FOOL PLATE SPECIAL
An Investment Opinion
An Investing Tiger Calls It Quits

By Brian Graney (TMF Panic)
March 31, 2000

Much is being made in the mainstream business press today of the decision by all-star investor Julian Robertson to shutter his Tiger Management partnership of so-called "hedge" funds. Far be it for the Fool to abstain from any discussion of general interest to investors, of course, so it's time for us to toss in our two cents. In particular, this story is of interest to investors not so much for what it says about Mr. Robertson or his individual investing style, but rather for what it says about the current investing climate in general.

By now, the story behind the liquidation of Tiger Management has been widely circulated. Despite racking up impressive returns in its first 18 years of operations, the Tiger Funds have suffered miserably over the last 18 months as Mr. Robertson's style of investing has favored the wrong side of the much ballyhooed "Old Economy" vs. "New Economy" divide. As the stock market returns of Tiger holdings such as U.S. Airways (NYSE: U) and United Asset Management (NYSE: UAM) have dissipated over the past year and a half, some $7.7 billion of funds have disappeared as well in the form of withdraws by Tiger partners. Rather than risk further losses on behalf of the partners that continue to stick by him, Mr. Robertson opted to shut the doors and hand back what assets remain.

You can say what you want about Mr. Robertson's investing style, which he summed up as "buying the best stocks and shorting the worst" in the letter to his partners announcing the liquidation. However, there is no arguing with his track record. According to his letter, the after-fee compounded annual return of his funds from mid-1980 until mid-1998 was 31.7%, which crushed the 18% compound return of the S&P 500 with dividends reinvested over the same stretch. Historically, very few investors have ever put up such consistently high returns over such an extended period of time, and it's a safe bet that precious few will do so in the future.

So, when a slugger like Mr. Robertson abruptly decides to quit the game after what in the proper context seems like a short series of strikeouts, that's a signal for investors to sit up and take notice. Something has changed. Robertson's style worked when interest rates were high and when they were low. It worked despite the Crash of '87, the fall of the Soviet Union and communism, the S&L scandal, and the Gulf War. It worked regardless of who was in the White House, who was on the cover of Business Week, and who had won the Super Bowl the year before.

What has changed? As always, Foolish investors need to draw their own conclusions. Mr. Robertson put it this way in his letter: "[I]n an irrational market, where earnings and price considerations take a back seat to mouse clicks and momentum, [our] logic, as we have learned, does not count for much.... What I do know is that there is no point in subjecting our investors to risk in a market which I frankly do not understand."

For the heck of it, compare the above sentiment to the following statements, which came from noted investor Warren Buffett just prior to the liquidation of his own investment partnership at the height of the "go-go" momentum market of the late 1960s, despite a 25.3% compound return over the prior 11 years: "We live in an investing world, populated not by those who must logically be persuaded to believe, but by the hopeful, credulous and greedy, grasping for an excuse to believe.... I am not attuned to this market environment, and I don't want to spoil a decent record by trying to play a game I don't understand."

What has changed? Perhaps not much at all. But as always, Foolish investors need to draw their own conclusions.