Recently, Dave Goodboy interviewed Daniel Strachman, a hedge fund expert and the
man who wrote the definitive book on Julian Robertson. In this interview you
will learn the specific strategies that Julian Robertson used to grow Tiger
Management into the largest hedge fund in the world in the late 90â€™s.
Dan is managing director at Answers & Company Inc., a financial services
consulting firm. Previously, he was director of marketing and product
development at the Orbitex Financial Services Group Inc. He has covered the
hedge fund industry as a freelance journalist, and he is the author of â€œGetting Started in Hedge Funds
â€ and the just-released book â€œEssential Stock Picking Strategies: What Works on Wall Street.
â€ Dan teaches a course on hedge funds at New York Universityâ€™s School
of Continuing Education.
“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.Â If you can prove that thereâ€™s a value in play
and an opportunity to exploit it, then thatâ€™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
centuryâ€™s financial icons, Julian Robertson. Dan, welcome.
DAN: Thank you.
DAVE: Iâ€™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
Julianâ€™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
DAN: No, it isnâ€™t about finance and it has
not been completed yet. I donâ€™t know for sure, but allegedly itâ€™s about a
Southerner who goes to New York and becomes successful on Wall Street. I think
itâ€™s an autobiography up to that point in Julianâ€™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, letâ€™s get
into Julianâ€™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 thereâ€™s a value in play and
an opportunity to exploit it, then thatâ€™s what he will do. Whether itâ€™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. Itâ€™s not
an indicator of anything. Itâ€™s not a tool to be used or looked at, rather itâ€™s a
tool to trade various companiesâ€™ pieces of paper. Heâ€™s not someone who looks at
the market or is a market technician or any of that kind of thing. Heâ€™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 donâ€™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,
â€œKeep It Simple Stupidâ€, 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 couldnâ€™t give it to him in those 3 sentences in a 5-6 minute
pitch, it wasnâ€™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 80â€™s,
they had moved from just doing stocks to other areas of the marketplace â€” fixed
income currencies and others things.
DAVE: Does risk management come into play when
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
publicâ€™s money, and when he was stuck in these huge positions in US Air and some
other companies. People said, â€œHow is this possible that he got stuck with these
positions?â€ In his mind, he wasnâ€™t stuck. In his mind, it was a great
opportunity. Weâ€™re going to put a lot of our eggs in this one basket and weâ€™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, youâ€™re seeing there was much greater use of intuition or strategy to find
those opportunities and exploit them.
DAVE: What was the performance of Julianâ€™s funds?
DAN: The actual numbers? In 1980 for example
the fund was up 54.9% versus S&P was up 28.9%. In â€™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%.
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 itâ€™s pretty much a â€œwhoâ€™s whoâ€ of Hedge
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
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 â€œYouâ€™re gonna cover automobiles, so go out and figure
out how to cover them.â€ Bring me back your ideas and letâ€™s go from there. So it
really wasnâ€™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. Thatâ€™s the training
DAVE: I like his style. He used the personâ€™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 Julianâ€™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, weâ€™ll talk about the idea amongst the
“It comes down
Â 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
DAN: It comes down to conviction. If Julian
believes in the trade and believes in the position, he didnâ€™t mind that he was
wrong in the eyes of the market or the eyes of the rest of the trading
DAVE: So in a sense, they are taking capital from
the portfolio and making very big bets on the idea. Itâ€™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 donâ€™t think they put on trades
thinking that werenâ€™t going to work. I think they put on trades that were going
to work. Itâ€™s just they didnâ€™t know how much they were going to work. I donâ€™t
think they ever put on a trade saying, â€œThis one doesnâ€™t make a lot of sense,
but weâ€™ll do it anyway.â€ It was more, we think this is going to work. Weâ€™ll put
a little bit of capital behind it. If it starts working, weâ€™ll put more capital
behind it. If it doesnâ€™t work, which is possible obviously, weâ€™ll live with our
losses. Weâ€™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 wouldnâ€™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 â€œ Julian we should buy
Coca-Cola.â€ Heâ€™d say, â€œYep, youâ€™re right. I like it. Itâ€™s a great idea. What do
you think the position size should be?â€ The analyst would say, â€œI donâ€™t know.
$10 million?â€ He says, â€œOkay, great!â€ Theyâ€™d buy $10 million, and then he goes
into the other room or calls the trader and says, â€œI want you to buy $50
million.â€ So, is that betting the ranch? Well itâ€™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
DAN: Yes, there are definite examples of his
group coming up with a position size, a million dollars, two million dollars,
and Julian saying, â€œOkay, fine. You do it with a million, but Iâ€™m going to do it
without you knowingâ€¦$20 million.â€
DAVE: What can the average person learn from
the way they ran the money and how can they apply it to their trading and
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 itâ€™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
â€œold world stocksâ€ 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: Itâ€™s questionable if he was shorting
it. He really was not involved. I donâ€™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 90â€™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 whoâ€™s thinking in terms of value, he canâ€™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, â€œLook, Mr.
Robertson, you were great for 20 odd years or 19 Â½ odd years, but weâ€™re moving
on.â€ There are a lot of people who said we want to be in other things and youâ€™re
not going to deliver those other things, so weâ€™re going to take our money out.
DAVE: So in other words, Tiger basically ran its
DAN: I think that might be right. Itâ€™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, itâ€™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, heâ€™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
werenâ€™t worth trading in. And those were the markets that were doing very well.
At the end of the day, everybodyâ€™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,
youâ€™ll see the Tiger Organization and youâ€™ll see a lot of activity, a lot of
market activity, absolutely.
DAVE: Thank you for joining us today, Dan.