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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What's been said:

Discussions found on the web:
  1. Michael C. commented on Dec 6

    (Thanks for all the work on the new site, Barry!)

    “There’s a more serious bubble today than there was then.”

    Wow. I wish he could’ve elaborated on this.

  2. Michael C. commented on Dec 6

    I find that Julian Roberts was here on
    May/June 2005
    making the same comments at the time that the consumer was all but exhausted.

    Here we are 1 1/2 years later…so the timing seems off. What about the end game?

  3. Wilson commented on Dec 6

    We must not forget that opinions are like assholes, everybody has one.

  4. Teddy commented on Dec 6

    Is debt good or bad? In moderation, it is good, but when it goes parabolic as is now occuring in this country and I’m sure this is the bubble that Robertson is talking about, and the debt peddlers push for more, then they are the biggest assholes.

  5. Leisa commented on Dec 6

    Barry…Did I hear that you were going to be on CNBC at 1 p.m.? Thought: Why don’t you have a window on your blog showing upcoming media appearances.

    There’s another opinion for you–but a hygienic, non-stinky one~

  6. idontworry commented on Dec 6

    “There’s a more serious bubble today than there was then.”

    i think there a lot of people this year that missed out on a good run. now as the recession approaches it seems they are trying to get out every cent then can. not sure when someone will say BOO. price is right. price is ALWAYS right.

  7. Jdamon commented on Dec 6

    More serious bubble than the dot.com companies all trading with p/e’s above 50? Give me a break. That is a seriously lame comment.

    People may have debt, but for most it is manageable. To think people are just going to throw in the towel, elect bankruptcy and stick the bill to the banks is just assinine. It has never happened that way, and it won’t this time either.

  8. M.Z. Forrest commented on Dec 6

    It has never happened that way, and it won’t this time either.

    Except when it did, 1928. Such would be the product of a major deflationary move. Given where everything is, I would say we are closer to being where the British were when the Pound collapsed than any other historical marker. Heck, we are currently at a point where real wages for 80% of the population have been stagnant for over 30 years.

    Just another opinion. Whether it stinks or not, you be the judge.

  9. HerbieS commented on Dec 6

    I think TempusFugit said it best….

    ” ‘I continue to marvel over the chasm between what is happening on trading desks/in the market, and the economic realities on the ground.’

    But is it really a chasm? The Big Pic has been lucid, data-based and accurate with respect to the housing downturn. I believe the flaw in the thinking is in positing such a strong connection between this sector and the broad US economy. Looking back on the 1980s and 90s we did not have one, continuous, uniform expansion. Instead we had a series of “rolling recessions” including the rust-belt starting in the seventies, the oil patch in the eighties, the defense industry in the early 90s, to name a few. Now the forces of creative destruction are ripping through housing. As with the other sector-level reecessions this will slow the economy in the aggregate but will not be catastrophic. Indeed, in the long run it’s a good thing.”

    “Idontknow” hit the nail on the head as well…”i think there a lot of people this year that missed out on a good run…Price is always right…always!”

  10. marty commented on Dec 6

    is it possible that, atleast on the nasdaq, there is not enough volume to create a sell off, and no blow ups, or panic selling, to create one?

  11. Estragon commented on Dec 6

    HerbieS – Something I’ve been thinking about a bit wrt housing and it’s wider effects…

    The proportion of households owning homes has risen with the housing boom. A move from the low 60% to the high 60% range may not seem like a lot, but it stands to reason that much of the ~5% swing is in marginal credits with little equity. These are also people most vulnerable to job loss in the “rolling recessions” you describe. Moving to greener pastures is much easier when you rent than if you own a home, so I wonder if we might see an increase in “frictional” unemployment and a slower transition to whatever the next growth driver might be.

  12. idontworry commented on Dec 6

    “is it possible that, atleast on the nasdaq, there is not enough volume to create a sell off, and no blow ups, or panic selling, to create one?”

    Tomorrow you could wake up and the NAZ could be down 50. Its not likly but try not to worry about what is ‘going’ to happen or what you ‘think’ will happen. when you see a ‘price’ do something trade it out.
    i used to try to think and all i did was lose money. i am not saying to be ignorant and not to follow the news but that will lead you askew if you try to trade. if housing blows up the market… you’ll see it in price.

  13. my1ambition commented on Dec 6

    “People may have debt, but for most it is manageable.”

    I would love to believe that but something in the air says otherwise. When you see a negative savings rate I can’t seem to rationalize how anyone’s finances are “manageable”

    “atleast on the nasdaq, there is not enough volume to create a sell off, and no blow ups…”

    Derivatives. Do you see that blowing up by tomorrow morning? It’s the Big Boys DOW. Makes the Nasdaq seem like kids play.

    IDontworry has a great philosophy if you save money and are out of debt.

  14. Dave commented on Dec 9

    Bernake knows how to solve any problem. Print more money. A dollar collapse is underway. Big Deal. the Pound collapsed 10 years ago. Its now back to where it was before the collapse. Housing and Stock markets in UK are up about 200% since then. The end of the world only comes when you have massive inflation (which we do not) or massive deflation (not here either) The sad fact is that if you own assets in this economy you are doing fine. If you are in debt or just treading water you will never catch up to the wealthy. We are now living in a 3rd world country. The underclass shops at Walmart and plays the lottery, goes to war, pays 120 bucks a month for cell phone and 150 for cable TV and spends the rest on beer, fast food and rent. The rich live on blood money wrung from the sweat and tears of the underclass. This is the way it has always been and always will be. A breif perioud of equality was brought on by massive wage inflation after WWII when their was massive untapped capacity for growth to rebuild Europe and Japan.

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