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LEARN FROM GENERALS OF THE MARKETS – PART 21
“A Trader’s worth is based on how well he dealt with losing trades.” – Paul Wallace
Born on June 25, 1932, Julian Robertson is thought of as a father of hedge funds. He graduated from the University of North Carolina in 1955, and then served as a US naval officer, a position he held until the year 1957. After this, he worked for a stockbroking firm named Kidder, Peabody &Co. He eventually travelled to New Zealand. Coming back from New Zealand, he started Tiger Fund Management. It was one of the earliest hedge funds. Between 1980 and 1990, he turned four hundred million dollars into twenty-two billion dollars. But this was followed by serious drawdowns which made investors withdraw their money. Thus the fund was closed in the year 2000. In 1993 he had personal profits of more than three hundred millions dollars. In the year 2003, he was worth more than four hundred million dollars. In the year 2011, he was worth up to 2.3 billion dollars. He went short in some financial markets in the year 2008 and made about 150% on his two hundred-million dollar portfolio.
It’s noteworthy to say that after he closed Tiger Management in the year 2000, he kept on investing by funding and supporting new hedge funds. Now called a erstwhile funds manager (for he’s retired), he still invests in the markets through his former workers who’re now fund managers. These funds managers are doing well. Julian Robertson is highly philanthropic in nature. He founded Robertson Scholars Program, a body which awards full scholarships to many students. He’s also pledged a portion of his assets to charity (following Bill Gates and Warren Buffet’ example). He’s an astute investor and a developer in New Zealand. As a result of this, he was knighted by the Government of New Zealand in December 31, 2009. In May 2010, the New York Stem Cell Foundation (which is a private body) made it public that Julian and his sweetheart (now late) gave them a gift of twenty-seven million dollars. In January 2012, Julian generously donated 1.25 million dollars to fund Mitt Romney presidential race.
Lessons
What can you learn from Julian Robertson?
1. As his quote at the end of this article testifies, he made colossal profits from going short on weak instruments and going long on strong instruments. Clearly, this is trend following. So we can say that Julian Robertson is a trend follower. In the year 2008, in which many people lost their sweats and necks, Julian thrived. In what some claimed to be one of the worst financial years, sane traders saw that the markets were trending downwards and went short or smoothed their positions. Insane traders continued to buy in the context of downtrends or refused to close their losing trades. Can you see the difference? Follow the line of the least resistance!
2. Why did Tiger Management get liquidated in the year 2000? The reason why is because Julian suffered seemingly unbearable roll-downs (which could’ve been seriously mitigated by conservative position sizing and risk control techniques). Sometimes Julian bet too big, as revealed in the following quotes attributed to him: “Hear a [stock] story, analyze and buy aggressively if it feels right (a).” “When Robertson is convinced that he is right,” a former Tiger executive notes, “Julian bets the farm (b).” Betting too big isn’t a good thing because it causes big losses when you’re wrong, and this is bound to happen. Betting small leads only to small losses, which are very much bearable and easy to recover when the market conditions become auspicious again. Whether you are a fundamental or technical expert or you combine both, what will save your accounts and your nerves is safe position sizing and risk control. If Julian took this serious, Tiger Management wouldn’t have been closed in 2000. In future articles you’ll learn how risk control can help your survive worse-case scenarios in the markets.
3. In spite of what happened to him in 2000, Julian didn’t relent. He quit managing money for others, but he didn’t quit trading and investing. This is a great lesson for us. Despite the fact that he’s no longer managing funds actively, Julian still invests with the hedge funds he believes are doing well. Once a soldier; always a soldier. A true general of the market won’t desist from trading altogether, even in retirement. It’s a passion of a lifetime.
4. Julian Robertson became a champion, and has remained a champion till date. Certain traders became livid because of some huge roll-downs, saying: “That’s enough! I can’t continue like this.” This isn’t the best conclusion. The best conclusion is to learn from the errors you made in the past and learn invaluable lessons from them, and never repeat them. It isn’t easy to be a champion as it requires great efforts, but to sustain being a champion is even more challenging. Being a champion isn’t the end but the beginning of the story. After making several costly sacrifices to become a champion, more daily sacrifices will be required for you to remain a champion. One who’s striking a rock will feel some formidable resistance. If you keep meeting with resistance while doing what you routinely do, find out better, easier and more productive alternatives. On his personal portfolios, Julian is still a champion.
5. In paragraph 2 of this article, you should have read some humanitarian programs in which Julian Robertson has involved himself. He knows that he can’t carry all his money down to his own grave. I believe you’re on your way to financial freedom thru trading and investing. Otherwise, reading an article like this doesn’t make sense. Once you reach financial freedom, please don’t forget the less privileged, the hopeless and the destitute. Reach out a helping hand to the needy. Put a smile on someone’s face. Life is short. You aren’t going to live forever, and when you’ve gone, people will remember you for whatever you did while alive.
Conclusion: One of the most challenging things in the art of speculation is using discretionary methodologies – for you make decisions based on certain conditions and experience. Being consistently profitable requires assiduous effort, self-control, sensible trading rules and perseverance.
The article is ended with a quote from Julian. It gives and insight into his core trading methodology:
“Our mandate is to find the 200 best companies in the world and invest in them, and find the 200 worst companies in the world and go short on them. If the 200 best don’t do better than the 200 worst, you should probably be in another business.”
