Julian Robertson is a big name in US investing, and it’s no wonder why since he is renowned as both the ‘Father of Hedge Funds’ and the ‘Wizard of Wall Street’.
He set up Tiger Management in New York in 1980, the first hedge fund and it catapulted him to become one of the world’s most successful hedge fund managers with a net worth of more than $4 billion according to Forbes.
Investing on global macro principles
He built his fund on a strategy of investing on global macro principles – where the overall direction of the economy of a country was considered to decide on the investments that would be made by the fund. For example, if a country such as the USA was likely to head into recession, the fund would ‘short sell’ major markets to benefit from the fall in prices when the recession hit. In contrast, it would then seek opportunities in more appealing but perhaps more risky countries, such as smaller economies where opportunities for growth were greater.
This type of investing initially worked well for Mr Robertson, as the global economic conditions meant these strategies were effective, and when he found an opportunity he believed in, he would invest heavily to maximise the benefit.
Finding the countries with the best opportunities
At this stage, ideally Mr Robertson was looking to invest in countries where the competition to find good, long-term investments was weaker. For example, the Tiger Fund invested in both Korea and Japan at a much earlier stage than other funds. As countries become increasingly researched and more attractive to other investors, the opportunities to find excellent opportunities recede.
However, in the 1990s conditions started to change, and the increasing interest in the internet and online businesses meant more money was flowing into Silicon Valley and out of his hedge fund which was avoiding these tech-focused investments.
When the tech bubble burst
Ultimately, the tech bubble was created from over-inflated stock prices in tech assets, which eventually resulted in what became known as the ‘dotcom crash’ in the year 2000.
It actually showed that his assessment of the tech boom was correct, but that did not help him.
Mr Robertson’s reluctance to buy into the tech boom actually saved his fund from some of the metaphoric bloodshed suffered by his contemporaries when the bubble burst, yet it also eventually resulted in his decision to close Tiger Management. He realised his rational approach to valuation and trading within his fund was likely to be less effective in what was becoming a new investment world.
Tiger Management closes
So, following a period of poor performance during the dotcom boom and then bust, the Tiger fund was liquidated and closed its doors in 2000. From that point on Mr Robertson became a mentor to various hedge fund managers who became known as his ‘Tiger cubs’.
Although he has now retired, Mr Robertson is still sought out by the media for his commentary on the economy and stockmarket moves. In one of his most recent interviews he praised US President Donald Trump for his “excellent job” on the economy, and claimed he deserved more credit than he was receiving.
Trump deserves more credit
Mr Robertson was particularly happy about the move on corporation tax President Trump instigated, which sees the rate cut from 21% from 35%, which is likely to boost US businesses.
Of course, there are pros and cons to any investment strategy, and the way Julian Robertson has invested is no different. For example, his fund avoided the heavy losses suffered by some other funds that had invested extensively in the dotcom bubble, but his lack of interest in this area resulted in a punishing move away from his fund by investors.
But, there are some key ways to make your investments most likely to succeed if you follow in his footsteps:
Avoid big losses
If you want to make money, you have to try to keep your losses to a minimum. Using a long and short investment strategy – where you ‘short’ assets you believe are going to perform badly over a specific period, perhaps because you expect a country to go into recession – you should maximise your gains.
For longer term investments, you need to trust in your research and take an extended view on whether your choice of investment is right.
Make sure your best stock choices will always outperform your worst ones
This refers back to the ‘long’ and ‘short’ investment strategies, as you need to be sure you are going to be making money in a hedge fund whether the stocks are rising or falling.
Do not be afraid to pull the trigger
Mr Robertson was known for being the ‘trigger puller’ at his Tiger Fund, and if you want to invest the same way, you need to be prepared to make a decision when the time is right. Dithering on whether to buy, hold or sell can lead to losses that would not be made if you have the courage of your convictions to make a decision.