Whitney Tilson is shutting down his hedge fund

[Liberty]

https://www.cnbc.com/2017/09/28/whitney-tilson-is-shutting-down-his-hedge-fund-report.html

 

Noted hedge fund manager Whitney Tilson is reportedly shutting down his fund at a time when industry assets are growing but returns continue to lag. [...] Kase was down about 8 percent this year, according to Dow Jones, while the S&P 500 has gained about 12 percent. Hedge funds broadly this year gained 4.8 percent through July as gauged by the HFRI Fund Weighted Composite Index.

[LongTermView]

This is sad. I've talked with Whitney several times and he seems like a nice guy.

[Ballinvarosig Investors]

Dear Partner, 

 

I wanted to follow up on the conversations I’ve had with each of you recently regarding my decision to close the fund and return your capital. 

 

Most importantly, I’d like to reiterate my tremendous gratitude for your patience and confidence in me over the years. You gave me the time to try to improve the fund’s performance, and I deeply regret that I was unable to do so.

 

If I were managing only my own money, the fund’s recent results wouldn’t bother me quite so much. But investing and running a money management business are two very different things, and reporting sustained underperformance to you was making me miserable.

 

I would have liked nothing better than to have rewarded you for standing by me during these difficult times by ending on a high note, but I ultimately concluded that I couldn’t in good conscience continue to manage your money unless I had a high degree of confidence that I could turn things around within a reasonable time frame.

 

Over the nearly two decades that I have managed money professionally, I have endured other periods of underperformance. During those times, however, I was certain that the losses were temporary because our portfolio was filled with cheap stocks that would quickly rebound.

 

Alas, I don’t have that feeling today. Historically, I have invested in high-quality, safe stocks at good prices as well as lower-quality ones at distressed prices. Given the high prices and complacency that currently prevail in the market, however, my favorite safe stocks (like Berkshire Hathaway and Mondelez) don’t feel cheap, and my favorite cheap stocks (like Hertz and Spirit Airlines) don’t feel safe. Hence, my decision to shut down.

 

It has been a tremendous privilege to manage your capital, and I want to express my deepest gratitude for your support and friendship over the years. It means the world to me. 

 

Sincerely yours, 

 

Whitney

[Liberty]

This is sad. I've talked with Whitney several times and he seems like a nice guy.

 

This seems to be a widely shared view:

 

https://twitter.com/AlexRubalcava/status/913428918526447619 (thread)

[John Hjorth]

Thank you for sharing that Twitter thread, Liberty,

 

It says a lot about Mr. Tilson, as a person.

 

- - - o 0 o - - -

 

If you end up in a game with regard to work, that is not you, so that you feel miserable while going to work in the morning, it's just time to call it a day. It's life expectancy reducing, if one don't act on it. The rest is just money - your own, or the money of other people.

[Charlie]

I will miss his Berkshire analysis. It was always a nice read.  :)

[Jurgis]

I will miss his Berkshire analysis. It was always a nice read.  :)

 

He may not be shutting down his Berkshire analysis...  8)

[LR1400]

Kudos to him for the introspection.

 

Though I'm not comparing them to Whitney directly, Munger and Buffett both ultimately didn't enjoy managing other people's money either. It sounds fun but I imagine for you guys that do it as your day job, it can be a tough one. Most businesses are.

[Jurgis]

It sounds fun but I imagine for you guys that do it as your day job, it can be a tough one. Most businesses are.

 

In other news Hugh Hefner died.

[Gregmal]

Tilson was somebody who's biggest asset IMO are his connections and ability to pick off other people's investments. That's sounds harsh but I don't mean it in a bad way. His longs were basically Bill Ackman's positions with a couple other big hedge fund hotels sprinkled in, and his short book was basically VIC write-ups.

[Guest Cameron]

I don't see how he blamed his short comings on "market competency" he didn't just not beat the market he somehow managed to lose money since 2010 when the market is up 137% since that time. I'm curious to know what he was investing in to accomplish such a feat obviously he wasn't investing in Google. Regardless if he is a value investor or a nice person he was part of the hedge fund lethargy problem.

[Guest]

I knew his returns were bad but didn't realize how bad they were.

 

Year Whitney Tilson's Funds Performance S&P 500 Performance

2010 15.1%                                         15.1%

2011 -24.9%                                           2.1%

2012 -1.7%                                         16.0%

2013 16.6%                                         32.4%

2014 13.7%                                         13.7%

2015 -7.3%                                           1.4%

2016 3.8%                                         11.9%

Cumulative 8.4%                               132.6%

 

I got all this from Wikipedia.

 

Getting results this bad is pretty hard to do. I think at one time, under T2, he beat the S&P 500 by a little. This is crazy.

[Guest Cameron]

I knew his returns were bad but didn't realize how bad they were.

 

Year Whitney Tilson's Funds Performance S&P 500 Performance

2010 15.1%                                         15.1%

2011 -24.9%                                           2.1%

2012 -1.7%                                         16.0%

2013 16.6%                                         32.4%

2014 13.7%                                         13.7%

2015 -7.3%                                           1.4%

2016 3.8%                                         11.9%

Cumulative 8.4%                               132.6%

 

I got all this from Wikipedia.

 

Getting results this bad is pretty hard to do. I think at one time, under T2, he beat the S&P 500 by a little. This is crazy.

 

He was doing well up until 2010, I can only assume he was shorting stocks he thought were overvalued but they kept going higher.

[Liberty]

He was doing well up until 2010, I can only assume he was shorting stocks he thought were overvalued but they kept going higher.

 

I remember him publicly shorting Netflix and Reed Hasting writing a public letter convincing him to drop the short... Not sure how much that hurt him..

[LR1400]

Just makes you want to buy an index and ride it.

 

What fun is that though.

 

I read recently that there's a manager that advises buying the lows of the s&p500.

 

Does anyone know what manager that is?

[LR1400]

It sounds fun but I imagine for you guys that do it as your day job, it can be a tough one. Most businesses are.

 

In other news Hugh Hefner died.

 

Nice gibe

[Guest Cameron]

He was doing well up until 2010, I can only assume he was shorting stocks he thought were overvalued but they kept going higher.

 

I remember him publicly shorting Netflix and Reed Hasting writing a public letter convincing him to drop the short... Not sure how much that hurt him..

 

He was vocal about not liking Trump and getting out of stocks because of not liking him and that he was 60% cash. I found this surprising that he would make such a hasty decision not on whether the stocks he owned where fundamentally cheap but rather on an external factor. Basing investment decisions on your politics doesn't seem like a sound strategy especially when your making those decisions with other peoples money.

[Guest longinvestor]

I will miss his Berkshire analysis. It was always a nice read.  :)

+1

Plus the candor. Not surprised to see fiduciary sense in display here. He's admittedly an acolyte of Buffett and Munger and see this as following in their footsteps. Kudos to him.

[Ballinvarosig Investors]

I don't blame the guy for quitting. The US market in particular makes no sense whatsoever at this time. Things that are clearly overvalued like Tesla, Netflix, Wingstop, and Wayfair which Tilson was short, have rocketed.

[wescobrk]

He was doing well up until 2010, I can only assume he was shorting stocks he thought were overvalued but they kept going higher.

 

I remember him publicly shorting Netflix and Reed Hasting writing a public letter convincing him to drop the short... Not sure how much that hurt him..

 

He was vocal about not liking Trump and getting out of stocks because of not liking him and that he was 60% cash. I found this surprising that he would make such a hasty decision not on whether the stocks he owned where fundamentally cheap but rather on an external factor. Basing investment decisions on your politics doesn't seem like a sound strategy especially when your making those decisions with other peoples money.

 

He must have been asleep for the past 15 years of Munger meetings.

[nkp007]

I think:

 

1) Tilson will continue his awesome analysis and release presentations. Seems like his passion, even on a personal level.

 

2) Just don't short. It sucks and upside is limited unless you're using some asymmetric vehicle.

 

Edit: Below quote from his latest letter. WOW. Held a short as it went up 7x against him?

 

Michelle Celarier with an in-depth look at Tesla: Elon Musk vs. the Haters, http://www.institutionalinvestor.com/article/3756165/investors-pensions/elon-musk-versus-the-haters.html. It was my worst short ever in 2013-14 (from $35 to $205; thank goodness I was long Netflix, which rose a similar amount during the same time frame). Ever since I covered, I’ve been warning all of my short selling friends that it’s a bad short at any price. To be clear, forced to go long or short Tesla here, I’d go short, but we investors aren’t forced to make any investments. Here are my quotes in the article:

 

 

3) Tilson / Ackman look like fools now. But they always come back harder than they left. I look forward to their future ideas. I'll continue listening to what they put out because sometimes they are very, very right and they are always very analytical.

[Guest longinvestor]

I think:

 

1) Tilson will continue his awesome analysis

 

2) Just don't short. It sucks and upside is limited unless you're using some asymmetric vehicle.

 

3) Tilson / Ackman look like fools now. But they always come back

 

2) is spot on. I tend to agree with his short ideas, but you're working against the clock. You don't win against the clock. TIme needs to be your friend. At least that's what has worked.

[Tim Eriksen]

The other problem, although it is related to shorting, is that it is ridiculous to think you can outperform the index with only 40 to 60% net exposure.  Too many funds that succeeded in 2001-2005 failed to understand what an unusual market that was.

[Guest Cameron]

The other problem, although it is related to shorting, is that it is ridiculous to think you can outperform the index with only 40 to 60% net exposure.  Too many funds that succeeded in 2001-2005 failed to understand what an unusual market that was.

 

Interesting that you bring that up I didn't realized that his net exposure was around that. Stocks will be irrationally overvalued far longer than they will be irrationally undervalued. He might have be scarred as a result of the housing crisis sort of like how Graham was coming out of the Great Depression, he was 60% short in 2011.

[CorpRaider]

Just makes you want to buy an index and ride it.

 

What fun is that though.

 

I read recently that there's a manager that advises buying the lows of the s&p500.

 

Does anyone know what manager that is?

 

Yeah, 

RPV is +6.45% YTD and +16.15% over 1 year

VBR is +5.56% YTD and +15.16% 1 year