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Investors Overusing Behavioral Finance Fall Prey to a Bias Bias
“People are now talking about behavioral finance so much, and a lot of them are relatively new to it. They almost want to start looking as if there's definitely going to be a bias here. You're biased to find a bias, and so that's something I think we all have t…”
Equity Analysts Must Prioritize Picking Stocks Over Industry Domain Expertise
“We want to be specialized in sectors, but we also want to remember what the ultimate job is here. It's to pick stocks. It's not to become an expert in that particular field.”
Investors Should Not Blindly Buy and Hold High-Quality Companies Forever
“We have a strong view that you shouldn't get married to your companies that good high quality companies, you just buy and hold forever. That's not our approach at all. It's much more driven by the fundamentals in the intermediate term.”
Deep-Dive DCF Modeling Fails in Public Equities by Ignoring Market Consensus
“And what you end up with is something that's very interesting and helpful in the private equity world. Great. But that's not what we do. This is public markets. There's a price up there that is reflecting everyone else's view about this company. And how on ear…”
Albert Bridge Capital Ignores Sector and Country Benchmark Weights Entirely
“And by design, we do not care about overweights or underweights in particular sectors or countries. If it turns out that we're finding no healthcare equipment ideas in Switzerland, we don't own any healthcare equipment ideas in Switzerland.”
Simple Contrarian Valuation Multiple-Hunting Is First-Level Thinking and Typically Fails
“And again, we all say we're contrarian. Hey, everyone likes this stock. It's trading on 35 times earnings. Let's be short. Or hey, this stock's on four and a half times earnings with a 20% free cash flow yield and people hate it. It must be a buy. And that's f…”
Valid Investment Factors Require a Clear Risk or Behavioral Rationale
“Factors are things that either have to have a risk story related to them, and that's why they behave a certain way, or a behavioral story. It can't be that something had a certain behavior over some period of time, and that somehow means it's sustainable and i…”
Momentum Factor Is More Important Than Size and Potentially Value
“Really momentum is maybe more important, certainly more important than size and maybe more important than value.”
Momentum Returns Are Driven by Underreaction Bias Rather Than Underlying Risk
“The momentum stuff, I am convinced there's no risk story for, and that is an underreaction bias where people just refuse to process information, which disconfirms their previous news, whether you're long or short.”
Highly Concentrated Funds Require Capital With Multi-Year Time Horizons
“When you have your top 10 positions or 70% of your fund assets and your top five might be 40 or 45, you really need to have two and three year, four year, five year money on your side. People with similar aligned interests.”
Albert Bridge Capital Writes Deep-Dive Short Cases on Every Long Target
“One of my favorite tools that we have to help us think more clearly is we write deep dive short cases on everything we want to buy.”
Purchase Price and Timing Should Not Dictate Holding a Stock
“Can we be unencumbered by where we bought the stock, when we bought the stock? Because that should have nothing to do with why we own it.”
Short-Term LP Check-Ins Subconsciously Degrade Fund Manager Objectivity
“Even if you don't think you're being troubled by someone that's asking you how you're doing the first week of the month, it's affecting you. So if you have folks that don't ask you those questions, that just interested in the process, not the particular outcom…”
Market Behavioral Biases Are Identical Across the US, Europe, and Asia
“The behavioral stuff's all the same. We all make the same mistakes. I have the same biases that I try to shed and my team tries to shed. Mr. Market has the same biases. They overreact to bad news and vivid recent information. They underreact to things which di…”
Albert Bridge Excludes Miners, Energy, and Banks From Its Portfolio
“We eliminate about half those, the ones that are more top-down in nature. So there's never any miners or EMP companies or banks even in the portfolio.”
Only Two or Three Fundamental Drivers Truly Matter for Any Business
“It's never 10 cards. It's never over complicated. It's always two or three cards that matter, two or three fundamental things about a business, and we'll pick those cards out and start working on it.”
Albert Bridge Caps Investment Conviction Probabilities at Eighty Percent Maximum
“We'll never go higher than 80, even if we think we have a sure thing.”
Best Investment Edge Occurs When Consensus Ignores Clear Operational Changes
“Once you identify that and you see a consensus investor, which is refusing to even acknowledge that information. Well, that's the double whammy. Those are the things that we're more likely to be accurate on Than things without both components.”
Alpha Requires Finding a Delta Versus Consensus, Not Just Great Businesses
“If we find a great management team that has a wonderful business that is spinning out tons of cash flows or eventually will, It sounds like a nice setup for a company, but if there's no delta, if there's no difference between our view and the market's view, th…”
Markets Double-Count Bad News During Corporate Scandals Like Volkswagen
“The stock sells off to 90, 95 euros a share from a 160, and the worst fears of what kind of fines they would end up having to pay turn out to be true. But by the time they wrote the checks, the stock's back to one 45, one 51 55. People double and triple count …”
Rising Stock Prices Reduce Expected Returns and Mandate Position Trimming
“It's this notion of making sure that we have the mindset that this is the portfolio we would own today if we launched the fund today. And so if you find a security that's, you think it's worth a 150 euros a share and it's trading at a hundred and it's got down…”
Holding Winning Stocks Past Their Original Investment Thesis Is a Mistake
“Some of the biggest lessons or mistakes for me would be owning things for a period of time, particularly when they do well. You think you're doing great, but then you ask yourself, well, why do I still own this thing? All the reasons I bought it for have happe…”
Dickson Weights Investment Theses Heavily on Fundamentals Over Behavioral Mismatches
“70, 75% of the reason why a stock is in the portfolio is that we have picked information out that helps us be confident that they're going to be numbers. But 25, 30% of it is this mismatch. Can we find the mismatch? Can we find this area Where Mr. Market is no…”
Sector Rotation Trains Research Analysts to Become Better Portfolio Managers
“That's sort of by design. It helps you to see a lot of different types of companies across different sectors. It trains you to become a better portfolio manager.”
Clear Fund Communication Lowers the Psychological Discount Rate of Limited Partners
“If we can do a good job communicating with our partners about how we think and what we do, well, That lowers their discount rate about us, and about the kinds of things we do”
Eugene Fama Brought Richard Thaler to Chicago for Academic Debates
“And Eugene Fama, this paragon and pillar of efficient market theory thought it was really interesting what he was doing. And he had an idea in the mid nineties that let's try to get Richard Thaler down at the university of Chicago. Let's have this place be the…”