Julian Robertson on Irrationality in Markets

I was speaking with Herb Greenberg on Monday about Julian Robertson. He had mentioned this little tidbit, buried at the end of Herb’s most recent column (which I had missed):

Legend vs. legend

Hedge fund manager, investment conference impresario and newsletter publisher Whitney Tilson has a terrific piece in the latest edition of his Value Investor Insight, in which he does a mea culpa to legendary hedge fund manager Julian Robertson, who quit the business in 2000 at the height of the last round of stock-market insanity.

The mea culpa deals with comments Tilson, a big fan of Warren Buffett, wrote when Robertson threw in the towel. He noted that Robertson and Buffett have different styles, reflected in their portfolios at the time: Buffett likes high-growth companies with high margins, great balance sheets and returns on equity that exceed their cost of capital. Robertson opted for the ultimate value stocks with high debt, low margins, poor returns on equity and erratic growth. "This is a lame collection of companies . . . which deserve to trade at a low average multiple," Tilson wrote.

Fast-forward to today and, as it turns out, Robertson’s 2000 portfolio shows why he, too, is considered a legend: In a period when the S&P 500 slipped 7%, his portfolio boomed by 120% compared with a 38% rise for Buffett’s Berkshire Hathaway. Both, Tilson points out, handily beat the market.

Speaking of the markets
: Robertson quit because he felt it was too irrational. What does he think now? "Surely you don’t see the same degree of irrationality today that existed then?" Tilson asked. "Oh yes sir, I do," Robertson shot back. "There’s a more serious bubble today than there was then."

Fascinating stuff, Herb. Thanks for the heads up.


Julian Robertson sees the market as irrational as it was in 2000
Herb Greenberg
MarketWatch, 7:07 PM ET Dec 4, 2006

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