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The wizard of Wall Street
Julian Robertson is somewhat of an iconoclast, having risen from a Wall Street sales trainee to a successful hedge fund manager, reports LIN ZHAOWEI
He has yet to write a book about his life or his investment methods, but a detailed account can be found in a biography titled Julian Robertson: A tiger in the land of bulls and bears, written by hedge fund expert Daniel A Strachman.
Mr Robertson was born to a notable family living in the small town of Salisbury in North Carolina. His father was a successful businessman in the textile industry and a savvy investor, while his mother was heavily involved in community work.
His father piqued the young Robertson's interest in investing at an early age, teaching him how to read and understand stock tables and other financial information. The boy would often sit on the living room floor and compare statements from different companies to see who got the most sales per dollar of investment.
After graduating from the University of North Carolina with a degree in business administration in 1955, Mr Robertson joined the US Navy and served on a munitions ship where he was in charge of the functionality of weapon systems.
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Mr Robertson is active in philanthropy and supports the resolution of environmental issues...He also founded the Robertson Scholars Program with the aim of providing talented undergraduates with enrichment opportunities.
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Strachman wrote, 'this was where Robertson learned the value of being a good leader and the importance of gaining the respect of those who reported to him. This affected him as he ran and built Tiger.'
Two years later, Mr Robertson started his Wall Street career as a sales trainee at Kidder Peabody & Co and spent more than 20 years there. He eventually ran the firm's money management arm Webster Management Corp in 1974. And it was there that he learned much about how to make money from the market, and gradually gained a reputation as a solid investor.
Tired of doing marketing and sales, Mr Robertson and then-partner Thorpe McKenzie went on to set up the Tiger Management hedge fund in May 1980. He liked the idea that in a hedge fund environment, one is rewarded based on performance. The fund performed superbly in its earlier years, but towards the end of the 1990s, it started stuttering and was ultimately closed in 2000.
Mr Robertson was heavily influenced by the value investing philosophy expounded by Benjamin Graham and David Dodd. Strachman wrote: 'Throughout his career he knew of no substitute for careful and comprehensive analysis of investment situations.' He believed in doing thorough research, which includes not just financial analysis but interviews with senior management of companies and discussions with key customers, suppliers and competitors. To Mr Robertson, the only way to make money was to buy stocks that were cheap and watch them go up. He enjoyed hunting for value and this drove him to be successful.
One of the keys to his success was his ability to source for information. He worked hard at establishing a network of people he could rely on for help. An early friend he made at Kidder was banker Robert Burch, who later invested in Tiger. In the 1970s, Mr Robertson also got to know Alfred Jones, the man who created the first hedge fund, through Mr Burch. Through conversations with Mr Jones, Mr Robertson learned a lot about the value of having some short positions in a portfolio.
At that time, shorting was a rare thing because most investors did not even know how it worked. Mr Robertson wrote in a letter to shareholders in 2000, that the success of Tiger rested in his team's 'steady commitment to buying the best stocks and shorting the worst'. Shorting allowed Mr Robertson to enlarge his profit opportunities and reduce exposure to losses when the market turned against him. His peers and former colleagues say he is one of the best long/short managers ever.
Indeed, Mr Robertson is somewhat of an iconoclast, as he always looked for unexpected plays. Many say his success stems from his willingness to think outside the box. One such example was when he stuck with his short copper positions when the market was rising in the early 1990s. The subsequent correction in 1996, triggered by a major scandal, saw Tiger make a record US$300 million in profit in one day.
Another success factor for Tiger was proper management of risk. Mr Robertson spent plenty of time understanding trade and portfolio risk. To him, the objective of the investment selection process was to pick out situations where risks were small compared to potential gains.
Towards the late 1990s, Tiger was getting bogged down by a number of bad investments. It also missed out on the tech boom, causing it to further underperform the market.
In the months leading up to the end of Tiger, Mr Robertson tried to sell the firm, but none of the deals went through. Strachman wrote that the problem was that Mr Robertson wanted to make sure his investors were well taken care of and nobody seemed to be willing to guarantee that. By March 2000, he finally decided to close the fund and return remaining assets to investors. The firm's compound rate of return to partners during its existence, net of all fees, was 31.7 per cent.
Although he is now in retirement, he is still actively involved in the markets, focusing on global equity. The companies that are now attractive to him are those that have 16 to 20 per cent average free cash flow, as this indicates their ability to build outward.
Mr Robertson is active in philanthropy and supports the resolution of environmental issues. Among other programmes, he founded the Robertson Scholars Program with a US$24 million donation in 2000, with the aim of providing talented undergraduates with enrichment opportunities.
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