The lessons to learn from Julian Robertson and Tiger Management
Legendary investor Julian Robertson died last month, aged 90. The founder of Tiger Management helped create the modern hedge fund industry and is celebrated for legions of “Tiger cub” traders that succeeded him. Here are some of the main lessons we can take from him.
Surround yourself with clever people
Almost 200 hedge fund firms can trace their origins back to Tiger Management. Not even Benjamin Graham’s school of value investing came close to spawning an investment dynasty on this scale. Robertson’s talent was as much about picking the right people and helping them flourish as it was about understanding investment.
Alberto Foglia, the late chair of George Soros’s Quantum fund, and his son visited Robertson after Tiger Management had returned outside capital to investors in 2000. Foglia’s son complimented Robertson that while few of the managers that left Soros had been successful, almost all of the Tiger “cubs” had done well. Robertson replied that Soros was a genius, so he didn’t need super smart people around him, whereas he himself was not; so he needed the best staff he could find.
Motivations matter
Tiger’s early success in hiring young analysts relied on Robertson’s instinct for identifying people who were competitive, curious and also extroverted. He later employed psychoanalyst Dr Aaron Stern to help evaluate how people thought, took risks and worked in teams.
Robertson also applied these techniques when he was making investment decisions. On one occasion in the 1990s, he listened to the boss of a French conglomerate outline his transformation strategy for the group.
When asked what he thought of it, Robertson replied that he was going to invest in the company. But he warned the chief executive that he would sell the stock within a few years because “your ambition will get the better of you”. Robertson’s prognosis played out: the chief executive later presided over one of the largest losses in French corporate history and he quit after losing the support of the board.
Keep it simple
Robertson’s approach was to buy the 200 best companies and short the 200 worst. He had a long-term time horizon. While valuations were important, factors such as a company’s position in an industry and the barriers to entry also played a big part. Crucially, he believed that an investment thesis should be able to be summed up in three bullet points on an index card.
Manage the risks
Robertson’s conviction was his making — and his undoing. As Tiger grew, it expanded beyond its core expertise in large-cap US equities into government bonds, commodities and currencies. He thought that he could apply the same ideas to different markets. This didn’t always prove the case.
His mistake was to make big bold bets that could sink a fund if they went wrong. His refusal to buy into the dotcom mania was eventually proved right, but this decision was one of the reasons Tiger was forced to return outside investor money in 2000. Remember the Keynesian adage: the markets can stay irrational longer than you can stay solvent.
Don’t confuse résumé with your legacy
Robertson donated $2bn to charity during his lifetime, including to education, the environment, religion and medical research in the US. He indulged his love of New Zealand by creating three resorts and owning a boutique vineyard there. He also tried to keep work in perspective. As he mused in 2013: “I didn’t want my obituary to be, ‘he died getting a quote on the yen’.”
