thinks the opportunities are today.

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Finding Alpha in Europe

Drew and Toby chat about narrative-driven investing, Ben Graham's voting machine, behavioral explanations for stock mispricing, and managing a concentrated portfolio of investment ideas.

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Sell in May and Go Away?

Turns out there may actually be something to the old Sell in May and Go Away adage - at least over the last 80+ years.

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The Politics of Passive Investing

Most of us in the finance world are well aware of the evolution of “passive” equity investing over the years, and have witnessed its tremendous growth. Some of us have asked questions about it. We’ve asked is it all good? Is it mostly good? Are some aspects perhaps bad? Are some really bad?

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If Growth Stocks Sell Off Will They Bring Value Stocks Down with Them?

Growth stocks crushed just about everything from 2017 through 2021. Not that they necessarily will, but if they do give back some or all of their gains, given their weightings, times will be tough for broader indices. But what about the value names within them, will they sell off in sympathy as well? Of course no one knows, including ourselves, but we take a quick look at behavior of value names as the tech bubble sold off from 2000 through 2002. This example may be worth some consideration.

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Which One Are You?

So, if you are in the taxi, what is your first move (and you can’t say “do nothing”). Are you trimming or adding?

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Was Ben Graham a Quant?

The short, and relatively unknown, paper is chock full of wonderful anecdotes and pearls of wisdom, but it was the interview portion that really caught my attention.

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Do Short Term Flows Permanently Affect Share Prices?

I’d like to think that prices can get out of whack for some period of time, and in that window, the nimble, unbiased, fundamental stock picker can take advantage of overreactions and underreactions. If they don't, then the M&M propositions truly hold, and I don’t have a meaningful job. However, if this paper is right, and it is only flows that matter, then while the M&M theorems are overturned, I don't have a meaningful job either. If it is all about flows, then I shouldn't play the game.

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Just How Cheap is Europe vs. the US, and Should it Be?

As it turns out, it isn’t that the people are paying a bigger growth premium for US Growth over European Growth; but instead it is that people are paying a (much) bigger multiple for US Value than for European Value.

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Are American Companies Better than European Ones?

If we again go back and start the clock on January 1, 1980, and stop it thirty years later on December 31, 2009, we see that the S&P 500 generated annual total returns (with dividends) of 11.5%. During that exact same period, guess what the annual returns of the MSCI Europe were? Also 11.5%. This last decade, however, things have gotten out of whack.

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Rumpelstiltskin and Meme Stock Investing

“What sort of sorcery is this?” Is this financial alchemy powering a perpetual motion engine that will result in higher and higher share prices?

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Archegos, Disclosure, and Price Discovery

This had a lot to do with bad banking, but most to do with an overzealous client. Meanwhile, it had very little to do with holdings disclosure. Sure, our kneejerk reaction is (always) for more regulation, because we want to believe that some regulatory response will immediately solve all our future problems. But we should question this intuition.

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It's All About the Fundies

It wasn’t passive flows that mattered. It wasn’t interest rates that mattered. It wasn’t the multiple that mattered. It wasn’t an ever-expanding infectious narrative that mattered. No analyst on the buy or sell side came remotely close to understand the market opportunity, the share, the profitability. It was about better vision, modelling. and analysis. It was all about the fundies.

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On Unlimited Upside

He implies that a biased sample of self-selected winners suggest that it is a mistake to ever sell any shares in any companies that you think are “winners” either historically or prospectively. That sure would be nice, wouldn't it?

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A Memo to Investors

I know, these are weird and trying times. It all makes you wonder what the point of stock-picking is. What is the purpose of kicking the tires, looking under the hood, and doing our jobs?

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Investors? Possibly you!

FATMAN-G. No, that isn’t my rap name, although vaguely appropriate (I mean, the G part of course). That’s our new moniker for the Avengers[1] of the equity capital markets, to which we have now added Tesla. FATMAN-G is Facebook, Amazon, Tesla, Microsoft, Apple, Netflix, and Google.

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Avengers Assemble!

Amazon is, very simply, a tremendous company. Google is also a tremendous company. The same goes for Microsoft, Apple, Netflix, and Facebook. These are the superheroes of capital markets. In these FAMANG stocks, the Avengers have assembled.

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How Did This Even Happen?

No, I’m not talking about the winner of the Presidential election or COVID-19 or 2020. I’m talking about something I saw Rex Chapman tweet out over the weekend.

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Cue the Camouflage

The S&P 500 is up 6.5% this year. That’s a total return number, and given what is going on out there, it’s pretty impressive.

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The Times that Try Stock-Pickers’ Souls

On first principles, there is one way to generate excess stock market returns over the long term, and it isn’t to “own winners at any price.”

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A New Ice Age?

I’ll spend $3 at the 7-11 for a bag of ice, and drop it in a cooler. I really like ice.

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Grandpa Stocks

There are young companies out there that are exciting, growing quickly, and very clearly have the world in front of them.

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Bubblicious?

COVID-19 and related counteractive policies have had an extremely negative impact on domestic and global economies. Whether or not you believe that the policies weren’t strong enough, or if they were overzealous, we are where we are.

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In Flew Enza

World War I began in 1914, and the US declared they would join the fight in April of 1917.

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COVID-19 and Equity Markets

My wife’s family is from Tuscany, and Italian is her first language. Four years ago, she wanted to get out of London for the summer, and headed over to Italy with the kids. But instead of visiting her cousins, aunts, and uncles in Florence, she chose instead to spend 40 days in Venice.

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Regulators to the Rescue?

Market authorities across many European countries have announced plans to prohibit short-selling (to varying degrees) for the foreseeable future.

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Perspective

I started an investment club in college with $100. I had seven buddies that also saved $100, so we had $800 all-in.

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We Don’t Make Pizzas

Here at the Albert Bridge Restaurant, the investment team has the chefs, the IR team has the waiters, and the operations team ensures that the shop runs smoothly so that we can keep on serving up alpha (hopefully) to you, our customers.

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Ben Graham the Growth Investor?

We’re all for debunking myths, and given the performance of growth stocks recently, we’re making a pre-emptive strike in defense of the father of value investing.

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On the Impact of the FAMANGs

Market headlines, globally, have been dominated by the storied performance of a select few transformational, winner-take-all business models.

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Europe vs the US: Is it all about sector exposures?

In America’s Decade, we highlighted the very similar returns provided by the MSCI Europe and S&P 500 from 1980 through 2009, and the very different returns since.

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America’s Decade

When it comes to predicting the economy, we believe that speculating when things will turn is an exercise in futility and a horrible waste of time; one which meanwhile distracts us all from the task at hand.

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Known Unknowns and Share Prices

In February of 2002, Donald Rumsfeld famously introduced known knowns, known unknowns, and unknown unknowns into the lexicon.

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Prediction, Publicity, and Paul the Octopus

Unlike many other market observers, we just don’t see the point in discussing or debating the macroeconomics driving overall markets, volatility, or sentiment.

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Are Company Visits Good or Bad?

Our most profitable investment, ever, was probably the combined result of a lotta luck, some skill, and hard work.

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Everybody Was Kung Fu Fighting?

Last week, Finance Twitter erupted over a Bloomberg article about Michael Burry [i] and how he likened passive investment in equity markets to the bubble in the synthetic CDO market back in 2007, which he famously – thanks to Michael Lewis and Christian Bale – identified.

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Voting Machines and Weighing Machines

Ben Graham is famously attributed for stating that the market was a voting machine in the short term, but a weighing machine in the long term.

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Imagine No Inflation

Many folks have now listened to this fascinating interview of the pseudonymous Jesse Livermore by Patrick O’Shaughnessy.

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Stay in the Game

This is going to be an uncharacteristic departure for me. This story is deeply personal, for our family, and for our oldest son in particular.

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I’m Volatility?

Is risk “volatility vs. a benchmark” or is risk “the potential permanent loss of capital”?

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Woody was Right

If you are managing a portfolio of equity investments, whether personally or institutionally, there are many factors that (should) go into its construction.

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James Harden and Alpha

I played high school basketball in Indiana. I won a few honors, but was broadly mediocre, and certainly not NCAA D1 material.

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Groundhog Day and Overnight Returns

Over the past few years, some of the finance literature has started addressing the phenomenon, if not the apparent puzzle, of overnight returns (close-to-open) vs. intraday returns (open-to-close).

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The Right Way

We wanted to quickly highlight that the difference between the fee structure of a large, diversified, purportedly active fund and a smaller, concentrated, active fund.

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The First Step to Regaining Credibility

As equity indices romped higher throughout most of the last ten years, the long-short hedge fund industry increasingly came under attack.

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The Futility of Market Timing

We are not big fans of market timing. Those that profess to have such a skill before the fact often always turn out not to have had much skill in hindsight.

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Sweet Emotion?

No matter what we pretend to ourselves, even for those of us with more than ten years of investing experience, this move is painful.

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Share Buybacks, Bad Companies, and Bear Markets

The star has fallen for a few companies out there, and for those that had previous share buyback programs, there have been some of the predictable “see I told you so” articles written about them.

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Risk and Portfolio Theory

As we’ve discussed, efficient market academia suggests that Mr. Market actually only cares about systematic risk.

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We’d Rather Not Sleep

There is a tilt in our portfolio toward value stories where we think the consensus investor is biased against processing improving fundamentals.

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The Mathematics of Maintaining Bet Size

We aren’t big fans of dipping our toes in the water when entering a position, nor of timidly reducing when exiting.

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On Sexual Chocolate and Semi-Annual Reporting

The presupposition that quarterly earnings and guidance somehow breeds short-termism and suboptimal business strategy,

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Data Science and Alpha

As the investment community embraces data science, we should not be blind to the reality that many of our active-management peers are

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Career Risk, Alpha, and Contrarian Investing

At our firm, one of our main goals is, very simply, to generate excess returns from equity investing without taking commensurate risks.

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Passive Flows and Wheelbarrows

A nightly sort of the most active US names is usually dominated by ETFs. Earlier this month, we took a peek at the most heavily traded names on one particular day.

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God Bless the Shorts

Elon Musk made a lot of news last week, refusing to answer “boneheaded” questions from “boring” sell-side analysts.

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Peak Quality?

Mr. Market has been increasingly attracted to and enamoured by the concept of “quality” investing. So, let’s explore it.

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Bill Sharpe and Hank Aaron

We basically need to hold something different (either securities or bet sizes) than the “market”.

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Unwarrented

Evidently, the closest thing we in financial markets have to Albert Einstein or Winston Churchill, is Warren Buffett.

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Fooled by Non-Randomness

Students of decision-making and bias will all have seen the work by Cornell psychologist Tom Gilovich,

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Half Hearted Is Half Minded

After discovering the next great investment idea, why is it so easy to start with a half-sized position, watch it a bit, and then go full-sized later?

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Pegs, P/E'S and the Value Premium

The notion that the PEG is a linear tool for valuation is a myth, and a deeper analysis of its function reveals that the difference in outperformance of growth stocks over value stocks accelerates as interest rates drop toward zero.

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Rick Barry and Lewis Carroll

The goal of our business, very simply, is to generate excess returns for our investors without taking commensurate risks.

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Secular Winners and Value Investing

There are very few growth investors that stayed in business long enough to become a household name in the investment community, and even less of them that ended up writing books about their lifetime experiences.

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