How Julian Robertson Turned $8.8 Million Into $21 Billion--The Dan Strachman Interview

"If Tiger was an onion, and you peel back all the pieces of the onion, when you get to the core, the core is very simple.  If you can prove that there’s a value in play and an opportunity to exploit it, then that’s what he will do."
-- Daniel Strachman, author of Julian Robertson: A Tiger in the Land of Bulls and Bears

DAVE: We are here today with Daniel Strachman, hedge fund expert and biographer of one of the 20th century’s financial icons, Julian Robertson. Dan, welcome.

DAN: Thank you.

DAVE: I’ll start the interview out by asking you how you got involved studying and writing about Julian Robertson.

DAN: Well, the short answer is I called Julian’s office. No one had ever written a book on Julian, which I found surprising given the incredible importance of him and Tiger Management in the world of finance

DAVE: I understand that Tiger was one of the original hedge funds and that Julian had a major role in popularizing and developing the hedge fund concept.

DAN: Well, yes. The Tiger Fund started in 1980 and multiple funds sprung from Tiger: The Lion Fund, The Puma Fund, Jaguar Fund, Ocelot Fund, and a number of others that developed as the business grew. Julian returned from sabbatical in New Zealand and he and Thorpe McKenzie raised about $8.8 million to start Tiger.

DAVE: Interesting, I know he went to New Zealand to write a book. Did it happen to be a book on finance by chance? Was it ever published?

DAN: No, it isn’t about finance and it has not been completed yet. I don’t know for sure, but allegedly it’s about a Southerner who goes to New York and becomes successful on Wall Street. I think it’s an autobiography up to that point in Julian’s life.

DAVE: Sabbatical? Where did Julian work before he started Tiger, what was his career path?

DAN: Julian started his career at Kidder Peabody and Co in 1957. He started as a trainee and went through all the ranks on the sales side. Julian was very successful at doing two things: the first was building a business and second, he was good at understanding how other businesses and stocks operated. He could understand and find value, and was very, very successful working as a broker/salesperson selling ideas and creating ideas for individuals and institutions.

DAVE: Now that we have some background, let’s get into Julian’s investment philosophy, his style and how it came about.

DAN: In the Tiger organization, the fundamental money management strategy across all of the various funds and across all the strategies was Value Investing. Julian has a very clear idea in his mind if something has value or has no value. And he applies basic Benjamin Graham theories to first the stock market then he applied it to basic materials and commodities and eventually did it in a sort of global macro type of strategy where he was doing currencies and other fixed income instruments. But if Tiger was an onion, and you peel back all the pieces of the onion, when you get to the core, the core is very simple. If you can prove that there’s a value in play and an opportunity to exploit it, then that’s what he will do. Whether it’s buying IBM and shorting Apple or its going long the dollar against the yen, all Julian was about and all he has taught, and still does today, is look for value opportunities and finds ways to exploit them in the marketplace. Julian is someone who would say to you, there is no such thing as a stock market. It’s not an indicator of anything. It’s not a tool to be used or looked at, rather it’s a tool to trade various companies’ pieces of paper. He’s not someone who looks at the market or is a market technician or any of that kind of thing. He’s really a qualitative-based investor who looks for value and anywhere he can find it and exploit it, he will put his money to work there.

DAVE: Lots of guys do this. Why was his performance so much better than everyone else?

DAN: First of all, I don’t agree that a lot of people do this. I think there are a lot of people who say they do it but actually do not. Secondly, Julian is a very firm believer in the KISS principle, “Keep It Simple Stupid”, and he has been able to successfully exploit that for the better part of the last 30 years. The reason he is able to exploit it is because he has very incredible contacts throughout the globe. He is very good at disseminating facts and information in a very quick manner. Julian has a sort of Rain Man type mind. He can remember things from 25-30 years ago, he is very quick at doing math in his head, he can disseminate things very fast. What he has been able to do is make decisions based on small nuggets of very important pieces of information and use them to his advantage.

DAVE: Sounds like he can take reams of information, break it down and extract the important parts, then use this compressed information to make decisions.

DAN: Yes, exactly. Basically, the investment idea of Tiger was summed up in three sentences. They could be very long sentences, but for the most part it was a three sentences process. This is the opportunity, this is how we can exploit it, and this is what the outcome will be. 1-2-3. If you couldn’t give it to him in those 3 sentences in a 5-6 minute pitch, it wasn’t worth his time. It was time to move on to the next stage. I think that where other people get bogged down in the research, or get bogged down in the data, or get bogged down in the external factor, he thrives. Julian is all about sending an analyst anywhere to get as much information as they can and then take that information, distill it down into a very clear and concise opportunity and figure out how to put that opportunity to work.

DAVE: On the macro level, what markets would he looks at? Equities, currencies, commodities?

DAN: Anything. Julian would say that he was a more of a value investor for stocks. Throughout the 20 odd years of Tiger, he was willing to do anything at some point. Basically by the mid to late 80’s, they had moved from just doing stocks to other areas of the marketplace – fixed income currencies and others things.

DAVE: Does risk management come into play when Julian invests?

DAN: Risk management was very important, and is very important to him. However, exploiting the opportunity is more important. The Media printed some criticism about Tiger when he decided to give back the public’s money, and when he was stuck in these huge positions in US Air and some other companies. People said, “How is this possible that he got stuck with these positions?” In his mind, he wasn’t stuck. In his mind, it was a great opportunity. We’re going to put a lot of our eggs in this one basket and we’re going to watch it be successful. But I think that there was an obviously clear risk management tool and risk management platform used to monitor the risk of the portfolio. However, if you look at it, again peeling away at the onion so to speak, you’re seeing there was much greater use of intuition or strategy to find those opportunities and exploit them.

DAVE: What was the performance of Julian’s funds?

DAN: The actual numbers? In 1980 for example the fund was up 54.9% versus S&P was up 28.9%. In ’98, they were down 3.9% versus S&P which was up 28.6%.

DAVE: Did you have the 20-year performance?

DAN: The 20-year performance is about 39%.

DAVE: 39%?

DAN: If you put a dollar into Tiger in 1980, you would have $139 in 2000.

DAVE: So $1 turns into $139 in a 20-year period?

DAN: Yes sir.


DAVE: Can you tell us some of the cubs now? Is it anybody that our audience would know?

DAN: Of course. Lee Ainslie of Maverick, Steve Mandel of Lone Pine, John Griffin of Blue Ridge, Dwight Anderson at Osprey, Dave Saunders at K2.

DAVE: So it’s pretty much a “who’s who” of Hedge Funds.

DAN: Absolutely. If you look at the largest funds in the country or I guess the world, and see who is at the helm of those organizations, a significant number of them are ex-Tiger people. Most of them are ex-Tigers who were either analyst or traders. Saunders for example was not an analyst; he was a trader at Tiger. Lee was an analyst; John Griffin was an analyst, managed the portfolio at Tiger and also was president of the organization.

DAVE: Was it a formal training program that Julian had for these guys or was it basically learn on the job?

DAN: There was probably an undercurrent of formal training. However, Julian was a person who sort of gave someone an opportunity. He would say “You’re gonna cover automobiles, so go out and figure out how to cover them.” Bring me back your ideas and let’s go from there. So it really wasn’t formal training. It was go and find out as much as you can, and then come back and then help us make an educated decision. That’s the training at Tiger.
 

DAVE: I like his style. He used the person’s creativity and ability instead of putting them in a rigid structure. He allowed the person to use their own knowledge and creativity thus expanding Julian’s knowledge without placing limitations on the person.

DAN: Right. To say there was no method to the madness is not true. There was clear method to the madness, the method was, bring me back an idea, we’ll talk about the idea amongst the

 group. They had a weekly meeting, where everyone got together, they obviously got together, that was a formal get together, but they had an informal get together as well, obviously during the day. So people traded ideas all day long. People talked about things. It was a very open atmosphere to keep people involved in how opportunities were to be found, how opportunities were to be exploited, how opportunities were to be passed on. Because obviously, not everything that comes up is worth doing. Not every trade is a good one.

DAVE: What happened when the analysts or traders were wrong?

DAN: It comes down to conviction. If Julian believes in the trade and believes in the position, he didn’t mind that he was wrong in the eyes of the market or the eyes of the rest of the trading community.

DAVE: So in a sense, they are taking capital from the portfolio and making very big bets on the idea. It’s almost like a venture capital mentality that some of these things are going to work out tremendously and some of them are just not going to work, but the ones that do work out will make up for the losers.

DAN: I don’t think they put on trades thinking that weren’t going to work. I think they put on trades that were going to work. It’s just they didn’t know how much they were going to work. I don’t think they ever put on a trade saying, “This one doesn’t make a lot of sense, but we’ll do it anyway.” It was more, we think this is going to work. We’ll put a little bit of capital behind it. If it starts working, we’ll put more capital behind it. If it doesn’t work, which is possible obviously, we’ll live with our losses. We’ll hope for the best.

DAVE: Several of his colleagues used to say that he would bet the ranch on an idea, if he loved the idea. Are you saying he wouldn’t initially bet the ranch, that they were scaling into these positions?

DAN: In some cases they were scaling into it, in other cases he absolutely would bet the ranch. The question is how big is the ranch? What are all of our views on the ranch? There are great stories about this. For example, one of his analysts would say “ Julian we should buy Coca-Cola.” He’d say, “Yep, you’re right. I like it. It’s a great idea. What do you think the position size should be?” The analyst would say, “I don’t know. $10 million?” He says, “Okay, great!” They’d buy $10 million, and then he goes into the other room or calls the trader and says, “I want you to buy $50 million.” So, is that betting the ranch? Well it’s questionable, if you have $20 billion. It really is a question of the size of the position based on capital.

DAVE: Right, trade size is relative to how much you have.

DAN: Yes, there are definite examples of his group coming up with a position size, a million dollars, two million dollars, and Julian saying, “Okay, fine. You do it with a million, but I’m going to do it without you knowing…$20 million.”

DAVE: What can the average person learn from the way they ran the money and how can they apply it to their trading and investing?

DAN: I think there are three things. The first thing is that value-based investing models can be very successful over the long run. The second thing is you need to have conviction in what you are doing. And the third thing is to realize that the key to successful hedge fund investing is shorting. Julian and some of the former Tigers will be the first to tell you that it’s a lot harder to short than it is to go long. The work that goes into shorting is much more strenuous than the work that goes into going long and you need to be really focused on the shorts more than you need to be focused on the longs.

DAVE: I know in 1999-2000, Tiger suffered what some might call catastrophic losses. What do you feel caused that? I know that the fund went from $26 billon to $6 billion in a very short period of time.

DAN: Okay, the highest Tiger ever got was about $22 billion. Maybe it got a little bit higher, but in real assets it was about $22 billion. They lost a lot of money on buying what would be considered “old world stocks” that went against them. They got hurt when Russia defaulted. They were caught sleeping on that whole trade. And they also lost a lot by missing the opportunity to get into technology and the Internet craze.

DAVE: Was he shorting the Internet bubble?

DAN: It’s questionable if he was shorting it. He really was not involved. I don’t know the extent they were shorting it, but they were not involved in a lot of those issues. What happened was the perfect storm. You had the S&P 500 that was doing very, very well. Anybody could make money in the markets in the late 90’s. Basically by picking the latest and greatest dot-com and betting the ranch on it, so to speak. The second thing you had was an old guard investor who’s thinking in terms of value, he can’t find any plays for value because the things that, otherwise usually were value plays were now considered not value plays or not even worth looking at. The third thing was, you had some political turmoil that frankly he was on the wrong side of. The fourth thing was, if a lot of the money that was lost, was not only there was losses on terms of the actual portfolio losses, losses of the trade. But the asset losses were redemptions. Investors sort of said, “Look, Mr. Robertson, you were great for 20 odd years or 19 ½ odd years, but we’re moving on.” There are a lot of people who said we want to be in other things and you’re not going to deliver those other things, so we’re going to take our money out.

DAVE: So in other words, Tiger basically ran its course?

DAN: I think that might be right. It’s questionable if it really ran its course because a year and a half later, the portfolio had done very, very well, US Air revived itself, and positions started working out for him. If so, it’s questionable. It had run into a brick wall, and the question was how were you going to get around the wall or through it. And I think that, unfortunately, the way people got around it, was by getting out of it, opposed to being able to stick it out. But I think if you ask Julian what happened, he’d say that technology was a problem for him. But more importantly, a real problem was they had lost a lot of their focus. They had not been willing to adapt to Asian stocks or trading in markets that they had made a decision weren’t worth trading in. And those were the markets that were doing very well. At the end of the day, everybody’s making money in one area and your not.

DAVE: What is Julian doing now? Is he retired? I know he has some philanthropies. Is he still involved in the market?

DAN: Absolutely, the Tiger Organization today is basically for lack of a better phrase, an incubator of new hedge funds. Middle of 2000 to the end of 2001 as they wound down all the positions and liquidated the public money, obviously Julian had significant wealth, from the business and was able to keep the infrastructure at 101 Park. There were a number of funds that are in there now that are running what people might consider former Tiger portfolios. There are 5 or 6 groups in the offices that are running independent funds, which Julian has a stake in. He also has some investments with other funds, not necessarily here in New York, but in other areas of the country and the world. He himself still trades the market for himself and by most accounts has done very, very well in the last few years. But if you go to 101 Park Avenue, and you go up to the 48th floor, sure enough, you’ll see the Tiger Organization and you’ll see a lot of activity, a lot of market activity, absolutely.

DAVE: Thank you for joining us today, Dan.