Local Edges & Serendipity

Last week I stumbled on a tweet from Taylor Pearson highlighting some thoughts from Ben Hunt of Epsilon Theory that I haven’t been able to shake off my mind:

To anyone who follows the financial media and the hedge fund industry today, it isn’t a secret that the industry isn’t in the best of places at the moment. In fact, it’s a painful place to be in. Since the financial crisis of 2008 and the introduction of QE, public market dynamics have drastically changed where outperforming and earning above average returns have become next to impossible for most managers. Simply put: there are far too many people today in the capital markets chasing a minuscule amount of opportunities. As a result of the difficult dynamics at play, allocators of all types have ventured into many other avenues outside of their typical “wheelhouses” of expertise in search of finding new sources of alpha.

“Local information is the last remaining source of alpha”
-Ben Hunt

When I stumbled on Taylors tweet last week, I immediately thought of my recent visit to the Creemore Springs Brewery and thought deeply about local information as a source of alpha.

Creemore Springs:

Creemore Springs was started in 1987 by John Wiggins as a pet project in the tiny town of Creemore, Ontario — population: 1,170. The story goes that Mr. Wiggins was a semi-retired graphic designer at the time who was slowly being forced into retirement due to a horrendous case of arthritis and ants in his pants to keep busy. While he had no previous experience brewing beer before, nor did he originally move to Creemore to do so, he proverbially figured things out on the fly with the help of two other partners to get an acceptable craft prototype off the ground. Fast forward to 2005 and Creemore was acquired by Molson Coors for an undisclosed amount but many estimate the acquisition value was in the range of $25 million.

Although the company is now in the portfolio of the behemoth, Molson Coors, Creemore is a staple beer for many Canadians today. The demand for Creemore is so high that during peak season the throughput of production in the brewery simple can’t keep up. Today the main focus of the brewery isn’t to increase sales but to find ways to optimize production in any way possible. In other words, people love Creemore beer and can’t get enough of it.

While John Wiggins never sought out to Creemore originally to brew beer and fell into it by complete fluke, the “edge” in Creemores recipe is the real kicker in the story. The “springs” in Creemore Springs beer is for the incredible spring water of the town. Without this high-quality spring water, Creemore beer would never taste the way it does today. More importantly, without this high-quality spring water, it is HIGHLY likely that Creemore beer wouldn’t be the success it has been or any success at all as a craft beer. This tiny and unaccounted factor essentially is Creemore Springs.

I highlight Creemore Springs not because I’m not advocating you should go on a wild goose hunt in search of the best fresh spring water to start an incredible micro-brewery but rather want to outline the factor(s) that essentially made it a success (outside of the sheer hustle of everyone who made it possible). A detail that was essentially so small and unaccounted for was the biggest factor in Creemore Springs success.

If local information truly IS the last remaining source of alpha, then thinking deeply and creatively about the things around you on a granular level are what will likely pay large dividends in the future. The key is to find ways to execute on and exploit whatever alpha you do find.