Back to Drew's Views
February 3, 2020
Previous
Next

We Don’t Make Pizzas

Stock Picking
Factors

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.[1]  

We believe we have a very good alpha recipe, and – at least historically – it usually cooks well.  Yet, we still tinker with it, and try to make good dishes even better over time.  When we find all the right ingredients, and mix them up in perfect proportions, you are happy, go home satisfied, and look forward to your next visit.  

Overtime the quality of our menu is fairly consistent.  Moreover, and importantly, the food tastes differently than the grub served down the road by most of our restaurant peers.  

While you may be visiting our restaurant several times a year, Mr. Market is a little more finicky. Occasionally, he is sitting with his family at the four-top next to yours, there with Mrs. Market, and their kids Johnny and Sally Market; but he usually takes them to more popular venues.  When that table is empty, it isn’t because we’ve done a poor job sourcing ingredients at the fishmongers or fruit market that morning (or month, or quarter); it is because Mr. Market’s tastes have temporarily changed.  

And that is fine by us, because – with no disrespect to Arlo Guthrie – you can’t get anything you want at the Albert Bridge Restaurant.  

As it turns out, sometimes when Mr. Market dines out, he wants things a little less spicy, like a chicken korma; and at other times, he wants things a little spicier, like a chicken vindaloo. Sometimes he wants his chicken dish with steamed rice and a glass of tap water, and sometimes he wants coconut rice and a pint of Cobra.  

And sometimes, like in 1928, 1972 or 1999 he only wants pints of Cobra.

Arlo would like some alpha please...

The Albert Bridge Restaurant doesn’t even serve Indian food. Ours is a European-themed restaurant.  But whatever cuisine we choose to serve, it is very difficult for us to anticipate these tastes in the short-term.  Guessing changes in short-term cravings actually can be very distracting.  So we broadly don’t try.  During these periods, Mr. Market isn’t interested in eating our food. Luckily, however, we have a big freezer; so we keep on cooking.  

When this happens, we often find the ingredients are on sale, so we stock up, and place them in two separate cupboards; the fundamental cupboard and the behavioural cupboard.  In the fundamental cupboard, our main ingredient is value.  

Value is like pasta.  Sometimes we use penne, sometimes linguine, and sometimes ravioli. We can get value from a sum-of-the-parts model, or even a DCF; or we can get it from an absolutely low P/E ratio, or even one that is relatively low vs its peers or growth prospects.  

We also like to mix in improving financial metrics.  Improving fundamentals are the sauce.  Sometimes we use a good bolognese of increasing ROICs, and at other times we go with a pesto of a de-levering balance sheet.  Occasionally, we’ll even serve an arrabbiata of top-line sales growth.

Then we top it off with a little quality. Quality is like parmesan cheese. On some dishes, like our pappardelle al cinghiale, a few teaspoons make the meal perfect; while on others, like our linguine all’astice, we won’t use any parmesan at all.  It doesn’t need any, and the head chef would get angry if you tried to add some.

We also have to choose the perfect wine to serve with dinner; perhaps a big brunello with the wild boar or a vernaccia with the lobster.  If they are corked, or if we haven’t given them long enough in the cellar, it can spoil things.  That can happen, but usually – at least historically – most of our combinations turn out very well and our guests are more than satisfied.

Finally, we’ll reach over into our behavioural cupboard for the ingredients to make the perfect dessert.  We might cook up an underreacting tiramisu or an overreacting panna cotta, but we have one steadfast rule:  we don’t let our guests skip their main courses.  Mr. Market can sometimes be a glutton, and he may even try ordering dessert first, stuffing himself with cannoli before the primo or secondo arrives.  We don’t let our guests skip their main courses.

After dinner and dessert, we insist on offering either an espresso or limoncello (or both) to finish things off.  Espresso and limoncello are acquired tastes, and once obtained, they are the perfect complement to the evening.  Those that haven’t yet acquired the taste don’t like to visit the restaurant, because the espresso or limoncello ruins it for them. On those nights, the table next to yours at the restaurant sits empty.  

We actually don’t mind when it sits empty. We have a strange business model - we don’t want the restaurant to always be full.  We aren’t going to stop serving espresso and limoncello, and rarely will we add anything to the menu that everyone already knows is awesome, just to fill the place up.  

We don’t make pizzas at the Albert Bridge Restaurant.


Subscribe and sign up with your email address to receive the latest news and updates
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

FOOTNOTES

1 And sometimes the cooks work overtime as waiters.

Download PDF

Topics

Stock Picking
Factors

DISCLAIMER

The views and opinions expressed in this post are those ofthe post’s author and do not necessarily reflect the views of Albert BridgeCapital, or its affiliates. This post has been provided solely for informationpurposes and does not constitute an offer or solicitation of an offer or anyadvice or recommendation to purchase any securities or other financialinstruments and may not be construed as such. The author makes norepresentations as to the accuracy or completeness of any information in thispost or found by following any link in this post.

‍

YOU MIGHT ALSO LIKE

Text Link

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.

Text Link
Text Link

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?

Portfolio Management
Stock Picking
Read More
Text Link

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.

Asset Pricing
Factors
Markets
Valuation
Read More
Text Link

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.

Markets
Behavioural Finance
Stock Picking
Read More
Text Link

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.

Asset Pricing
Factors
Behavioural Finance
Valuation
Read More
Text Link

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.

Asset Pricing
Markets
Portfolio Management
Stock Picking
Read More
Text Link

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.

Markets
Stock Picking
Valuation
Read More
Navigations
HomeTeamDrew's viewsPressContact
Disclaimers
Legal & regulatoryPrivacy policyCookies policy
How to get in Touch
info@albertbridgecapital.com

Subscribe to Drew's Views

No spam. Unsubscribe anytime.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
© Albert Bridge Capital 2022
Website by SW10media.com
homeTeamdrew's viewspressCOntactDisclaimers