Julian Hart Robertson Jr. built his Tiger Management from $8.8 million under his management in 1980 to more than $21 billion in 2000. He reportedly delivered a stellar 28% performance net to investors for 20 years. During the internet bubble in 2000, his funds suffered setbacks due to leveraged shorting of technology stocks and the underperformance of value picks. Haunted by investor redemptions and rocketing technology sector, Robertson decided to return public money to his investors. Ironically, right after the scale back, his style of value investing staged a strong come-back.
In the third quarter of 2011, Tiger Management added its positions in Goldman Sachs (NYSE:GS), Google (NASDAQ:GOOG), Netflix (NASDAQ:NFLX), Cablevision (NYSE:CVC), and reduced its position in Apple (NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM).
Robertson’s mental frameworks as a die-hard Graham and Dodd value investor:
¨ Robertson likes to quote Graham: “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.”
¨ The idea is to gather information in order to determine intrinsic value and risk characteristics of a specific security. The way to search for value is to use fundamental research like that described by Graham and Dodd. Practical skills are necessary in order to understand financial reports, do research and build a valuable network of friends. He and his team knew of no substitute for careful and comprehensive analysis of investment situations.
¨ The market doesn’t exist. It is a collection of stocks which represents certain companies. The only way to make money is to buy stocks that are cheap and watch them go up — or short stocks that are overpriced and watch them tumble. (But shorting may have cost him his career.)
¨ Value investing is simple to grasp, easy to understand, easy to deploy but incredibly difficult to master successfully because it goes against human nature and requires a tremendous amount of patience and courage.
Robertson examines six essential factors when analyzing a business:
3. Growth in earnings
4. Financial position
6. Price history
Julian Robertson’s Research Process at Tiger Funds:
¨ Rigorous financial analysis. In-depth study of financial disclosures.
¨ Interviews with senior members of a company’s management team. The objective is to understand how management thinks about their businesses.
¨ Discussions with important customers, suppliers and competitors. Objective: Develop a clear understanding of the industries in which they compete.
¨ Take advantage of “the best research available” out there around the world. Every analyst or trader around the world focuses on harnessing Tiger’s network of investors and contacts around the world to gather research intelligence.
¨ Used a network of Tiger investors to enhance research and marketing. Many investors offered valuable and unique perspectives on investment ideas in their own business sectors, regions, or countries.
¨ Robertson’s research was thorough to a point that he could declare everybody else had not done the math and did not understand the opportunity.
¨ Tiger “shunned” market risk because it believed that it had “no particular ability” to predict market directions. The team was active in finding company-specific risks.
¨ Robertson pushed his analysts to look beyond the obvious choices, like Walmart, to find the hidden treasures.
¨ A key part of Robertson’s research efforts was the firm’s Friday lunch meetings filled with heated debates. A 1996 Business Week profile of Mr. Robertson noted his “violent temper” and the fact that he named not one but two of his sons Julian. It also described the office’s in-house Freudian psychoanalyst, whose duties included “calming down Robertson when he has a tantrum and informing Robertson of employee sentiments about him.”
The Friday Lunch Meetings for Tiger Analysts:
¨ The firm’s 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 worthy 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.” Robertson would constantly challenge ideas from analysts.
¨ Once a trade was put on, there were constant fights and heated debates on the life and size of the position between Robertson and his analysts. It was a constant learning process: searching and understanding value. Robertson knew what to look for and how to find it.
¨ Robertson likes hearing stories presented quickly and efficiently. The meeting was not a place to be unprepared or long-winded. “Get to the point or don’t bother,” says Tiger associates. The time limit is short: five minutes, or so. Sum it up, get it out, and move on. That was the nature of the meetings. Analysts were expected to sum up their investment ideas in four sentences. The four sentences may have consisted of six months of work, but what was all the time analysts were given to make their case and get the information in front of Robertson. If something was too complicated, Robertson would not like the idea. He has to understand the idea’s story.
¨ As long as the story was simple, logical, and it made sense, Robertson 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.