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“If I had had to give my own money to any of them, I would have given it to Robertson. He knew stocks better than anyone.” Jim Chanos
Hedge fund legend Julian Robertson passed away this past August . In my search for lessons from his life I revisited my archive of articles as well as the best chapter on Robertson which is in Sebastian Mallaby’s More Money Than God (I’ve talked to Mallaby about the history of hedge funds including Tiger). There is also a book about Robertson, A Tiger in the Land of Bulls and Bears, but it didn’t blow me away. If you have feedback, corrections, or interesting stories or content about Robertson and Tiger please reach out.
Despite its moniker, I think of Tiger as a wolf pack. Unlike some other great investors, Robertson didn’t hunt alone. One of his key strengths was his ability to attract talented analysts and bring out the best in them. In combination with his exceptional network, he created a research engine to constantly source and test ideas for the portfolio. His greatest legacy are the Tiger Cubs, the diaspora of former analysts who were mentored and put in business by him and who carry on his philosophy.
But even Robertson had to live through moments when it looked like the markets were conspiring against him, when the world was upside down, and everything he’d worked for seemed to be falling apart.
In early 2000, two legendary investors were wrestling with the dotcom boom. Stanley Druckenmiller was a trader and despite his fundamental research also took his cues from the market. After getting burned trying to short the high-flying tech stocks, he turned around and went long. Meanwhile, the dominant fundamental hedge fund manager of his era, Julian Robertson, was fighting to survive.
Business Week had called for his demise already in 1996. Prematurely as it turned out (Robertson had filed a defamation suit and the publication had settled with the acknowledgement that its prediction of poor performance had been incorrect). However, this time it was serious. Tiger was down nearly 40 percent since the beginning of 1998. Investors were redeeming and assets had shrunk from $21 billion to $6 billion in just two years.
Robertson’s portfolio of value stocks was out of favor and his global macro bets had turned against him. The New York Times pointed out that he was a value investor “in a market that's not value-oriented.” Robertson didn’t hide his frustrations:
“Some of these companies are selling at literally five and six times earnings and selling at two and three times cash flow. It's just wild.”
He was convinced the bubble was unsustainable, calling the “technology, Internet and telecom craze” a “Ponzi pyramid destined for collapse.”
“The only way to generate short-term performance in the current environment is to buy these stocks. That makes the process self-perpetuating until this pyramid eventually collapses under its own excess.”
However, while the bubble was still inflating it wreaked havoc on any short seller such as Tiger. On Invest Like The Best, Tiger Cub Stephen Mandel recounted the experience of shorting cash burning companies with no signs of the business improving or creating value: “the stock was $12. Six weeks later, on no news, the stock was 108." When bookseller Books-A-Million merely announced it was creating a website, its stock popped from $5 to $39.
When Robertson started his fund in 1980, short selling had been a profitable secret weapon, a “quiver that conventional funds lacked,” as Sebastian Mallaby wrote. Now it was “like being run over by a train that's going to derail a mile down the road.”
Robertson had no way of predicting when the bubble would end and like Druckenmiller he was burned out. He decided to shut down Tiger and published his closing letter on March 30, 2000, shortly after the Nasdaq had reached its peak.
“In May of 1980, Thorpe McKenzie and I started the Tiger funds with total capital of 8.8 million dollars. Eighteen years later, the 8.8 million had grown to 21 billion, an increase of over 259,000%. Our compound rate of return to partners during this period after all fees was 31.7%. No one had a better record.”¹
Robertson was proven right. The bubble collapsed and his value stocks returned to favor. Whitney Tilson’s Value Investor Insight tracked the performance of Tiger’s final holdings from 2000 until 2006: the portfolio returned 120% compared to the S&P 500’s negative 7%. Funds that spun out of Tiger at the time put up incredible numbers in their first couple of years.
One could argue that Robertson was the last skeptic to capitulate. That the shutdown of Tiger was the kind of tragedy that the market demanded for a top to form. Did he simply lack the resilience, the grit to make it through this final challenge?
Imagine if he had stuck it out. Yes, he would have triumphantly returned and restored his track record. But then what? Perhaps he would have kept his role as portfolio manager of Tiger.
When Institutional Investor caught up with him in 2002, he seemed content. They asked whether he ever regretted his decision to close down his funds:
“I really don't. I can't do this forever. I'm not on the phone for an hour early in the morning from New Zealand [his second home]. I just couldn't wake up at age 95 worrying about my partners' money. I love my life so much now. In hindsight, I might have been better off closing two years earlier.”
His lasting legacy are the many investors he seeded and mentored. Would he have been better off with more money, a better track record, and more years of running other people’s money? Rather than devoting himself to being the mentor and catalyst for the next generation? I doubt it. I think the bubble can be viewed as a blessing in disguise, Glück im Unglück. It was the catalyst that allowed him to transition, painfully as it was, to the next stage in his life.
It’s never too late to reinvent yourself
Robertson joined Kidder Peabody in 1957 at the age of 25. By 1974, he headed its asset management arm. However, a few years later he seemed to experience a kind of midlife crisis. Feeling "too constrained" he moved with his family to Auckland New Zealand to write a book. Even though New Zealand would remain his second home, he didn’t enjoy the solitary act of writing. Robertson missed the markets. After about a year he returned to New York on a mission to reinvent himself.
While working at Kidder he had befriended the son-in-law of hedge fund pioneer A. W. Jones. Over lunch with the old patriarch, he learned about the mechanics of the hedge fund business. Robertson also got to know Carol Loomis who had first explained the new hedge fund concept in Fortune.
When Robertson and Thorpe McKenzie launched Tiger in 1980, he was already 48! He started the fund at a time when valuations were low and declining interest rates would be a tailwind for decades. Short selling was out of fashion as the first wave of long-short hedge funds had disappeared during the crushing 1970s. In short, there was ample value to be found in markets and Wall Street was much less institutional than it is today. It was a great time to get started.
A straightforward investment philosophy
In his time as a broker, Robertson observed how other investors behaved, how stories spread, and how different strategies fared in different market environments. He developed a pattern recognition for what drove stocks and an understanding of other market participants. He kept his investment philosophy simple:
“As you have heard me say on many occasions, the key to Tiger’s success over the years has been a steady commitment to buying the best stocks and shorting the worst.”
His emphasis changed over time, with qualitative factors becoming more important.
“When I first started out, I was a cheapskate looking for dirt-cheap stocks. When I got so many talented analysts, I realized it was better to go for more expensive growth stocks because the analysts could project earnings well into the future.”
“A good analyst is more adept at making judgments on growth. That’s their job – based on the business and the company’s position in it, how fast is the company going to grow?”
“I would say my concept of value has changed to a more relative sense of valuation, based on the expected growth rate applied against the price of the stock. Some people call that GARP (growth at a reasonable price), I’d call it value. I think that’s just semantics.”
Shorting was important and a source of alpha. It was much less competitive at the time and Robertson called it “almost a license to steal.” “It’s me and the patsies,” he once told an associate.
“If you look at how to do a good record over the years, it's not to make huge amounts of money. It's to avoid big losses. That's the way to really make money over the years.”
Robertson evolved from an initial focus on smaller capitalization US companies to being a more global investor. He was an enthusiastic and frequent traveler constantly on the lookout for opportunities and less competitive markets.
“Over the years, Robertson built a Rolodex of thousands of people he had met on his travels around the globe. He constantly gathered, processed, and spit out what he did not need.” A Tiger in the Land of Bulls and Bears
It’s a people business
This brings us to perhaps the most important aspect to understand about Robertson: his emphasis on people. He structured his firm to play to his strengths as a networker and leader – a people person. In a short chapter on him in the book Money Masters, Robertson commented on Peter Lynch that he “missed one thing: He wasn't having fun. He didn't get people to help him.”
Robertson on the other hand built his organization to suit his strengths. He wanted to hire the best analysts for deep research and use his own network to cross reference their work and source new ideas. Much of his day was spent on the phone with executives, analysts, and peers.
Here is a picture of the Tiger office in 1996. Know what this reminds me of? A brokerage. Definitely not Buffett’s solitary, library-like office.
Forbes, 1996
“Working for Tiger was not merely a job. It was like joining a special-forces unit. The commander made you bigger, brighter, tougher than you were before; he made you believe that you could beat the market, year after year, because you were part of a team that would outthink and out-hustle every rival. For the first dozen years or so of Tiger’s history, the commander operated from a desk out in the open, next to his young men; they watched him schmooze and holler down the phone, sucking information out of his vast network.” More Money Than God
Robertson’s strength was building an elite team, using his pattern recognition to filter ideas, and connecting everything to his exceptional network of contacts. Despite Tiger’s name, he was not a solo predator. The tiger was really a wolf.
A culture of competitive athletes
“Tall, confident, and athletic of build, he was a guy’s guy, a jock’s jock, and he hired in his own image. To thrive at Robertson’s Tiger Management, you almost needed the physique; otherwise you would be hard-pressed to survive the Tiger retreats, which involved vertical hikes and outward-bound contests … Even away from these adventure holidays, the testosterone quotient at Tiger remained exceptional. The firm retained a private trainer …” More Money Than God
Robertson had a knack for finding talent. He was looking for a kind of athlete that combined smarts, tenacity, and a fierce competitive drive.
“We have found through the tests that we give that very competitive people are very good in this business. Oftentimes, people who are excellent athletes of some sort make great fund managers.”
He later hired a psychoanalyst named Dr. Aaron Stern who created a 3 hour test containing some 450 questions to enhance the hiring process. Stern referred to Tiger’s analysts as the “Super Bowl team.”
“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.”
Robertson needed people who fit into the firm’s culture more than individual superstars.
“Some of the questions were open-ended. It was along the lines of: Is it more important to get on well with your team or to challenge them? Would you prefer to be intellectually right but lose money or to be intellectually wrong but save the trade?” Tiger Cubs: How Julian Robertson built a hedge fund dynasty
“Hedge funds have always had the huge advantage that they are the best way of paying the best money managers. And so the best money managers have matriculated to hedge funds. And I think that's why they are doing better than the rest of the crowd and I think that's why they'll continue to.”
Robertson used the insight that the hedge fund structure was the best way to attract and retain said talent. A small team could invest large amounts of capital and, if successful, participate in the enormous profits. Analysts at Tiger were exceptionally well paid though how much of the profit pool they were allocated seemed to hinge on Robertson’s discretion. One article mentioned that even junior analysts could get a $6 million dollar bonus at the end of a great year – 30 years ago in the early 1990s!
Or as Daniel Strachman put it in his book:
“Throughout the firm’s history, Tiger was a place where everyone was overpaid, knew they were overpaid, and were determined to continue to be overpaid.”
Research and idea velocity
“It's all about ideas, new ideas. To survive at Tiger, you've got to generate ideas. … I must have called every snowmobile dealer in the country.” A Tiger analyst in 1996
Robertson’s tried to constantly refresh the portfolio with better ideas. He expected his analysts to do deep research and develop their own industry networks. In a world before expert networks and Tegus transcripts, a drive to dig deeper and conduct field research was very valuable.
“That's the DNA of Tiger. You've got people who don't mind hustling, who don't mind getting on a plane, flying to another country, meeting the manager, and building a very personal network. And that continues to generate good returns.” Sebastian Mallaby
Investment ideas based on months of research were expected to be “summed up in four sentences” and they presented at Friday lunch meetings. Robertson didn’t offer them much time to pitch. “Get to the point or don’t bother,” as one analyst described it. The upside was that ideas were selected by merit:
“He didn't give a shit how old you were, he didn't give a shit if you'd paid your dues, he didn't give a shit how long you'd worked for him... he threw you the ball.” The Generalist
This fast pace was not everyone’s cup of tea. Charlie Munger’s favorite money manager Li Lu described his experience as a guest at Tiger:
“When I ran my own fund, early in my career Julian Robertson, the founder of Tiger Fund invited me to share an office with him. He invited lots of fund managers that he invested money in to work together and share ideas. … I learned the practices of hedge fund managers, including letting someone handle the shorting. It turned out to be pretty useless. I busied myself. If you are shorting, you have to trade.”
Stephen Mandel of Lone Pine Capital talked about this culture of research: “Julian, above all else, impressed upon me the importance of understanding people — the abilities, track records, ethics and character of management, particularly the CEO — not only forming our own impressions, but checking out management through our network and former colleagues and others in the same industry.”
The networker
“He was a charmer in a southern way, a networker in a New York way; and far from being coldly in control, his mood could swing alarmingly. There was something about Robertson that made you want to please him. He would zero in on people with his Carolina charm, flattering and drawling until they purred like sleepy kittens. “Pah-wah-ful, Bob,” he might address a young subordinate. “Ah find mah-self utterly pah-ra-lyzed without your pah-wah-ful assistance.” More Money Than God
Robertson was a legendary networker and his culture of debate reminded me of Barry Diller who emphasized “creative conflict” to unearth conviction. If an idea resonated with Robertson, he tapped into his network to test it. He liked to set up bull/bear debates, pitting his analyst against someone on the other side of the trade:
“Robertson’s two assistants operated a pair of giant Rolodexes, almost the size of wagon wheels, and if a Tiger analyst pitched an investment to the boss, Robertson would soon be testing the idea on three old friends who worked in that same company. The analyst might say, “I think it’s time to short Boeing.” Robertson might respond, “I know the guy who used to run Boeing’s international marketing.” The assistants would work the wagon wheels, the former marketing chief would crackle on the speakerphone, and Robertson would tell his twenty something analyst to defend his short recommendation.” More Money Than God
This podcast with Tiger Cub Rob Citrone elaborates on the process: “they (Robertson and Soros) always cross referenced their ideas. If I went to Julian with an idea, he'd always say, what do our other investors and partners think? Who else can I talk to about that? And George did the same thing. Both of them had incredible rolodexes.”
Robertson liked to have business leaders as limited partners. A number of successful investments dated back to discussing industry dynamics and business models with his investors. As Sebastian Mallaby pointed out: “Robertson was not engaging in insider trading: His contacts were offering broad guidance, not secrets on upcoming earnings announcements that could have an immediate impact on stocks. But he was consciously building his network and cashing in on it brilliantly.”
When Tiger dropped by 30% during the crash of 1987, Robertson contacted his network to assess the impact on the economy. There was widespread concern the bear market would lead to a recession. Robertson disagreed, noting that “I don’t talk to anybody in industrial America who isn’t absolutely tonning it. I’m talking about smokestack America. They are making a fortune.”
Business was good and a lower dollar made companies more competitive globally. Robertson concluded that “things are setting themselves up for one of the major buying opportunities of our time.” He was right.
There was such a disconnect between the economy and bearish sentiment in markets that he was prompted to make this legendary comment:
“There are so few bulls that I can’t imagine who’s going to impregnate the cows.”
Cultural tradeoffs
“The rich pleasure of basking in Robertson’s attention was spiked with the knowledge that his mood might turn.” More Money Than God
The downside of this culture is that it can become confrontational and political. It seems that Robertson could be a tough and demanding boss to work for with occasional mood swings. Analysts could quickly rise or fall out of favor.
“Robertson 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 twentysomething analyst deliver a stock pitch… “That is the dumbest idea Ah ever heard,” Robertson might also say.” More Money Than God
“If you bleed easily, you won’t be happy here,” the psychiatrist would warn people; and he was right. Many of the analysts who joined Tiger were out within a year or so.” More Money Than God
However, it could also bring out the best in his people:
“The people he hired were not natural-born hedge fund managers,” said one former Tiger. “But, because he was so tough to work for, he forced us to be the best we could be at all times. He made us understand what was important, how to find it and process it, and make a decision based on it.” Julian Robertson: A Tiger in the Land of Bulls and Bears
“A former Tiger employee recalls, ‘The thing that was special about him was that he was extremely symmetrical. If he thought you hadn’t done your homework, or that your analysis was flawed, he would be very aggressive, very confrontational. Symmetrically, though, if he thought you had done exceptional work or were generating exceptional outcomes he would lavish you with praise, and publicly. You were his big tiger.’” More Money Than God
Get big, go macro
“I think, without actually realizing it, we put more and more into those types of trades because we realized that they were more liquid than anything else, so we became—sort of by osmosis—more involved in macro.”
Tiger’s assets increased from a mere $1 billion during the early 1990s to some $22 billion by 1998. Picking small stocks was no longer an option. Robertson constantly looked for new ideas in liquid markets and increasingly branched out into global macro. For example, Tiger was active in currencies. When the Thai Baht devalued during the Asian financial crisis, Tiger had the second largest short position behind only Druckenmiller and Soros. According to Strachman, macro bets accounted for almost a quarter of Tiger’s returns from 1990 to 1998.
A long running bet was the collapse of the Japanese bubble:
“The big trade that Tiger had in the 90s: we were short Japan and long the US. That was a massive macro trade. For a decade. They would always ramp the equities in the end of the quarter. But he stuck with it through thick and thin. It was the bedrock of Tiger's returns in the 90s.” Rob Citrone
The downside of conviction
Prestige may have been another motivation leading Robertson into global macro. One article pointed out his frustration with Soros for whom central bankers “fell in line” while Robertson was waiting to hear back about an appointment. While Robertson was an astute stock picker and intimately familiar with the universe of publicly traded companies, he didn’t bring the same level of experience to global macro. Sebastian Mallaby pointed out a key tension:
“The value investing mindset almost disqualified Robertson from mastering macro. Similarly, value investors pride themselves on rock-solid convictions. They have torn apart a company balance sheet and figured out what it is worth; they know they have found value. Macro investors have no method of generating comparable conviction.”
Robertson was conditioned to hold on as long as his thesis on a company was intact. In 1987, this had paid in spades. As a value investor he was taking advantage of the mistakes, analytical and behavioral, of other investors. However, that same conviction could trap him in global macro, especially at his size.
“Julian always doubled up. When a short was going down, he pressed it, and when a long was going up, he pressed it.” Mark Yusko, CEO of Morgan Creek Capital
During the Russian default and blow-up of the hedge fund LTCM, Robertson’s massive short Yen position cost him nearly $2 billion in one day. As liquidity dried up it became clear that Tiger’s bet had been too large and levered.
“During the course of October, Robertson managed to lose $3.1 billion in currencies, primarily from his bet against the yen; and his excuses were not persuasive. “The yen, which was as liquid as water, suddenly dried up like the Sahara,” he pleaded to his investors, failing to add that liquidity had evaporated not least because of Tiger’s recklessness. Tiger had been short an astonishing $18 billion worth of the currency—a position almost twice as large as Druckenmiller’s famous bet against sterling.” More Money Than God
While Robertson kept his calm, I’d say he was out of his element.
“At one point, Tiger had burned through $2 billion in a wrong-way bet against the Japanese yen, and “everyone was panicking.” Robertson entered the room and, according to Hwang, said, “Guys, calm down. It’s only work. We do our best.” Bloomberg
The late 1990s put a serious strain on Robertson. Markets seemed to be conspiring against him. Tiger had grown to more than 200 employees with offices in New York, London, and Tokyo. And Robertson was still the sole portfolio manager.
“One former cub recalls that when he joined Tiger in the 1980s, he admired how Robertson rarely worked on Fridays and took plenty of time off to spend with his family at their home in the Hamptons. ‘He had a good lifestyle,’ the former cub remembers. But as the fund and the company grew larger in the 1990s, he says, Robertson ‘started working like a dog.’” The Tiger in Winter
When his investors questioned his methods and the dotcom boom was in full swing, he finally asked himself:
“This approach isn’t working and I don’t understand why. I’m 67 years old, who needs this?”
And indeed, who did?
After shutting down and seeing many of the Tiger Cubs, he continued to invest his own money. In addition he had minority stakes, "a nice chunk” as he called it, in the Tiger Cubs’ he’d seeded. Robertson called it “a very good system - particularly for me, at my time in life. I've gotten re-energized. It's wonderfully fun." It also kept him in the network and flow of ideas.
2007 turned out to be a great year for him (+76.7%) as his subprime credit default swaps paid off. The man was retired and yet continued to be involved in the greatest trades.
“My gosh, this has been the most extraordinary period of my career as an investor. "I think this is the best month I've ever had. It's got to be.”
When Fortune profiled him in 2008, they reported a return of 403% on his own capital on an estimated $1 billion fortune at the time he shut down.
Despite exiting during a drawdown, I think he made a smart choice for himself. He kept doing what he loved: he mentored great talent, traveled the world, and pulled the trigger on investing his own capital. The work of answering to investors, navigating a massive fund, and managing an extensive staff disappeared. He’d returned to what he loved: the craft of investing and spending time with his favorite people. No wonder he kept on winning.
1
Here is a first lesson in careful reading: I see this performance number in a lot of pieces about Tiger. However, it refers to the “eighteen years” of 1980 to 1998. 1998 was close to the peak and followed by A final and brutal drawdown. Per Sebastian Mallaby’s excellent More Money Than God, “Tiger earned an average of 31.7 percent per year after subtracting fees, trouncing the 12.7 percent annual return on the S&P 500 index. Counting the collapse in 1999 and 2000, average performance was around 26 percent per year, still an impressive number.” From More Money Than God: