By Rupert Hargreaves. Originally published at ValueWalk.
Julian Robertson Jr. is a hedge fund pioneer and the founder of Tiger Management, the first of the “Tiger” hedge funds.
Robertson became known as the ”Wizard of Wall Street” as Tiger Management achieved outsized returns throughout the 1980s and 1990s. It is reported that the compound rate of return to his investors was 32%. Year after year of brilliant returns turned a reported $8 million investment in 1980 into $7.2 billion in 1996. After a run of bad luck, the fund closed for good during 2000.
During January 1990, Julian Robertson sat down reporters from Forbes to discuss his investment style and outlook for Tiger Management. Here are the highlights of the interview titled, “Riding the tiger”.
Julian Robertson: Riding the tiger
“Think of Julian Robertson’s investment style as a study in controlled aggression — one that might go for the bomb on first down, but never on fourth and short yardage.” — Forbes 1990
By early 1990, Robertson was running $540 million for 160 individual and institutional clients through the Tiger Fund and its spin-offs, Puma and Jaguar. And by 1989, Robertson had already racked up a record that eclipsed that hedge fund greats such as George Soros and Michael Steinhardt. From 1986 through 1989, Robertson’s funds gained 86%, compared with Soros’ return of 47% and Steinhardt’s 57%.
Tiger’s structure allowed Robertson to use a full range of exotic and leveraged instruments to make bets on the market. He says he was never much of an athlete, “But I love to compete–against the market, and against other people.“
Julian Robertson was a contrarian; there’s no other way of putting it. While others were staying away from risky assets in the early 1990’s, he was making hefty bets on junk bonds, thrifts and German stocks:
“Robertson’s funds were heavily invested in AMR, UAL and Squibb, all of which have generated far profits. Where has he deployed the proceeds? At a time when many of his colleagues are leaning to liquidity, Robertson is moving in force into junk and bankruptcy bonds, troubled thrifts and German stocks–notably Deutsche Bank AG (NYSE:DB) (ETR:DBK) (FRA:DB) and Mannesmann. Marked-down high-yielding items such as RJR Nabisco and Hospital Corp. of American now account for some $54 million of the funds he manages.”
“Robertson has been adding to his stake in bombed-out savings and loan issues through what is now a 27% ownership of the First Financial Fund (a closed-end fund specializing in the thrift industry). He thinks one of the keys to performance for the year ahead is more of the junk bonds and German stocks ‘that gave us a good shot in the arm and saved us from what otherwise might have been a dismal quarter.'” — Forbes 1990
At the time of the Forbes interview, Robertson had decades of stock picking experience under his belt, but he was aware of his limits. As a result, due to changing market conditions, Robertson was starting to take on more staff, notably Patrick Duff, now CEO of Sealed Air Corp.
“He’s done a terrific job. I could never have done this on my own. It’s hard psychologically for a person of my age to go into a new area.” — Forbes 1990
Julian Robertson: Small-caps
Robertson made some large bets on smaller capitalization stocks during the late 80s, early 90s. A number of these stocks were over-the-counter companies. For example, it’s mentioned in the Forbes interview that Robertson had acquired a 5.5% chunk of Cincinnati-based Heekin Can, which supplied containers to major food companies. Other positions included a 6% chunk of Isomedix and a 5% chunk of Universal Health Services.
“But giving balance to the relatively risky positions in junk bonds, thrifts and small-cap companies, Robertson had lately been building a foundation of large-capitalization holdings. Among them: a $45 million slug of Wal-Mart Stores, close to $25 million worth of Toys “R” Us, and about $15 million worth of Albertson’s, the big food and drug chain.”
“All told, retailers now account for about 12% of Robertson’s gross assets and about 25% of his total equity exposure. Throw in sizeable holdings of ethical drug producers like Merck and Johnson & Johnson, and Tiger–in yet another first–takes on a distinctly big-name, big-capitalization look.”
Robertson goes on to explain why how Tiger ended up as a large-cap tracker:
“for once in our lives we got out at the top in the airline stocks. We had all this money, the retailers were there at good prices, and we couldn’t quite find any other good scenarios.”
Robertson did admit to some over-concentration in the retail sector, but his strategy was clear: balance. The retailers provided a countercyclical hedge, which “should be relatively safe from anything save a deep recession.“
Julian Robertson: Nikkei puts
Robertson had a bullish view on the market in the early 90s (because the rest of Wall Street was bearish). Although he had one large bet against the Japanse markets, which were becoming increasingly volatile. Robertson had purchased cheap, two and three year put options on the Nikkei. Unfortunately, in the late 80s/ early 90s, the Japanse market was moving against Robertson. The Nikkei was powering to new highs almost
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