Graham-Dodd Deep Dig Then Global Macro Extraction

"In his pitch, Robertson told potential investors that the way to search for value is to use fundamental research like that de- scribed by Graham and Dodd. He and his team knew of no sub- stitute for careful and comprehensive analysis of investment situations. Their research process included not only rigorous fi- nancial analysis, but interviews with senior members of a com- pany's management team and discussions with important customers, suppliers, and competitors. The aim was to under- stand how management thinks about their businesses and at the same time develop a clear understanding of the industries in which they compete. To do this, Robertson understood the two most important as- pects of reliable research: first, hire a staff with strong qualitative and quantitative skills, grounding in their specific area and rela- tionships with knowledgeable and important people in that area. Second, separate the wheat from the chaff. Tiger's size and trading activities around the globe allowed it to take advantage of "the best research available" to do just that."

"Robertson and Tiger's global macro days began in earnest in 1985, when the firm entered into a dollar trade that yielded huge profits. The profits allowed Robertson to see first-hand that by entering this side of the business, he would be able to put great amounts of money to work and, in turn, be able to ex- tract significant profits. It was this foray into dollar trading that caused the firm to change direction from focusing solely on the equity markets and equity-based products to focusing on any- thing that it could trade."

""We look at companies and try to figure out what is wrong or right with them," Facciola said. "We try to see if a company has a disease or a problem that the rest of the world has not yet found by doing as much research as we can on the company, its customers, its suppHers, and its competitors." By going as deep as possible, they try to get underneath the numbers and look be- yond the management. It is a pure and simple boring strategy that never goes out of style. In the end, it is all about value."

"Robertson still focuses on the global equity markets because he feels they offer an opportunity to "go places where prices are very reasonable." He is currently buying companies with very high free cash flow—once a value investor always a value in- vestor. The companies that are attractive to him are those that do not have regular growth but do have free cash flow. He is particularly interested in companies that have 16 to 20 percent average free cash flow. This indicates a company's ability to build outward."