Back to Drew's Views
September 16, 2021
Previous
Next

Which One Are You?

Markets
Stock Picking

I worked with a guy several years ago, and we are still good friends. I’m going to call him Mason. 

Mason’s a great storyteller, and in addition he is a stock-picker, and a good one at that. One of his tales was when he was covering a certain sector, and a sell-side analyst had organized a “reverse” roadshow for the group. Here, instead of the broker bringing a company around to visit a bunch of different buy-side shops, the broker takes an investor (or group of investors) around to visit several different companies over the course of a day or two. Some PMs or analysts might join these trips for the entire line-up, while others might go just to see one or two of the companies they are specifically interested in.

Mason was interested in the first company on the list. We’ll call it XYZ. Three or four others (from different firms) were joining on this leg of the trip, and they all flew over to wherever the closest airport was. After arriving, my buddy jumped in a car to meet everyone else on site. For some context, this all was long before we could call an Uber, and the iPhone wasn’t even out yet; so with that, here is Mason’s story:

‍“So, I get in the taxi, and check my Blackberry and XYZ was ripping,” he said, “and I wondered if they increased guidance or something in a press release before we arrived;  but they hadn’t, and then a (different) broker frantically calls me up and says ‘hey man, XYZ is ripping, looks like a bunch of hedge funds just visited them this morning and liked what they saw’.

‍So what did I do?

‍I started piling in too!”

This. Blew. Me. Away.

This wasn’t how I thought about things. This wasn’t the reaction I would have had. Had it been me in the taxi, and if the stock was up enough (and I owned it), I probably would have trimmed some of my shares (aka sold them) right there and then, anticipating I’d be able to buy them back after actually visiting the company, or at least after things settled down. If I didn’t own them, I might even have shorted some.

But not my man Mason. Even though he knew there was no information in the news, that the news itself was actually wrong, and – moreover – that it was about him; his first reaction was to join the buyers.

And for the longest time, I thought he was silly, and I was the smart one.

But now I'm not so sure.  

These days, “reflexivity” seems to be almost self-reinforcing as a “reason” to justify share price moves (yes, the reflexivity of reflexivity). So instead of these moves lasting an hour or a day or even a week or a month, in some names (you know them) they are lasting much longer.

So I wonder now if Mason's “wiring” was right, and mine was wrong? I think there is a quote out there somewhere from Soros that when he sees a bubble, the first thing he wants to do is join it, “rush(ing) to buy, adding fuel to the fire.”  

In other words, if the potential for excitement is unbounded and the setup is ripe, maybe the asymmetric risk-reward trade is to buy not sell?

In this case, maybe the difference in reactions is more about whether or not we are investing or trading? Or maybe that is just something investors say to make themselves feel better? I don’t know.

But to summarize the distinction, my view is that you are leaving money on the table by not taking advantage of the unwarranted overreaction to the upside; while my buddy’s view was that you are leaving money on the table by not getting ahead of the others who will continue to pile into the name.

‍What About You??

So, if you are in the taxi, what is your first move (and you can’t say “do nothing”).  If you are working for a hedge fund, have a typical holding period of six months to two years, and there are no penalties for trading too much (in fact your bosses and even your clients expect you to), and XYZ pops 7% on the rumor that you had a good visit with the company, but you actually haven’t even seen them yet, what do you do? Are you trimming or adding?  

Which one are you?

‍

FOOTNOTES

Download PDF

Topics

Markets
Stock Picking

DISCLAIMER

The views and opinions expressed in this post are those of the post’s author and do not necessarily reflect the views of Albert Bridge Capital, or its affiliates. This post has been provided solely for informational purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The author makes no representations as to the accuracy or completeness of any information in this post 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

On the Relationship Between Gasoline Prices and Vehicle Demand

As it relates to demand for pickup trucks and SUVs, gasoline prices may not matter matter as much as they used to.

Stock Picking
Read More
Text Link

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.

Markets
Asset Pricing
Read More
Text Link

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.

Markets
Factors
Read More
Text Link

Stock Market History, Illuminated

Some year-end charts and tables asking some big questions about what comes next.

Asset Pricing
Factors
Markets
Valuation
Read More
Text Link

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.

Stock Picking
Read More
Text Link

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.

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
On the Relationship Between Gasoline Prices and Vehicle Demand
Sell in May and Go Away?
The Politics of Passive Investing
If Growth Stocks Sell Off Will They Bring Value Stocks Down with Them?
Stock Market History, Illuminated
Which One Are You?
Was Ben Graham a Quant?
Do Short Term Flows Permanently Affect Share Prices?
Just How Cheap is Europe vs. the US, and Should it Be?
Are American Companies Better than European Ones?
Rumpelstiltskin and Meme Stock Investing
Archegos, Disclosure, and Price Discovery
It's All About the Fundies
On Unlimited Upside
A Memo to Investors
Investors? Possibly you!
Avengers Assemble!
How Did This Even Happen?
Was “Value” Just a Hot Hand Thing?
The Hot-Hand Fallacy Fallacy Fallacy?
Cue the Camouflage
The Times that Try Stock-Pickers’ Souls
A Different Game?
Heads I Win
A New Ice Age?
Grandpa Stocks
Bubblicious?
On Negative Oil and Futures Prices
In Flew Enza
COVID-19 and Equity Markets
Regulators to the Rescue?
Perspective
We Don’t Make Pizzas
Ben Graham the Growth Investor?
Not a Bad Decade
On the Impact of the FAMANGs
Europe vs the US: Is it all about sector exposures?
Behavioural Finance is Finance
America’s Decade
Known Unknowns and Share Prices
Prediction, Publicity, and Paul the Octopus
Are Company Visits Good or Bad?
Everybody Was Kung Fu Fighting?
Voting Machines and Weighing Machines
The DCF is the Randy Watson of Valuation
The Sacrilegious Diaries: Measuring the Impact of Portfolio Turnover
Passively Irrational?
Imagine No Inflation
The Sacrilegious Diaries: The Benefits of Turnover
Stay in the Game
I’m Volatility?
Woody was Right
When You Can’t Wait For Tomorrow
James Harden and Alpha
Groundhog Day and Overnight Returns
Debiasing and Alpha
Peak “Peak Car” ?
The Right Way
The First Step to Regaining Credibility
The Futility of Market Timing
Visualizing the Arithmetic of Active Management
123 Years of the Dow
Sweet Emotion?
Share Buybacks, Bad Companies, and Bear Markets
Risk and Portfolio Theory
Keeping Calm and Carrying On
Reminiscences of a Stock Operator: The Volkswagen Chronicles, Ten Years Later
We’d Rather Not Sleep
Factor Timing, Should You Try?
The Mathematics of Maintaining Bet Size
The Grandfather of Behavioural Investing
On Sexual Chocolate and Semi-Annual Reporting
Island Economies and Risk
Build a Bear?
Data Science and Alpha
We’re all Value Investors
Hunting for Alpha
Career Risk, Alpha, and Contrarian Investing
Passive Flows and Wheelbarrows
God Bless the Shorts
Equilibrium Happens
Horses and Stocks
Peak Quality?
Bill Sharpe and Hank Aaron
Unwarrented
The Search for Excellence and the Loser’s Game
Fooled by Non-Randomness
Half Hearted Is Half Minded
Still Superman, but without the cape
122 year Dow Jones Histogram: Putting 2017 into context
Pegs, P/E'S and the Value Premium
Rick Barry and Lewis Carroll
Secular Winners and Value Investing
On Passive Flows, Smart Money, and Alpha
The Voting Machine
Prevous
Next
homeTeamdrew's viewspressCOntactDisclaimers