Julian Robertson

"Graham and Dodd wrote, "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return." And while there are number of things one needs to look at when evaluating or researching a potential in- vestment, Graham outlines the following six items as essential factors to look at when analyzing a business: 1. Profitability 2. Stability 3. Growth in earnings"

"The key behind all of the firm's investments was the story. If the story made sense, then the investment made sense. If there was no story or it was not easily understood, then it had no place in the portfolio. When the story changed, the investment had to change as well—it was and is all about the story."

"Robertson's mantra was, as long as the story around the in- vestment remained the same, the position should get bigger. As soon as the story changed, it was time to get out. His traders and"

"Early on in his career on the Street, Robertson learned to ap- preciate and subscribe to the old adage: once a salesman, al- ways a salesman. It is extremely hard to refute for almost anyone who has ever been in sales-for those who have been in sales on Wall Street, is next to impossible to refute. While it's obvious from all outgoing appearance that the merchandising side of the money management business was not something Robertson was interested in when he set out to launch Tiger, it is undoubtedly a skill that he used to grow the business to levels beyond even his wildest imagination. In the early days of the firm, he realized the important role communication with in- vestors and potential investors would play in the success of the firm. Thus, he was very keen on the use of performance to sell his products and to attract assets under management. The way he communicated was via letters to investors."

"To understand the concept of story, consider this example. Say you are interested in a solid oak wooden table. The analyst could tell you that he had checked oujt the market for tables, evaluated the information, and come to the conclusion that the table was a good buy at $ 100 because it was well made, solidly built, and would not fall apart. This is the story. So you go to the shop, prepared to buy the table. And then, just as you are run- ning your hand over the table, a corner falls off. Well, now the seller is desperate to get rid of the broken table and is willing to sell it for $20. To the analyst, this seems like a steal. He sees an incredible opportunity to buy something for $20 that is really worth $100 and needs just a bit of fixing to get it there. But in Robertson's eyes, the story is now flawed, and now he would say that you should want no part of the deal. How could something"

""[He was a] wonderful man. He may not agree with you but he agrees with the premise that you have the right to have your opinion."^ It seems that in conversations with many of Robertson's for- mer Tigers, the same will be said of him when he passes. Former colleagues say that Robertson is not one to always agree with people, but he understands that people have the right to have a view. The problem is that he likes people to understand why they are wrong. Robertson has been known to get into very heated discussions with people in order to explain why they are wrong. Of course, he is always willing to let them have their opinion, however wrong it may be."

"4. Financial position 5. Dividends (). Price history"

"Robertson also learned that "the market," as many called it, didn't exist. There was no market as such, he decided-just a col- lection of companies that trade in one place or another. He came to believe that nobody really makes any money playing the markets. He came to believe that the only way to make money is to buy stocks that are cheap and watch them go up. The hunt for value was what he enjoyed most-the hunt for those opportunities is what drove him to be successful."

"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."

"Corporate stock repurchases and leveraged buyouts were eating up just under 10% percent of the total shares outstanding of American equities on an annual basis. This was equal to about 16 percent of the floating supply of stock through- out the land, which meant that if the trend continued, Tiger and its funds, along with other large investment ve- hicles, would own just about all the stock that was avail- able on the market by 1993. There was too much cash on the sidelines. Mutual funds were sitting on hordes of cash. Investors had moved $ 12 billion out of equity-based products and into fixed-income prod- ucts. And pension funds were seeing an increase in their cash positions. The money would have to be put to work eventually. TJie independent investors seemed to be all but out ofthe market. The crash had scared them away. They were waiting for it to seem safe to enter the markets again. They would eventually come back, and when they did-well, this was a plus factor. Wall Street was bored. The heydays of the 1980s were over, and pessimism and lethargy had set in. The phones had stopped ringing. There were fewer ideas being generated by brokers. The crash was still in peoples' minds. This caused people to"

"Robertson believed that he was not the only investor to come to the conclusion that it is easier to find great values than to make market timing judgments as to when the market is going up and down. "Remember, the market timer must be right both when he buys and when he sells," he wrote.^^"

"The standard, old fashioned method of predicting the course of the stock market is first to look at facts and fig- ures external to the market itself, and then to examine stock prices to see whether they are too high or too low. Freight-car loadings, commodity prices, bank clearings, the outlook for tax legislation, political prospects, the danger of war and countless other factors determine cor- porations' earnings and dividend and these, combined with money rates, are supposed to (and in the long run do) determine the prices of common stocks. But in the"

"The put-call ratio is the trading volume of put options to call options. Money managers use it as a gauge of investor senti- ment. A high volume of calls compared to a low volume of puts means that investors are bulHsh. Robertson and the folks at"

"Robertson and his team were attracted to copper because their research told them that the price of the metal was too high. While their research proved that the prices had to come down, they did not know when this would happen. They just knew it would happen at some point. The folks at Tiger liked the cop- per story, it offered them an opportunity to go short a market that they knew was overpriced and was destined to correct itself like a markets eventually do. However, what they did not know was that something was amiss in the copper market. They did not know of Sumitomo's problem and that the large Japanese conglomerate's trader was artificially propping up the price of the metal."

"Siris wrote that there were two possibilities why Robertson suddenly turned cold. One was that he, like many athletes, just got too old for his game, no different than the "star pitcher who losses a little zip from his fastball or the formerly great skater who can no longer land the triple-lutz." The second was that Robertson was still a great investor, but that his style was tem- porarily not working. "While he did have a rough period, great investors do not suddenly lose their touch," he wrote. Siris called him the MichaelJordan of hedge fund managers, stating that he believed almost no one had a more disciplined style or a better record. He analogized Robertson's fall from grace to when the New York Jets were losing every game in the fall of 1999. Fans were not calling Coach Bill Parcells to be fired; the fans knew he was a great coach, they realized he was just in the middle of a losing streak.^"

"One of the projects Ricciardelli developed was a shadow portfolio accounting system. Robertson asked him to put this kind of system in place so that if there was a situation where an analyst thought the firm should take a position in a stock of, say, 50,000 shares, and Robertson thought the firm should have 150,000 shares, the proper people would be credited for mak- ing the trading decision."

""Effectively, the analyst would be credited for whatever idea he came up with," said Ricciardelli. "And if he came up with the idea and nothing was ever changed in [the size of the position], he would get credited 100 percent of it. But ifJuHan wanted to double the bet, the analyst would get charged or credited with 50 percent of the bet and the rest would get credited to the house." Using a shadow portfolio system allowed Robertson to keep score of how the analysts were doing in terms of what they were directly or indirecdy contributing to the portfolio's profits. This helped establish an analyst's worth and, more importantly, the analyst's compensation."

"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."

"Most managers allocate a portion of the firm's profits to all employees based on the merit system-you contributed this to the fund's performance, you receive that. At Tiger, this was the theory behind the compensation program, but it was not neces- sarily the practice: "The whole idea was to get his approval, which meant that you would be compensated extremely well," said one former analyst. "He never would tell you that you did a good job, but rather, he would give you representation in the portfolio. This meant he liked you and respected your work, but it did not necessarily mean you would be compensated for the work. It was not that simple.""

"is absolutely ludicrous. Skill sets, not systems, is what allows one money manager to perform better than the next over time. And that is why Robertson and his colleagues at Tiger did so well re- gardless of market conditions. They understood how to search out and find value and, more importantly, understand the value. Robertson and his Tigers looked past the trends and truly saw the forest through the trees because they knew what to look for and how to find it."

"so well built, made of the finest oak, break? Robertson would say that more than the table is broken. The credibility of the re- search is now called into question. The story is broken; it is time to move on to something else."

"than he had ever dreamed. He had reached the point where he could say, I am at this age, the kids are this age, the wife is at this age, we have more money than we ever thought possible, and we are ready to move on. But without the investors, we would have had nothing. It's my responsibility to take care of them."

"philosophy. In order for something to have a perceived value and be worthy of being in the portfolio, Robertson had to un- derstand the idea's story. If the story was built on solid research, Robertson would stick with it, riding out a storm and maybe even adding to the position as it was going against him. Often, he eventually reaped the benefits of his convictions. As long as the story was simple, logical, and it made sense, he would stay with it. However, once things became complicated, or the underlying story changed, he would lose his faith and conviction, admit that he was wrong, and get out."

"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."

"A key part of the research model was the firm's Friday lunch meetings, where ideas were presented. The analysts would gather around the table and go through ideas one story at a time, picking apart every little aspect and reviewing every angle of a potential investment opportunity to determine if it was wor- thy of being in the portfolio. "It was quite an exchange," said one former analyst. "It was the type of thing that you had to be prepared for and one that if you were not, you would surely get caught." The Friday lunch was not a place to be unprepared or long- winded. Robertson likes hearing stories quickly and efficiently. "Get to the point or don't bother," was the way one former an- alyst put it. And the time limit was short—five minutes or so, sum it up, get it out, and move on. That was the nature of the meetings, and they worked. If something was too complicated, he would not like the idea. Analysts were expected to sum up their investment ideas in four sentences. The four sentences may have consisted of six months of work, but that was all the time they were given to make their case and get the information in front of Robertson."

"A few years after his Augusta debut, Heatley saw in the news that American hedge-fund billionaire Julian Robertson had bought an expensive piece of land in Northland not far from where Heatley himself had a beach house. Heatley wrote to him, welcoming him to New Zealand and offering local knowledge if that might ever be helpful. Robertson sent a charming response and Heatley says he considers it ironic that having initially written to offer to be helpful, he has learned far more from Robertson than Robertson has ever learned from him. The tables were turned, Heatley says, because Robertson, who was knighted by the New Zealand government in 2010, ‘is charming, a conversationalist, a philanthropist, and a genius investor to boot’. The pair and their wives became friends and in time the Heatleys were guests at Kauri Cliffs, the private golf course that Robertson built at Matauri Bay, Northland, in 2001."