YouSaid · the spoken record

Drew Dickson

lines on the record: 71
first: 2019-11-25
most recent: 2019-11-25
sittings or episodes: 1
sources: podcast

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“I thought I knew it earlier in life, but I didn't know it to the degree I do now, and it's the importance of relationships and of Spending time with smart people, with people smarter than you, you can keep learning. You can keep developing, they keep developing when you have that. It's easy, particularly in our industry. You can get bogged down into your world with your team. And to the extent that you read, that helps. But by hanging out with smart people, it's just fun. It's invigorating. And that's been something that I think is even more important than I realized 10 years ago.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's teaching by example and its civility and its fairness. It's having civil discourse. My father's always been that way. My mom's been that way. Now, I fail there all the time. You can ask London taxi drivers, but I'm working on it. But the fairness one, that one I don't like it when things aren't fair, and that's been an overriding theme for me forever. That can be someone, we call it queue barging in the UK, jumping the line. Someone jumps in front of you a line at Starbucks, that's not fair. Someone jumps in front of some kid at line to get into Yale because his parents dropped a bunch of money in there. That's not fair either. I hate that kind of stuff.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it's back to Morgan Hausle. If he writes anything, I don't miss it. And to help me keep track of anything that I want to make sure I'm staying on top of, I visit Tatas Viscountas, Abnormal Returns website every single day. It's the one thing I religiously, if I go on holiday, if I'm away, I come back and I'll go back through Tuesday's links, Monday's links, Sunday's links. Make sure I see that because he's the world's best curator of the kind of information, at least in the finance world and other areas that interest me.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“In the Mark Carhart, a few years later introduces momentum. Those are the key ones, really. Momentum is maybe more certainly more important than size and maybe more important than value. And then you get this low vol, this betting against beta stuff.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“No, no, no, no, it's just the number. I don't know who it was, John Cochrane, maybe, talks about the Factor Zoo. And there's some new factors, which are, to me, fascinating, betting against beta. This flies in the face of single factor cap M and that's what the guys at AQR call it. It's similar to the low vol kind of factor where people theoretically stocks with a high beta are supposed to move higher than the market as the Marco side. It turns out it's the other way around. And this is something for Gene Fama and the official market crew to have to grapple with. And it does beg the question of which you'll have plenty of folks say that the CAPM and the whole structure was wrong in the first place. From my perspective, if FAMA and French introduce value and introduce the small cap bias in a three-factor model,”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Quite a few there too. My biggest one now is probably that there's a lot of back testing where folks go back and look at the way things behaved and they're calling anything a factor like 300 different factors as if these were state variables of a hedging concern like Bob Merton talked about with the ICAP M. 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 it'll last forever. So get specific get more academic about defining what factors are and then we can move forward.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm not in New York that much. In New York, it happens all the time, but in London, these guys actually know where they're going. The guys with the knowledge in particular. But even still, I find a way to get upset about it if they take the wrong way. You can ask anybody. It's terrible.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, well, I'm terrible at it, but I love playing my guitar. That's my downtime. And even though I'm twenty years past my prime, if there ever was a prime, I still get a lot of peace out of shooting baskets outside. So those two things, those are the two. It must be in Indiana thing, but that's the stuff.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, well, that post was more of a personal post that I put out back in June, and it was about my son. He had gone through some hard times as a teenager, and I hesitated a bit if I wanted to put it out on Twitter. But in this case, I was like, well, this is a nice forum, maybe to get the word out for folks. And it's basically a story about a struggling teenager who is at the depths that I wouldn't want any other parent to have to suffer with their kids and how he got himself out of it. And I wrote that post. He allowed me to share it, thankfully. And I think he and another fella that became key in the story have helped a lot of kids and parents with that story.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Use Twitter as sort of another distribution mechanism for Making sure people knew we'd updated a blog post. And I have to say, it's kind of gone beyond that for me. I've met a lot of really smart people. And finance Twitter. And if Morgan Housel writes something, I'm going to read it like now. And it really goes to helping me sort of continue learning and continue hopefully getting better at what we do. But the blog, yeah, it's a fun thing for me and it's hopefully been helpful for our investors as well.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, and I was late to this. I've always been a big writer of thought pieces. And I had an audience of three people for that. It was basically two people on my team and maybe my wife. And we would send it to our investors. And part of it was just a cathartic thing for me to be able to write because I like to write about investments in financial theory and decision making and behavioral finance. And we started sending more of those pieces out to our investors and decided that with this platform that maybe it'd be easier just to set up a blog so people could subscribe to it and they can just automatically get it. And it would also force me to every two weeks write something and help to communicate to our investors. And it's another one of those debiasing tools. 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. And so the original goal there was to do it that way.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, they're all the same. I do think over here we have a view that maybe things are less efficient. I'm speaking specifically about Europe. I can't really comment on Asia as much now, but certainly in Europe, we have a view that things might be less efficient there than here. And I'll tell you this, that Europeans have the same view of Americans. And from our perspective, it's difficult to pick stocks in both places. A lot of these rules do good fundamental research objectively, how to not pretend that you're smarter than everybody else, but just thinking more clearly, those apply equally in both places. I really do.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Increasingly, I think there's almost been more of a melding between the sell site and the cell site's clients. So when we see broker notes, we call it reverse broking in the UK. It almost feels like it's one of their big clients that has pushed this analyst to convince them that here's the thesis that matters and they're out marketing that. And we can kind of tell that's the case. So that's nice for us because then the sell side becomes even a proxy for the buy side in some cases. But it's a key for us. 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. You only people hate it. It must be a buy. And that's first level stuff. That doesn't get the job done. You have to have a view that things are going to change, that business is going to get better, that fundamentals are going to improve and the market doesn't want to see it. And if you have that mentality, then maybe you get to avoid one value trap that you might not have avoided before.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“What you see. Yeah. So we can bring in sell side coverage. So we have a strong sense of the number of analysts covering a stock, the number of buys, sells, and holds. We can weight each of those differently. It's actually quite different. In Europe, a hole doesn't have the same flavor as a whole here in the US in terms of what the analysts say. But we can make some adjustments for that. And we'll come up with the notion the sell side broadly likes or dislikes a company. We do something similar with the buy side. Obviously there's a buyer for every seller, but we can at least get a sense of what's happening by looking at short interest, how stale is it getting, which kind of money is long or short certain companies. And as we aggregate those things, we're able to, I think, develop a pretty good sense of the kinds of things that people are paying attention to. And one point I would make, and this has been just a change in the market, and it might even be more exacerbated by MIFID 2 now, which is kind of decreased the amount of folks that are covering companies.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Where do you get that information from to sort of gather that information, analyze the information when the information is, what does the market think? What does the market getting different from what you see?”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's that back to the earlier point. It's that E stage, that's the hoop you have to jump over, and it's a continuous process. You have to keep jumping over it”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a great question. And that's evolved too. When I started off at Fidelity, I was 95% bottom-up deep dive stockpicking, 5% what's the market getting wrong? As I moved through Oxiff and into Albert Bridge in 2008, it probably had moved down toward 8580. Today, and it's still a vast majority, is it's the deep fundamental dive, 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 beat numbers. But 25-30% of it is this mismatch. Can we find the mismatch? Can we find this area where Mr. Market is not just disagreeing with us, but can we understand why? Some of the scariest times for me, or when we don't know why, why is the market not paying attention to this? We don't see a particular bias. We don't see any overreaction. These guys actually already kind of like it. If you can't see the mismatch, then we don't have the behavioral edge.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“We just write a lot. We memorialize our theses all day long, just for our own internal consumption. What is our by case? What is the foundation? What are the reasons we own this stock? And again, going back earlier in my career, 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 happened. I'm only owning it because it's gone up. And meanwhile, there's other things where I could be doing work and spending time would be a better use of that capital. So just continually stay on it and monitor that and almost insist that we have that process around the group.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Which five are they? Let's try to find out now. We're in the business of getting two out of three right, one out of three wrong. All of our trouble is already in the portfolio. Let's go out and look at it this way. Where are we going to get this right or wrong? And we try to prevent my thesis drift, their thesis drift.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, with the team, we assign the sectors to each of us. I still work as an analyst myself. We try to be pretty kind of a fidelity thing, try to be pretty independent broadly. People can go within their sector and spend time whichever companies they want. And the goal is to come up with the things that might be the most interesting or dynamic. And then in my interaction, we're basically my goal is just to make sure we're following the game, make sure we're playing the game, gather, analyze, model, evaluate. I might press a bit more on the shortcase to make sure that we're really focused on that and encourage them to realize in myself that let's say we get two out of three stocks. Back to that earlier point, right? And let's say next year, five of our names are sucking alpha out of the portfolio. And that will happen. Even if we get 75% right, five of these names are going to be terrible.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“If this company beats earnings by 20% and prints this number in 2021, what kind of multiple will the market pay for that? There's an absolute number that we'll use just based on any market environment. Here's what it should be worth from a free cash flow perspective. Or what will it be worth from a relative market? Here's your peer group. Here's where they trade. Should have traded a premium or a discount. What's it done historically? What will you pay for it if it prints that number? What will the market pay for? That's the number that matters. And that becomes the thing that helps set SAR upside and downside.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“My whole post about DCF was that you do get this false position and it can start to sing whatever tune you want it to sing because of some bias you have going. You like the management team? Well, you're going to make your DCF work. You don't like the management team. Your DCF is going to look lousy. The fact is the DCF's the right answer to actually what the thing is worth and all these other things are just proxies for that. So my view, at least in my experience and certainly the way I do things, sometimes an EVD EBITDA or a price earnings ratio or some of the parts can be a better proxy for that DCF answer than the DCF itself because it's less complicated. So as we end up having positions for a very long time horizon, for us it still consists of a bunch of shorter term time horizons. Are they going to beat numbers over the next year or two? That is the primary focus on driving its inclusion in the portfolio. And then how we size it will then would be driven a bit more by the actual, okay, what will be the result of that.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“How do you sync up this notion that you're going to move position sizes based on risk reward which have to do with upside and downside, which is going inevitably to be tied to something that looks like a DCF model where most of your focus on the DCF is sort of understanding consensus? I'm kind of wondering about how you deal with the possibility of false precision.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, even if we look at the things that have been our biggest contributors over many years, our biggest contributors have been in the book for four to five years. But they might be a 5% position and it might go up to 8 and back down to 4 and out to 9. That's all driven by their expected returns and by the expected returns of the things around it in that portfolio. 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 150 euros a share and it's trading at 100 and it's got downside to 80 you can come up with expected return metric and if the stock goes from 100 to 120 well the expected return just fell by definition it must be due less capital than it was before and that capital can be moved somewhere else”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“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. It's just the ideas that come through and germinate through. We are paying a little bit more attention now, obviously, to geographic weights as it relates to Brexit. We don't want to have 80% of the portfolio in the UK. Might be the right thing to do, but as we move toward that finally, maybe we don't want to have too much of exposure there in case things are crazy one way or the other.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“It can be subjective. I mean, at the end of the day, I think everything's always more subjective than we think it is. So what can we do to make it sort of less so? One is to build this short model and this long model so that we have a reasonable gauge of what the upside and downside could look like in a great or a terrible scenario. Now, those are kind of binary. I'm not talking about a distribution different outcomes. I'm talking very simply. Here's what it's worth if we're right. Here's what it's worth it for dead wrong. And then it's about asking ourselves, okay, how long will it take Mr. Market to wake up to this thesis? It's going to take 24 months, or maybe there's some events coming. It might take 15 or 18. It might take 36 because it's a long burn. But once we have those factors in, we can come up with this notion of annualized potential expected returns. And that's how we basically rate the companies that are in the focus list and make sure we're allocating capital to the ones with the highest returns. And by design, we do not care about overweights or underweights.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“The company at a little bit of our model changes that could affect things. But broadly, the decision of where to allocate the capital is driven by those expected returns. So back to your earlier question about the kinds of biases we're trying to find, it can be something that's got a confirmation bias here or a disposition effect here or an ambiguity aversion there, but it's all driven by the fundamentals getting better than the market realizes and where the expected returns are.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Make sure we're following the same process across these sectors, this game process. So from a portfolio management perspective, as long as we've each followed the same approach to sort of what constitutes an Albert Bridge idea, then it becomes more of an apples-to-apples comparison for me as I decide where to put capital if I want to take some capital out of this name because it's rallied and the expected returns have fallen, I don't need to stay in the same sector because we follow the same process to get this focus list or to get this portfolio. Another one of the posts the blogs we wrote was, I think it was called Kelly was right, and it has to do with the Kelly criterion and basically how people size bets when they go to the casino. Well, there's ways to do this where it's also somewhat similar when you aggregate multiple securities in a portfolio and construct it so that each extra dollar is allocated to the right place. I don't want to make it sound too scientific because if our conviction level changes, our time horizon changes.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“If your long SAP and your short SAP, you might have two completely different interpretations of that same exact data point. If I'm short it, I'll be like, oh, this is great enterprise application spending falling. These guys are seeing negative like for likes year on year. This foretells bad news for their biggest competitor in the space. But if you're long it, you mean by like this is awesome. I knew it. They're finally taking share from Oracle and I've got data points from these investors that are switching from Oracle called SAP and that's why Oracle missed. It's about us being objective about the information that comes to us. And that's one of my favorite parts.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the biggest one, and this is Kahneman and Taversky 101, is confirmation bias. So we all tend to find information which supports views that we already have. It's almost echo chamber kind of stuff. And I did it as an analyst of Fidelity, and I catch myself doing it now. An example, again, this is a hypothetical example, but if you're long SAP, Enterprise Resource Planning Software Manufacture in Germany. And let's say I'm short SAP. Have our reasons why we're long or short. And then we see Oracle have a prophet warning competitor in the space.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“much as baked in as we thought. But that leads me to the new favorite bias, which I haven't even talked about the original biases we look for, but my favorite one now is the 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 to be cautious of as well.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“But by the time they wrote the checks the stocks back to one hundred forty five, one hundred fifty, one hundred fifty five. People double and triple count bad news. They get really, really scared. And very recently, we thought we had a potential situation like that with Bear, which we say Bayer in the UK. So I might flip back and forth and say it the wrong way here. But growing up, it's bear aspirin over there. It's buyer. But it was a very similar kind of move. The stock goes down about 40% peak to trough, just like BEP did, just like Volkswagen did. And we thought to ourselves, well, this is another potential ambiguity of version case where people are just selling this thing down. And it is a knowable. It's hard to know what will the ultimate litigation liabilities be from these California courts or elsewhere over Roundup glyphosate, which they acquired those liabilities when they bought Monsanto. But to us, it was like, hey, this is history repeating itself. And we kind of wanted to believe it. But after doing a bit deeper dive into it and seeing some of the behavior of some of the peer group, we were like, actually, maybe not as.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of these biases that's called ambiguity aversion. Combine that with availability bias, but it's more of an overreaction thing that happens in the short term. So if you remember BP in the Deepwater Horizon stock cratered and it was terrible and it was bad news, Volkswagen and the Dieselgate scandal in 2015, stock was killed. And that's a great example too. The stock sells off to 90, 95 euros a share from 160. And the worst fears of what kind of fines they would end up having to pay turn out to be true.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Thinks is good. It's a change. And so in that E stage, we're spending a lot of time trying to segregate, okay, here's the cell side, here's the buy side, the cell side is very transparent. We see what their views are. We can read their research and see maybe where they're focused on the wrong things or the right things. The buy side, we spend a lot of time going through the stock loan desks around London. Here's where people are short. We might even talk to friends who are short the same names. And so to get a view for why they are negative and if we find information that makes us less convicted in our thesis, that's great. Whether we've made money or lost money in the position. But it's having a sense of the kinds of things that we think are important to the market. And hopefully if we've been objective about it, then it allows us to see why Mr. Market agrees or disagrees with us and maybe they haven't been as objective and that's the case then we have a chance.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's the final hurdle and the most important one. And this is where we spend a lot of time trying to evaluate the consensus investor. And every manager you speak to will say, oh yeah, we do contrarian things. We try to do things differently. And I think from our perspective, we've just very much codified that a little bit more in terms of our approach. And 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, then my view is the price is telling you this already. Now, the price might get higher. That's just because investor appetites for certain factors has nothing to do with idiosyncratic stock picking. For me, we've got to find that delta, and that can mean finding a mediocre business that the market thinks is terrible. It can be finding an excellent business that the market only”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Great stuff to identify. But broadly we're building models so we can easily update when they report and see how they're presenting the information to mister Market so that then as we do our own modeling we can compare to what people think to see.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah. So when we do the modeling, again, this is a big change from how I started at Fidelity. You know, I would just do the deep dive DCF, get everything from every angle, build the model my own way. Oh, this is how they should state earnings, not how they do state earnings. This is what it really looks like. Let me get to the free cash flows and do the best valuation work I can do here. 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 earth can I compare what my view is to everyone else's if I'm doing it in an entirely different way. So I very quickly switched to sort of let's see how the company presents their numbers. Now there's all sorts of work we can do in the footnotes to see if they're playing games or see if we can match up their free cash flows to the eBit to see if they're capitalizing R&D or doing those traditional tricks of fooling investors. Yes, that's great.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Process it. And then if you looked at what they were doing in their footprint, they were changing around the kinds of cars they were making. And just a very simple stuff. What does this mean for gross margins for this business? And you could see the cash flows be spit out. 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 were more likely to be accurate on than things without both components.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Appetite if we see them potentially markedly surprising the consensus investor, then we have a chance to take advantage of that. So that's going to be a lot of financial modeling. We build financial models for all the companies in the focus list. That's the M. That's the modeling. And that's a fidelity thing. I think a lot of managers think, but that's certainly something we did a lot at FIDO, and it's still a big part of me, and that's how I get the conviction, again, we don't try to get too bogged down in rabbit holes and say, oh, if you do this and they do that, and then they do that, and then this happens, then this might work. It's just more about going through the lies and saying, okay, these products are successful. And from the checks we're doing, they look like they might be, what could happen to earnings? What could happen to gross margins? How much does that fill down? We've been successful historically in a large automobile manufacturer with a gregarious CEO that embarked on a campaign of value creation. And it was such a shock to the system for the people that were bearish in the company. They refused to.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's basically the whole game process. So it's you have to have a strong sector construct knowing what drives the competition, knowing the dynamics of who's competing against who and how each of these companies in the group makes money. And then it's a matter of just staying on top of that and maintaining this framework as competition happens and as businesses evolve and as management teams come and as management teams go. And when we find things which are basically just changes. Hey, this is the way things used to be. They're going to be different now. That is the kind of thing that makes us want to dive in and understand what it is that's going to be different. And as we do that ultimately, we want it to be expressed in some change in a financial metric. It could be sales line. It could be EBIT margins. It could be earnings, something a year from now, two years from now, two and a half years from now, where we see earnings or cash flows or whatever is going to drive Mr. Markets.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“eighty will never go higher than 80, even if we think we have a sure thing. But those then become probabilities for us, and then we'll assign a probability to the bicase and to the cell case, and combine with a few other metrics that helps us to come up with this notion of, okay, which of these names in the focus list actually are qualifying to be in a best ideas portfolio?”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think, again, that's as much art as there is science to that whole process. When we do that analysis, we're not just trying to figure out the things that matter. We'll almost build two models. Here's what the financial model will look like based on these three key drivers if a certain company is launching a product which is going to do this or if they're divesting of this, which might mean that. And we'll build a shadow model. This is kind of the short side. How will this company be a great short? And by doing those things, you start almost start helping each other out a bit in terms of flexing things and modeling things and seeing how we get to the crux of what's actually driving the story. And sometimes the things which affect the shortcase are different variables than the things which might be affecting the by case. So that helps. And then putting all those things together, we effectively emerge with a conviction figure. You know, if I saw 100 of these, I think we'd get 65% of them right. 70, 55.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“elaborate studies of non essentials, which is a long winded way of saying watch out for information overload. This is in nineteen thirty four. This is before real time quotes before CNBC, before everyone's barking at you on the sell side saying buy this and sell that. And that's a real trick for the good analyst to sort of, okay, that doesn't matter. That doesn't matter. That does. Let's work on it.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“Analyze. Just analyze the information. Can we take anything out of this fire hose of information that we've all been bombarded with and pick out the right bits that matter? One of the analogies I use, if we have a bunch of cards on the table that are turned up and we know which, we think we do a pretty good job of trying to identify which two or three cards are the ones that matter. It's never ten cards. It's never overcomplicated. 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. And part of that process is to see if Mr. Market picks up the same three cards. If they do, there's nothing for us to do. But if they're picking up different cards, ignoring our cards, then we have a chance to see if we can be more objective about how we analyze these things. And it's hard. Again, back not to overly quote Ben Graham, but another one of my favorite quotes from his, which he wrote in nineteen thirty four, by the way, the analyst must not be misled by the availability of a massive information into making”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's as much art as it is science. It could be new management teams. It could be a change in strategy. It could be a huge profit warning where everyone throws the baby out with the bathwater. And, oh, well, maybe that's an overreaction. Let's have a look. Company meetings, we're having a meeting with the CEO of a company and increasingly these conversations we have with companies, the most value added from those is actually hearing them talk about others in their sector, in the ecosystem. They're much more open and a little less biased when they're talking to you about like that. So we get ideas through that. Oh, let's do some more work on that and we'll put it through what we call our game process, which is just a four-letter acronym G-A-M-E. And in the gather stage, we're just meeting with companies, competitors, suppliers. Everyone does that. Everyone you talk to, every manager out there. That's what we do. We meet. We kick the tires. Yes, so what? We all do that. But moving into step A, okay, was any of this information helpful?”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we have a European universe that's basically got 750 companies with market caps of a billion dollars and hire. 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. We try to stick to sectors where there's a lot of dispersion of returns, a lot of winners and losers within a sector. So that can be industrials, consumer, media, healthcare, equipment, technology. And the analysts on the team will be assigned sectors or subsectors within those.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“this as a potential threat to the case and I wouldn't have 75% conviction this. It'd probably be closer to 65 now. What does that mean for expected returns and if it turns out it means that we should have known as much of the stock or any of it, we'll go. And that doesn't matter to us if we bought it five years ago or five seconds ago. I think we're really good at making sure we have the portfolio that we want to have today as if we launched the fund today.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“I probably do have a little value bias when I'm looking for. And maybe that's the time that we all grew up and the kinds of things that we read at a certain age. And I'm sure someone that started their careers in 2011 has the opposite bias. Why would you do that? Why wouldn't you buy all these great businesses which are growing ROICs at an accelerating rate? So I have to guard for that. And even though I do guard for it, we still end up having a value-y kind of portfolio, but we've been able to outperform not just value, but the market overall. But I think that's just a consequence of A, having a very concentrated best ideas portfolio rather than something that's more diversified and sensitive to those factors. And B, it's having this back to this culture thing, where if we've defined where we might lose money in particular positions, then we're looking for that information. And if it's okay for me or for the guys on my team to hold their hand up and say, you know what, my conviction that this is lower, I just saw this thing happen.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“I used to spend a lot of time diving down these rabbit holes of trying to figure out the exact specific line item that was going to make some of the parts model look good or bad. But the more you're in this business, the more you realize your success in these positions is more different by what's happening to the fundamentals over the intermediate to long term. And is Mr. Market cotton on to that yet or not? And if he hasn't, if you're buying stock from a prejudiced seller as you build your portfolio, you get to win. And that's the way we look at it.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source
“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 disconfirm their previous theses. That's as good in Asia or Europe or the US. And from a company level, we tend to focus on more mid to large cap companies. And so when you have these multinational businesses, there's very little difference in stock picking from that fundamental perspective. I will say there's some nuance across different regions in terms of when you do have conversations with management teams or with suppliers or competitors. If someone says maybe in Sweden, it means yes. If someone says maybe in the UK, it means no. So you do have a little bit of experience with that over the years. And we've been doing it for so long that in some cases we're on our fourth or fifth management team. So that helps to some degree. But broadly accounting systems are fairly reasonably harmonized.”
2019-11-25 · Capital Allocators · Drew Dickson – Blending Behavior and Fundamentals at Albert Bridge Capital (First Meeting, EP.13) · IDENTIFIED FROM THE TRANSCRIPT · source