The Original Tiger King
A tribute to one of history's greatest stock pickers
I never met Julian Robertson but he is one of my investing heroes. Not just because of his amazing, albeit chequered, investment record, but as a former partner of a Tiger cub, I also owe him a great debt.
I first came across Tiger Management when I was working on the sell-side. I had joined a new firm to cover a new sector, conglomerates, and my old patch of transport. A few days in, a salesman flew in from New York and asked if I had any shorts. I was a little confused as to why my new colleague was interested in my casual wear, until he explained that he covered hedge funds, which invested in long and short ideas. Until then, my only exposure had been a meeting with Soros on a long idea, and I had never heard of a hedge fund – imagine!
I explained that the most expensive stock in my universe was Eurotunnel, which would go bust without an injection of equity. He immediately called James Lyall at Tiger on speakerphone. A 15 minute call was enough to get James interested, and we ended up selling 3% of the company short for Tiger. They made 90% on the trade, and in those days you also got interest on the cash. Although I don’t remember exactly how big their bet was, it was over $100m for sure.
Eurotunnel Boring Machine, Source: alamy.com
I have not researched Robertson before, but I have always felt grateful to him. Both for giving my old employer a job, and for retiring in 2000 at the top of the tech boom. If he hadn’t, my boss might never have set up on his own and I would have missed that wonderful opportunity.
There have been a lot of obituaries, but I wanted to capture a few of Robertson’s practices and look at how we might try to emulate his success. To be clear, he was an amazing stock-picker and that cannot be replicated. But he had some useful principles which we can perhaps apply today.
There have been a lot of obituaries but I wanted to capture a few of Robertson’s practices and look at how we might try to emulate his success. To be clear, he was an amazing stock-picker and that cannot be replicated, but he had some useful principles which we can perhaps apply today.
Background
Robertson was born in 1932, in Salisbury, North Carolina and graduated from the University of North Carolina in 1955. He served in the Navy for two years before starting on Wall Street as a stockbroker for Kidder, Peabody & Co.
In 1974, he became CEO of the firm’s investment advisory subsidiary. In 1978, Robertson left and took a one year sabbatical in New Zealand where he wrote a novel which was never published. He decided to invest instead and with a partner in 1980 started Tiger Management as a long-short equity hedge fund with $8.8m of joint capital. He would later move into global equities, and eventually into commodities, currencies, and bonds.
Robertson was an investing genius. From inception in May 1980 to its peak in August 1998, Tiger earned an average of 31.7% pa after fees, vs a 12.7% pa return on the S&P 500 index. Even after losses from the tech boom shorts and bad macro bets in 1999-2000, the average performance was 26% pa. Over 20 years!
But an interesting fact about Robertson which goes unremarked is that although he was a brilliant investor and made himself a billionaire, the Tiger funds likely lost money for investors overall – as always happens, the assets grew at the peak of the funds’ success and the losses then likely exceeded the gains in the good years; these were phenomenal but on lower AUM.
How Robertson Built His Team
The Tiger cubs (founded by his former proteges) and grand cubs (founded by proteges of the cubs) are the most successful group of hedge funds ever. Robertson’s selection of analysts is therefore particularly interesting. He believed that successful investors have certain characteristics beyond intelligence and numeracy and looked in particular for people who were competitive:
“..almost as important as total honesty and smarts is competitiveness. The guy who just will not be beaten in performance, simply will not be beaten in performance. When we hire anybody, we give them a long test and there are several things on this test that help us discover their competitiveness. The beauty of this test is that we have tested so many managers. When you consider John Griffin, Stephen Mandel, Lee Ainslie and Andreas Halvorsen, these managers are almost legends”.
The Templeton Touch, William Proctor and Scott Phillips
I don’t know to what degree competitiveness as in seeking to win races or games is an essential characteristic for investing success. But it’s clearly helpful, not least because it keeps you going in the face of adversity.
“We eventually devised testing that all applicants had to take. We still give that test, which takes about three or four hours. It is part aptitude, but also psychological. The test was also designed to show what kind of team player the person was and their competitiveness. I’ve found that most good managers are great competitors”.
Source: Value Investor Insight
Robertson was a jock – competitive and athletic. He flew the team to Montana and Wyoming and set them gruelling physical challenges, often with a view to team bonding. They would hike, climb, swim in ice cold lakes, and camp out. The analogy is the US Navy Seals - one of the team, Andreas Halvorsen (who founded Viking, still one of the top 10 global hedge funds, before Tiger blew up), was a member of that elite group. Robertson was a great believer in teamwork and went on to employ a psychologist who devised the test for potential recruits.
And the analysts loved it as the rewards were enormous, with 8 figure bonuses on offer, sums unheard of in the 1990s. Robertson ensured peak performance by having a gym in the office and when an analyst had a baby, a nanny was sent to ensure that their sleep was not interrupted.
Robertson was also age agnostic, and if anything favoured younger analysts.
“We never made a mistake there [in giving a manager too much too soon] and in fact, that is what our strength is, giving these young managers the responsibility we did at the time. “
The Templeton Touch, William Proctor and Scott Phillips
I think we can learn from Tiger and from successful sports teams, as investors often under-appreciate the value of teamwork. I am not sure you need a group of jocks and I suspect Tiger’s team was less diversified than is thought optimal today. But it worked for them.
The Investment Process
Tiger analysts had free rein to make recommendations and roam the world in search of great stock ideas, but Robertson was the sole trigger-puller.
“He would assemble his lieutenants each Friday around a long table to listen to the fruits of their week’s work, and the emotional payoffs were extreme. “That is the be-yest idea Ah ever saw,” he might exclaim after listening to a square-shouldered twenty something analyst deliver a stock pitch, and the young hunk would be whooping and high-fiving himself inside his swollen head for the rest of the meeting. “That is the dumbest idea Ah ever heard,” Robertson might also say, in which case six-foot-plus of Wall Street alpha male would shrivel pitifully.”
More Money than God, Sebastian Mallaby
Robertson was a brilliant stock-picker.
“He could drop in on a meeting with a chief executive and demonstrate a grasp of company detail that rivaled that of the analyst who tracked it. He could listen to a presentation on a firm he knew nothing about and immediately pounce on the detail that would make or break it”.
More Money than God, Sebastian Mallaby
Here’s what Jim Chanos had to say about Julian Robertson and his process:
"When it came to interacting on stocks, there was no one better than Julian Robertson. He would have you over for lunch and if you were pitching a short idea, and he would have you against eight bulls, and vice versa, and just challenge you on every part of your thesis, which is the way really professional investors should do it".
Robertson believed in deep research, at a time when there was no internet, research was much more difficult, but could construe a real information advantage.
One of Tiger’s analysts thought that a South Korean car company had a model with a faulty engine, but the information was secondhand and Robertson insisted on primary research. Tiger bought two of the cars and had them tested. The results validated the short. Sure enough, the vehicles were clunkers. Tiger successfully shorted the stock. Another analyst validated an Avon thesis by becoming an Avon representative.
Robertson was similar to Buffett in that he looked for easy wins. To borrow Buffett’s metaphor, he was looking for one-foot hurdles he could step over:
“Hedge funds are the antithesis of baseball… you can....hit lots of home runs, but you will not make money playing in the minor leagues…you have to play in the big leagues. In the hedge fund business, you simply get paid on your batting average. So you go the places where the pitching is not any good and you hit there. We were one of the first into Korea and those markets were absurd. People would buy stocks based on the absolute price without considering what could be earned back…I firmly believe that it is smart to go places where there are rookies in investing.”
The Templeton Touch, William Proctor and Scott Phillips
Like Buffett, his approach changed over time.
“When I first started the hedge fund, I generally bought very cheap stocks with low valuations. And then, when we hired all of these wonderful analysts, I realized that we could do much better in our investments by getting more into growth companies, because our guys were pretty capable of mapping out what the growth was going to be, and so we shifted into that approach.”
The Templeton Touch, William Proctor and Scott Phillips
Tiger’s Closing Letter
Robertson’s closing letter (March 30, 2000) noted the redemptions, some $7.7bn since August 1998, and talked of “the demise of value investing”. There are some obvious parallels to the recent market regime in 2021/22.
”There is no quick end in sight”? What is ”end” the end of? ”End” is the end of the bear market in value stocks. It is the recognition that equities with cash-on-cash returns of 15 to 25% regardless of their short-term market performance are great investments. ”End” in this case means a beginning by investors overall to put aside momentum and potential short-term gains in highly speculative stocks to take the more assured, yet still historically high returns available in out-of-favor equities.
…the key to Tiger’s success over the years has been a steady commitment to buying the best stocks and shorting the worst. In a rational environment, this strategy functions well. But in an irrational market, where earnings and price considerations take a back seat to mouse clicks and momentum, such logic, as we have learned, does not count for much.
The current technology, Internet and telecom craze, fueled by the performance desires of investors, money managers and even financial buyers, is unwittingly creating a Ponzi pyramid destined for collapse. The tragedy is, however, that the only way to generate short-term performance in the current environment is to buy these stocks. That makes the process self-perpetuating until the pyramid eventually collapses under its own excess.
I have great faith though that, ”this, too, will pass”…. The difficulty is predicting when this change will occur and in this regard I have no advantage. What I do know is that there is no point in subjecting our investors to risk in a market which I frankly do not understand. Consequently, after thorough consideration, I have decided to return all capital to our investors”.
Tributes
A Bloomberg article carried these tributes:
David Saunders, K2 Advisors:
“He was most harsh when we were performing the best. He’d say, ‘We should be making more money.’ He was quiet and almost kind when things were going against us.”
John Griffin, Blue Ridge Capital:
“His passion was contagious and his integrity unquestioned.”
Philippe Laffont, Coatue Management:
“Julian was a legendary investor and a generous mentor. But above all, he was a person of extraordinary integrity -- someone who personified not just what it meant to lead a successful professional life, but who embodied the deepest love of family, a humorous disposition in friendship and a profound commitment to philanthropy. He did so much good in the world, and so often when nobody was looking.”
Chase Coleman, Tiger Global Management:
“Julian was a pioneer and a giant in our industry, respected as much for his abilities as an investor as for the integrity, honesty, loyalty and competitiveness he demonstrated as a leader. He made the time to be a true mentor, always leading by example and pushing all of us to become the best versions of ourselves.”
Lee Ainslie, Maverick Capital:
“Julian was a mentor and a friend to so many people who aspire to live up to his example as both a great investor and an extraordinary philanthropist.”
Stan Druckenmiller, Duquesne Family Office:
“…while his intuitive genius produced amazing returns, and the philanthropic achievements he used those returns to fund were equally impressive, I will always remember him for the class and dignity that was pervasive throughout.”
Steve Mandel, Lone Pine Capital:
“Julian was an amazing mentor, a first-class human being and I will miss him terribly.”
Chris Shumway, Shumway Capital:
“Julian was a brilliant investor, incredible mentor, amazing contributor to society and a great friend. I know I speak for many when I say I could not have found a better mentor and friend who was an engineer of positive change for all who came into contact with him.”
Quite a collection of quotes from a group of billionaires who worked with Robertson.
Paying subscribers can read on to learn what Robertson held and how the stocks did after he closed. Spoiler – one was up 645%.