Julian Robertson’s tips to attain extraordinary success in the stock market

Robertson, called by some as the “Father of Hedge Funds”, launched his firm Tiger Management in 1980 with $8 million and turned it into over $22 billion in the late 1990s. The 89-year-old billionaire was in the US Navy before working as a stockbroker for Kidder, Peabody & Co., when he and his family moved to New York.

Robertson had the best hedge fund record among his peers throughout the 1980s and 1990s. It is said that he generated a compound rate of return of 32% for his investors. During his active professional years, Robertson was considered to be the “Wizard of Wall Street”. His hedge fund, Tiger Management, became the world’s largest fund over the years.

Besides his investment record, Robertson also mentored a group of young hedge fund managers who were later known as the “Tiger Cubs.” A number of these hedge fund managers became extremely successful in their own right, including John Griffin of Blue Ridge Capital, Lee Ainslie of Maverick Capital, Andreas Halvorsen of Viking Global, and Steve Mandel of Lone Pine Capital.

Investment Strategy

Robertson used a long and short investment strategy where he “shorted” assets he believed were going to perform badly over a specific period. “For my shorts, I look for a bad management team, and a wildly overvalued company in an industry that is declining or misunderstood,” he said.

For longer term investments, he trusted his research and took an extended view on whether his choice of investment was right. “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,” he said.

Robertson built his fund on a strategy of investing on global macro principles where he decided on the investments that would be made by the fund based on the overall direction of the economy of a country. This type of investing initially worked well for him. When he found an opportunity he believed in, he would invest heavily in it to maximise the benefit.

Let’s look at some tips that Robertson has shared in various interviews over the years on what helped him attain extraordinary success.

1. Be patient and disciplined

Robertson says research and critical analysis are very important for the success of an investment portfolio. Being patient, disciplined and yet aggressive is a rare combination of qualities that a number of investing greats have had. “Smart idea, grounded on exhaustive research, followed by a big bet. Hear a story, analyze and buy aggressively if it feels right,” he once said in an interview to a financial website.

2. Invest where competition is weak

Investors should look to invest where the competition is weak as it may be very profitable for them, he says. Competing in markets that are less well researched gives investors who do their research an advantage. “Hedge funds are the antithesis of baseball. In baseball, you can hit 40 home runs on a single-A-league team and never get paid a thing. But in a hedge fund, you get paid on your batting average. So you go to the worst league you can find, where there’s the least competition. You can bat 400 playing for the Durham Bulls, but you will not make any real money. If you play in the big leagues, even if your batting average isn’t terribly high, you still make a lot of money,” he says.

One of the best ways to do well in the investment business is to look for areas that have been unexploited by research capability and work them out thoroughly, he says. “It is easier for a hedge fund to go to areas where there is less competition. For instance, we originally went into Korea well before most people had invested in Korea. We invested a lot in Japan a long time before it was really chic to get in there.”

3. Cut down your investment risk
Robertson says investors should use a strategy in which long and short positions are taken in various stocks so that investors can hedge exposure to the broader market, which makes gains more associated with solid stock picking. “I believe that the best way to manage money is to go long and short stocks,” he says.

4. Use shorting strategy on businesses with bad management
When an investor shorts a company with a bad management team, the former hedge fund manager says, it is a safer bet as a business with a good management team is far more likely to fix its problems. If a shorted business has a bad management team, it is expected that the real business problem underlying the short will continue, says Robertson. The overvaluation must be wild rather than mild for investors to be interested in a short, he adds.

5. Don’t be afraid to take decisions

Robertson, who was known for being the “trigger puller” at Tiger Fund, says if investors want to achieve success, they 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,” he adds.

(Disclaimer: This article is based on Julian Robertson’s various interviews)