Money: Julian Robertson, the Wizard of Wall Street, led the world of value investing after a holiday in New Zealand
You may know that we are keen value investors, but you may not know that the famous Sir Julian Robertson, knighted in New Zealand for his philanthropy, was known as the Wizard of Wall Street for his value investing.
The famous value tradition that began with Benjamin Graham, the father of value investing, includes both Warren Buffett and Julian Robertson.
Part adopted-Kiwi, Julian founded and ran Tiger Management, a hedge fund manager, that was the biggest and the best for 20 years from 1980 to 2000 on Wall Street.
Robertson was a moderately successful financier with Kidder-Peabody & Co before taking a break (“dropping out”) with his wife and children in New Zealand in 1979. On return to the United States he set up his own hedge fund with deposits of only US$8 million. Over the next 20 years he turned that into a US$25 billion fund.
But there is a wonderful lesson for us all in what happened next.
Julian ran a number of investment strategies in his days as a hedge fund manager, but he was primarily known for his value investing. As the result of careful and intensive financial research identifying companies that were neglected by the market (in other words, cheap) he would make bold moves, buying up large amounts of the company concerned.
His value companies were always solid, cash-rich companies doing traditional things and if he didn’t understand the business, he wouldn’t buy.
Then came the dot.com bubble in the lead up to the year 2000.
Robertson couldn’t understand many of the new tech and bio-tech growth companies. They didn’t produce any profits. But the money just kept pouring into them.
Everything Tiger Management invested in went down and everything they didn’t invest in went up. In 1999 Tiger Management fell -18% while the market did + 22%. The tech index did 80%.
Berkshire Hathaway, Buffett’s vehicle, another value fund, fell -32% in 1999.
Value investing was out of vogue.
The fund’s investors wanted their money out. Despite Tiger Management making them an average of 31.7% per annum compound over the previous 20 years they had lost faith in value investing. The Tiger fund had to close paying out their remaining investors.
Robertson believed that value investing would come back but his investors couldn’t wait.
That was March 2000.
In a matter of a few months the tech bubble burst. Value out-performed growth companies by over 35% in 2001 and by 25% in 2002. Value out-performed growth companies for six of the next seven years in the US share market.
Closer to home we have had another tech-led advance in share markets with large growth companies, predominantly tech companies, out-performing value companies for five of the past six years.
Being out-of-favour is not such a nice place to be but value will come back. Like Sir Julian Robertson in 2000, we don’t know when.
Robertson spends three or four months of the year in New Zealand. He has built three luxury lodges and two incredible golf courses. He has donated around US$115 million worth of European masters to the Auckland Art Gallery. He awards education scholarships to bright university graduates getting them to spend two years attached to local schools – Teach First NZ. He gave $2.7 million to the Liggins Institute here in New Zealand who will use the money to train a generation of early career research graduates.
The Robertson Aotearoa Foundation makes high-impact grants to conservation and environmental stewardship, as well as education and medical research.
Robertson always told his hedge fund colleagues, especially those he mentored, known as the Tiger Cubs, that “Its about more than just making money. It’s also about giving back to the community.”
And it is about choosing an investment strategy and sticking with it, keeping your head, while all around you people are losing theirs.
Keep asking great questions …
Director, Polson Higgs Wealth Management