By Roemer McPhee, May/2016 (104p.)
This was an excellent book that profiled the legendary investor Robert Wilson, who famously turned a small inheritance of $15,000 into $800 million before giving it all away. I suspect the reason he is not better known these days is that like Jesse Livermore (of similar legend), he committed suicide. But unlike Livermore, who reportedly suffered from depression and died broke, Robert Wilson lived a happy, productive, and rewarding life, even though he ultimately chose to end his life shortly after a second debilitating stroke that left him disabled. In his suicide note, he argued there was no reason for shame for he had lived a wonderful life and was making his decision rationally. He even left instructions on the note for meetings that would need to be canceled from that day. As McPhee puts it, it was like “just another trade.”
Again like Livermore, Wilson was a one man show who traded actively (both long and short), and deployed a high degree of financial leverage. Interestingly, because he made his fame in the 1970s bear market, Wilson was known as a short seller by his contemporaries. I did some Google searches and was able to find several good articles and this classic interview from 1985 where Wilson follows Warren Buffett and John Templeton in the Adam Smith TV show. What had elevated Wilson to such prominence, aside from his net worth, was his inclusion in John Train’s classic 1980 book, The Money Masters , where he was famously quoted as saying that “one of the dumbest things you can do with money is spend it.” It is notable that by that interview in 1985, Wilson was only a year away from calling it quits, after which he handed his fortune over to dozens of outside managers to focus entirely on philanthropy.
“Like the story of any great artist,” McPhee writes, “the story of Robert Wilson’s career will never get to the essence of what is ultimately an inexplicable gift. Wilson was a mythically talented stock-picker, who could routinely look at a list of twenty stocks and select the only two that were worth buying; and he had a nose for corporate death like no one else,” an acquaintance once said of his short-selling ability. McPhee knew Wilson personally, but only from after he had retired from investing. Most of the information he shares in his book comes from articles and interviews, as well as from Wilson’s required SEC filings. Wilson frequently spoke with the media, who would probe him for long and short ideas, much like occurs with celebrity investors today. Using a handful of investment examples, McPhee was able to reconstruct the narratives that justified some of Wilson’s best known positions. While the examples themselves could not reveal all details of Wilson’s thinking, they were effective in illustrating the sort of investments that Wilson made. Fedex, Lockheed, and American Express were notable examples on the long side, and bogus theme stocks like Memory Metals, National Video, and Pizza Time Theater were profiled on the short side. He was also good at detecting when an entire industry was in trouble, such as oil in 1981.
If he were active today, Wilson would likely be long high-beta tech stocks. He liked growth, but as the book’s examples reveal, what he really liked was change. He was attracted to “the explosive stock, the wild and crazy stock. The stock that was held by the fearful, or the greedy, or both, and thus had the potential for a big price move.” He once told reporters, “I’m not interested in buying it if it can’t go down 30%,” but he also told John Train in 1979 that he would be “scared silly if my long positions were only ten of my stocks.” At the time, Wilson owned seventy long positions. John Train even commented that “this was the most useful thing he had ever heard Wilson say.” Given his preference for surprise and controversy, Wilson sought to play the big secular growth themes through “step-sister” names. One of his dictums was that in a gold rush, one should look for the lesser knowns, who must work harder to survive. So he chose Compaq over Microsoft, K-Mart over Walmart, and Denny’s over McDonalds. When he explained his preference for fast growth in the 1985 interview, Adam Smith asked: “But, rapidly growing companies, those companies are prizes – they are scanned for by computer screens, emerging growth mutual funds look for them – isn’t this quality already reflected in the price of each of those stocks?” To which Wilson answered: “The only way one makes money in the market is when the market’s perception of a stock changes – so basically, I am looking for stocks where perhaps earnings have not started to improve yet, or if they have started to improve they are going to accelerate. To buy stocks simply because earnings have been going up 30% per year for the last three years – and to just do that on a rote basis, is a good way to lose money fast because as earnings growth slows down, the stocks tend to go down.”
His experiences on the short side were also precious, especially the short squeeze with Resorts International, an Atlantic City gaming play. The sheer size of the loss he was forced to take by his brokers ($24 million at the time), caused a media frenzy because like David Einhorn with Tesla these days, Wilson was vocally short a stock that became a rocket ship. Reportedly he began shorting it at $9/shr and covered above at $180/shr. Incredibly, even though that one loss amounted to 50% of his net worth, Wilson was up 25% that same year (1978), and 70% in 1979 and 60% in 1980. When asked about Resorts International in the in the 1985 interview, Wilson pontificates: “I had God-like success on the short side in the 1970s. I shorted about a thousand stocks, and maybe five went up,” but “hubris is a very human thing that happens to all of us, and it particularly happens on Wall Street. We tend, in this business to be terribly right for a while, or terribly wrong, and no matter how wrong and how often we have been wrong in the past, when we have a period when we are right it’s so wonderful and we think we’re so good,” before the interviewer asks, what happened? “Well, I lost a lot of money.”
Perhaps the most valuable insight I got from Robert Wilson was his view of competitive threats. “Wilson stated many times that the single biggest mistake he made as an investor, the mistake that cost him the most money in his career, was worrying about business competition too early. Don’t sell out of perfectly good long positions for no good reason. The arrival of competitors often can mean something good: like, an expanding marketplace.” To say that Wilson was ahead of his time is not even fair, because he did very well in spite of his time, which included an extended bear market – but his advice about downplaying competitive fears in expanding markets, has proven timeless. Another prized insight was his mentality towards shorting, and the fact that he admitted (in the 1985 interview) that “from the beginning to the end of it, throwing in the Resorts, I may have broken even on my shorts.” This may seem like a disappointing statement coming from a man who was considered to be the best short seller of his time – but as he quickly adds, “it permitted me to make a lot more money on the long side.” Indeed, Wilson always ran net long, and sometimes it was well above 100%. “When I was bearish,” he once told a reporter of TheStreet.com, “I was maybe 25% net long, and when I was bullish, I might be 125% net long.”
So all told, this was an inspiring and informative book about an impressive, if not obscure, investor who showed the world that it was possible for someone to systematically beat the market and create tremendous wealth with shrewd stock-picking, meaningful leverage, and nerves of steel. When asked in 1985 if he had an end object in mind for his investment career, Wilson answered: “Yes, to make a billion dollars.” He didn’t quite make it, but came remarkably close.
Like the story of any great artist, the story of Robert Wilson’s career will never get to the essence of what is ultimately an inexplicable gift. Wilson was a mythically talented stock-picker, who could routinely look at a list of twenty stocks and select the only two that were worth buying; he had “a nose for corporate death like no one else,” an awed associate once said of his short-selling ability. Similarly, I have heard it said that Louis Armstrong had no idea how truly great he was; author Kurt Vonnegut said once that his books “just poured out of him”; hockey immortal Wayne Gretzky has said that in competition on the ice, “time just moved slowly for me.”
Chapter 1: Capital
People do not kill the investment markets. The investment markets kill them.
Wilson ran this not inconsiderable sum—perhaps $150,000 today—to the fabulous amount of $230 million, by 1986. Then, with assistance he himself sought out, he nearly quadrupled his net worth to $800 million by the year 2000. The sum of $800 million is more than 50,000 times Wilson’s original stake of $15,000—from 1958. It is a capital appreciation, after taxes no less, of more than five million percent—5,000,000%. Robert Wilson did it—by himself, without partners—in about forty years.
We do know that it deeply affected Wilson as a very young man that his family occupied a “lower upper-class” socioeconomic position in Detroit, Michigan, in the years surrounding World War II.
It was the hedging, the protection of short positions vs. long positions, held at the same time, that had been missing from his investing.
Robert Wilson graduated from Amherst College in Massachusetts in 1946, and got a graduate degree the next year, in economics, from the University of Michigan, at Ann Arbor. Then he went to Michigan Law School, but left after two years without a degree.
Chapter 2: The Tiger in the Tank Is Fear
What Wilson came up with was the idea of the explosive stock, the wild and crazy stock. The stock that was held by the fearful, or the greedy, or both, and thus had the potential for a big price move. The individual stock that had publicity and public attention, and was drenched in human emotion. Stock-market investing is an entirely human process, after all. Hedged fully, Robert Wilson didn’t care if a stock went up or down, so long as it moved. Driven by fear, or greed, or, ideally, both. Otherwise, what is the point?
What, Wilson might have asked at the time, is the point of a T. Rowe Price conventional growth-stock investment, or some predictable dividend payer like General Electric or IBM or Procter & Gamble? Or some predictable stock of any kind? Those stocks aren’t going to take their shareholders anywhere fast, and they don’t. What Robert Wilson determined was that he was going to center his investing on the scary business-equity share, the stock that scared the hell out of people—even him—because it was impossible to know what was going to happen next. But something—a move up or down in price—was going to happen. That was for sure. And probably a dramatic one, a violent one. Robert Wilson founded his investing on the stock that scared you in the nighttime, and made you fearful to take a look at its price the next morning.
Chapter 3: Portfolio Genius: Heavy Diversification, Full Hedging
Robert Wilson once told financial reporter John Train that he would be “scared silly if my long position were only ten of my stocks.” (This was in 1979.) At the time, Wilson owned seventy long positions. John Train continued on in his article that this was the most useful thing he had ever heard Wilson say.
Wilson had great regard for business innovation. Innovation was a natural, automatic competitive advantage, and could cause a big advance in stock price as the particular business captured revenues and profits other companies were not capturing. … Wilson was also on the lookout for surprises. Key developments in a business that were not appreciated or understood by the investment community, at least not right away, and could cause real changes in the company’s fortunes, and position, and stock price.
Down was the other direction, the second direction, in which stocks could and often did move, after all. It was potential price movement, and that meant money changing hands. Money changing hands from someone else, to Robert Wilson (most of the time, as it turned out).
“I had God-like success on the short side in the 1970s. I shorted about a thousand stocks, and maybe five went up.”
At the low point, the stock market in 1962 was down an average of 40%, and Wilson’s portfolio at the same time was down something close to 30%. He had begun 1962 with a net worth and portfolio value of $300,000. He was taken down about 30% at the low, to $210,000, but then recovered with the market, and ended 1962 at $300,000—exactly unchanged. Wilson was not upset, he was delighted, as he looked things over. He was a hedger, an aggressive hedger, and he was right to be one. Nobody and nothing could bust him. It brings a bit of a chill to hear what he told his wife Marilyn at this point: “Now I know that I can get rich. Now it is just a matter of getting rich.”
He was very sensitive to its [the market’s] themes, its moods, its changing moods, its dreams and its fears. This was the very complex animal that fed Wilson, and as anyone who looks at Wilson’s very famous and public career can tell, he developed every sensitivity he could, to extract as much treasure from the market as possible. Wilson said something quite marvelous at one point, long ago: “I know absolutely everything. But I am willing to change my mind.” Unlike millions of hardheaded, insistent investors out there, insisting on this idea or that, and treading water or losing money, Wilson worked very hard to understand the complexities of the U.S. stock market, was always determined to be aligned with it properly, and was as flexible as a willow, and could change his mind in a minute.
A stock sold short can only return 100% to the seller: a sale of a stock at $100, that subsequently goes to $0, and out of existence, yields the short-seller a profit of $100. The stock that is purchased at $100, on the other hand, has no limit on potential profits, and may ascend to $1,000 and $2,000 and beyond. In other words, there is a floor on price movement down, but no ceiling on price movement up. Ultimately, in his career, Robert Wilson made far more money owning stocks than selling them short. Short-selling was insurance and portfolio hedging first, and a profit-center second. It was a way to let those lucrative long positions keep growing, without getting margin calls from a bad market. Even in the 1970s, Wilson at any given time always had more money in stocks he owned than in stocks he had sold short. But—it is important to try to harvest all fruit.
All of Robert Wilson’s money came from the U.S. stock market. Yes, there are many other stock markets around the world, but the home market was plenty big enough to play in, he had obviously decided very early in his career.
Chapter 4: Leverage Artist, Extraordinaire
“T. Rowe Price is a big name, but how much money does he have? Not all that much!” – Wilson
“The only office title I am interested in around here is millionaire.” – Wilson
His average compound growth rate over his entire investing career, after taxes, was a very formidable 28%.
It produced the following, select set of results:
Year Net Worth
1966 $1 million
1968 $7.4 million
1971 $12.4 million
1972 $21 million
1977 $42 million
1980 $81 million
1982 $110 million
1983 $173 million
1984 $154 million
1985 $197 million
1986 $230 million
Wilson’s stock-picking was usually first-rate, on both the long and short sides of the market. That fact has long been established.
There is a great old saying about debt: it requires you to get up in the morning, and go to work. The reference is to debt service, the cost of debt, the interest on debt that always must be paid, month after month.
Wilson, throughout his career, wanted a very aggressive 80% leverage on his portfolio. In other words, for every $100 of equity, Wilson wanted (and in fact got) $400 in borrowed money to work with, as well. A final key point about investing with borrowed money is that you have to believe in your ability to beat the market, short-term and long-term. Clearly, Wilson had great professional self-confidence.
80% leverage, 80% debt, is far more than the Federal Reserve Board, which sets the margin rules for all U.S. investors, or the New York Stock Exchange, or any other U.S. stock exchange, has ever allowed. And here is where things get interesting. Robert Wilson was determined to get way past the normal 50% “initial margin” allowed on a stock investment, or the 30% “maintenance margin” that has been set by the New York Stock Exchange, and has long been an industry-wide convention. What did he do? He went overseas, to overseas bankers, to borrow money against his investment equity—first in Mexico, and then in Switzerland.
Robert Wilson, in characteristic fashion, said that he took “a full half-second” to come up with a response. He would go out on his own; he would leave A.G. Becker, so that he could continue to borrow margin money from overseas. His job was one thing; his capital and his method of operation were quite another, and far more important, and could not be messed with or disturbed.
In 1968, Wilson formed Wilson & Associates, in New York City. He started to manage money for a few family members, and for some wealthy friends in Boston. The new firm began work with $3.5 million in capital. Wilson continued to manage his own money, of course, but he kept it separate, in large part because he knew he could not operate as aggressively with other people’s money as he could and did with his own. As an example: overseas borrowing would not be part of the new firm’s activity.
There was a major stock-market top in December, 1968, and then things generally started to head south. Even for hedge funds. Wilson’s clients didn’t lose as much money as the general public around them did, but a lot of these people became discouraged. They were not professional investors, of course. While Wilson’s own net worth increased to $8.3 million in 1969, at the same time he watched his Wilson & Associates clients start to withdraw money from the firm.
At the deep, scary September low, Wilson & Associates’ performance was down 35% for the year. Most of Wilson’s clients left right at this low—they withdrew their funds at absolutely the worst moment. The firm’s capital, with withdrawals, and to a lesser extent because of losses, dropped to just $350,000 at one point. This was just ten percent of its starting value, from two years earlier. Then it recovered, on an annual-performance basis, to about break-even, by year-end 1970. In just three months! So did Robert Wilson and his own money. Wilson was not impressed with his clients’ behavior, or sense of market timing, and he determined to put no emphasis on work for clients in the future. It was not what he was about, and it was not where the money was. He remarked, “It’s too bad they left when they did. They were at the start of a 1,000% gain!” By the end of 1971, Wilson himself was worth $12.4 million. By the end of 1972, he was worth $21 million. Sayonara, everybody. There was, in fact, only one Robert Wilson.
A crucial point about Wilson’s investing is that he believed that risk was centered in a lack of hedging; a lack of protection from hedged investments; a portfolio where stocks were owned and not also sold short, in a big percentage of overall portfolio value. Wilson evidently did not see borrowing large sums and percentages of money, in a hedged portfolio, as a big risk, and evidently, he was correct. It is one of the truly profound insights into the investment business ever achieved, and ever demonstrated. It is an insight that cannot be proved theoretically; it has to be demonstrated, and proved beyond any statistical doubt. Wilson demonstrated it, over thirty years of steady investment work. If borrowing were as dangerous as many people think it is, it would have eliminated Wilson and his money and his career at some point between the late 1950s and the late 1980s. He was always heavily leveraged, and yet he always survived, and survived very well.
Chapter 5: The Individual Stock Positions, Short and Long
“It’s been a quiet life. The market has provided the excitement.” – Wilson
Robert Wilson famously watched even the tiniest public offerings of stock (all of them a matter of public record), and throughout his career he read the business press voraciously.
“I have an icy resolve never to cover a short position.” – Wilson
What is traditionally very hard for amateur investors to understand is that it is never too late to buy into a winning stock and business, and never too late to sell, or sell short, a loser.
“What is a calculator, but a couple of semi-conductors in a metal box, with some buttons?” He started selling Bowmar Instrument short at a fairly high price, around $20 per share. He thought he had been patient with the big rally in the stock. But, no matter. The market didn’t see things Wilson’s way, and the stock price kept rising. First to $25, and then to $30. Wilson was down 50% on his overall position. Unlike almost every other short-seller in the investment business, this price rise inspired him to sell more. (“If I sell short and the stock doesn’t go against me at least 20%, I start to think I’ve done something wrong.”) And still, Wilson hung on to his position. Bowmar stock hit $40 per share. $42. $44. Wilson was down more than 80% on his position, and his money, even though he had been selling short all the way up. … [eventually] … Bowmar stock began a nose-dive. A good business had suddenly turned lousy, and looked like it was going to stay that way. Bowmar stock fell for two years, and went way below all of Robert Wilson’s original short-sale prices. In 1976, the company filed for bankruptcy. Wilson covered—bought in—his entire short position at an average price of $2 ½. He had made another small, seven-figure fortune in the market—by being right, and by hanging tough. His most famous comment about Bowmar at the time: “That was a rough one!” And there are two comments about the short side that Wilson made later, which are still well remembered on Wall Street: “To be a short-seller you have to be a masochist, and then try to make money later on.”
Lockheed had always been an innovative, creative, very high-earning supplier of complex weapons systems, and some fighter jets, to the U.S. military. In fact, the leader in the field. Corporate management sensed, and the point was obvious, that a civilian jet and a civilian program were not its business. Sales were half what had been hoped, and profits were less than nil. Actually, Lockheed lost plenty of money on the L-1011 project, and in 1981 they said they were getting rid of it. Robert Wilson entered this situation and took a long position near $27 per share. Lockheed Aircraft was worth owning—the number-one seller and earner, supplying the U.S. military. Even with the L-1011 project in place. Getting rid of this big project was like a perfectly good aircraft remembering to pull its flaps up, while in cruise flight. An obvious mid-course correction to be made, to an otherwise perfectly good aircraft (and business)—and then the future was going to be just roses. At the time, noting the impending closure of the L-1011 project, Robert Wilson said that “the stock, at scarcely over twice earnings, will soar.” Great students of the U.S. stock market, like James Finucane, out of Chicago and Colorado, have made the key observation that stocks will trade up and down, to very unreasonable levels, because of quarterly earnings reports. While earnings might swing wildly, due to temporary circumstances that are positive and negative, the great indicator of the health of a business—revenues and sales—is almost always a far more stable statistic. The fact that it is not well heeded presents great opportunity for investors. Lockheed Aircraft Corp., in 1981, had a phony earnings problem, because of the L-1011 airliner, and a very strong and stable, nay expanding business enterprise, overall. The company had the most interesting and most sophisticated weapons systems on offer anywhere, and sales to the military were strong and growing fast. Management cured its earnings problem quickly and easily by getting out of the civilian-airliner business permanently, and returning to its terrific core business. Lockheed stock went nuts, to the upside, more than tripling in price. Robert Wilson, of course, was on board, and had been for months.
What the top executives at Baldwin-United did was make a very large bet on interest rates, essentially—and one that the company did not need to make. Like the average trader in high-interest bonds—any member of the general public—Baldwin was incautious, and dumb as a rock, at the bottom of the bond market. … Wilson shorted Baldwin-United stock heavily around $3 per share, and ended up pocketing every dollar he was able to transact for. (“Always kick a dog when he’s down,” he would say about short-selling.) There was no turning back Baldwin-United. Its fate was sealed. It was one of those ideal short sales: bankruptcy and liquidation were certain. Just a matter of mathematics. Selling short at a low price, Wilson pocketed every dollar that he had been able to raise through his short sales. Eventually he purchased a significant number of common shares back “against the box,” to protect himself against capital-gains taxes. But apparently he didn’t press this matter as far as he could have. Wilson had a marvelous, oft-repeated saying: “Be a gentleman, and pay some taxes.”
Compaq Computer Corp. [L]: The Brass Ring Robert Wilson missed Microsoft Corp., which went public in 1986, but since the late 1970s he had been focusing on the very grand minicomputer, and personal-computer, revolution. The movement of computer power away from government and corporations exclusively, and then, incredibly, on to individuals everywhere. There was a ton of money in this massive shifting of the ziggurat, this platinum investors’ vault, this grand new personal computer (“p.c.”) industry, and the right investment judgments held the keys to fortunes. … A great deal of its market appeal, apparently, was public hunger for an alternative, any good alternative, to the dominant IBM p.c. Compaq out-engineered and out-manufactured its competitors into the late 1980s, when other companies really did begin to catch up to Compaq’s production standards. Then, the commodification of the p.c. business truly began, and price wars became very frequent. But Compaq Computer had grown huge, hitting $1 billion in sales in 1987, five years after its founding, by diving into the p.c. gold rush early but correctly, with correct strategy, and plenty of intelligent advance planning. Compaq Computer went public in 1983, and Robert Wilson took a heavy long position in the stock (this is all the detail he would give the press). He always seemed able to spot an innovator early. And this innovator meant particularly large capital gains: Compaq was eventually purchased, twenty years after its founding, by the Hewlett-Packard Corporation, for $25 billion.
One of Wilson’s dictums is that in a gold rush, in a huge new market, look for the lesser knowns, who are innovative and clever and hard-working, because they have to be to survive. These lesser lights have far less stock-market exposure than the leader(s), and their necessary efforts and creativity can often lead them not just to survive, but to prosper greatly. And particularly in a rich business like computers.
Nolan Bushnell wanted to bring in the children, en masse, and make a fortune off their millions of fresh quarters dropped into vast numbers of freshly built video-game slots, as the kids ate pizza and watched Pizza-Time Theater’s cheap animatronics (moving, electronic characters, like a poor man’s Disney World). After a completely surprising, huge decline in the video-game business, beginning in 1983, Nolan Bushnell really started digging himself a hole. He didn’t consider strategic changes; he pressed on with his original business plan. He seemed to think that he, the video-game king, the original, could not fail at an expansion effort, in spite of major warnings from the market. He thought that he could single-handedly revive the video-game business by continuing to try to create more markets for it. After 1983, and the video-game “crash,” Bushnell’s high-cost version of his original, lean success, Atari Corp., was overwhelmed by costs and expenses, and soon filed for bankruptcy, in 1984. Initially, Bushnell certainly seemed to think that he could re-create the old, grand success of Atari Corp. in the 1970s—by putting his head in the sand and spending money on a losing game. In 1983, all Robert Wilson saw was Bushnell spending a fortune to stay afloat with Pizza Time Theater, now a bad business. Bushnell was spending hand over fist, self-deluded, getting swallowed in a whirlpool, throwing good money after bad. “[The business has turned lousy] and they aren’t earning any money, and I think it’s a disaster,” Wilson told Barron’s weekly newspaper. Wilson was heavily short Pizza Time Theater after the video-game “crash” of 1983, and he spent nothing to cover his short position in the stock. It went to zero.
Tandy Corporation [L]: The Harder I Work, the Luckier I Get In the dark days of 1974 in America, into and through President Nixon’s resignation in August, and the super low in the stock market at the end of the year, Robert Wilson started buying the common stock of Tandy Corp. This company had long been a very clever mail-order retailer of craft and hobby merchandise, and leather goods, and it had started planting small retail stores across the U.S., as well. What Wilson particularly liked about Tandy Corp. was that it had owned Radio Shack, Inc. since 1963. This meant high-margin consumer electronics—audio and video devices and ham radios, etc.—pumped through a big and rapidly expanding distribution system. Tandy Corp. expanded into Europe and Australia as early as 1973, and in five years of blinding growth after 1969, it expanded its U.S. store count from 132 to 269.
In the “p.c.” gold rush, there was plenty of money to be made by everybody, and especially in the earliest years. Tandy Corp. was not only the dominant U. S. retailer for quite a while; it had the great foresight to start manufacturing the micro-computer machines as well, for its own account. Tandy Corp. was a very fine investment that did much better than Robert Wilson thought it would. But, he always tried to bet on people, and Tandy management was first-rate, and with fine judgment they jumped into the personal-computer business right at its birth. In fact, they were among the founders of this great new industry. Wilson went along for the ride, and it helped him reach a net worth of $26 million by the end of 1975.
Robert Wilson understood that innovation takes many forms. The classic form, the invention of a completely new product that catches everyone else by surprise, and makes a fortune, is only one form. In the case of American Airlines, in the early 1980s, Wilson noticed true innovation, as one competitor learned how to attack and defeat others. An innovative ability to win market share from other airlines, and take for itself a larger slice of the same old pie. American was big enough to cut its costs below those of its competitors, by using a “hub and spoke” system for delivering passengers to their destinations. (This ingenious system was pioneered by Federal Express Corp. years earlier—see section below.) A regional airline can only deliver a passenger point-to-point, but a large, national carrier like American can and did deliver passengers from one point to any other point in the country, by sending them through a central “hub.” In American Airlines’ case, that hub was Dallas, Texas. Chairman Crandall also developed the first frequent-flyer system in the industry, known as SABRE; and he used many different financial incentives and discounts on tickets, to cement customer loyalty. The airline business in the early 1980s was stagnant, but American Airlines under Robert Crandall was on the move, chewing up competitors and improbably making lots of new money. The airline was like a pickerel, in a pond full of vulnerable trout. It became what an airline almost never is: a great investment. Wilson loaded up on the stock. He always had his hand on the sell switch, because this was the airline business, but he was not rash about making a fast buck and getting out.
Federal Express Corp. [L]: 20/20 Vision Robert Wilson had been fond of the airline business since 1964, when with the arrival of the major innovation of the jet engine, he had made ten times his money in Northwest Airlines, for himself and his clients at A.G. Becker, in New York. But he did not usually have a lot of investments in the industry. There were really none to make. Industry innovations were few and far between, and the airline business was generally competitive and low-margin, and, therefore, lousy. At the beginning of the 1970s, the hard-charging, visionary, no-nonsense Fred Smith arrived on the scene. He was a former Marine Corps pilot, and he was convinced that high technology, particularly in the computer world, required fast delivery of high-value parts and equipment of all kinds. The only way to do this, Smith reasoned, was through air transport. And, some kind of new cargo airline. … Federal Express went public in 1973, and Robert Wilson took a large position. He could see what was nothing less than the amazing and very surprising reality of a new airline, enjoying huge barriers to entry by potential competitors. The other thing that Wilson appreciated about Federal Express was its ingenious use of a “hub-and-spoke” delivery system. In the nature of its business Federal Express had to be a national airline from day one, so it immediately established a single central city, a central city-hub, for itself. (Not at first, but eventually, this was Memphis, Tennessee.) There are enormous efficiencies and cost savings to be achieved by transporting people and cargo through a national system of “hub” cities—if the operation is big enough to accomplish it. (In other words, not point-to-point, like a regional carrier, but point to any other point in the entire system, through centralization.) From its very first day of operations, with twenty French Dassault Falcon jets, Federal Express Corp. was a national airline, and a national delivery system. Not just a regional one. It had to be. But this also allowed it to operate “hub-and-spoke” from the beginning—big enough to be very efficient and very cost-effective.
Wilson also said, however, that his big investment in Northwest Airlines, in 1964, which turned out to be a 1,000% winner, was as close to a group or “macro” long investment as any he ever made. It was a bit of an exception, in other words. The broad idea was the arrival of the jet engine, and jet-engine technology, as the new standard in civilian air transportation. It would make civilian-airline costs much lower, and revenues much higher, per “seat-mile,” in industry parlance. And particularly on long-haul routes, which were a Northwest Airlines specialty at the time and later. Northwest was the largest U.S. trans-Pacific air carrier after World War II, with a major hub in Tokyo, Japan. It started flying the three-engine Boeing 727 airliner late in 1964, and fresh revenues and profits just poured into the company. Basically, Northwest was doing an awful lot of high-profit long-haul business, of both people and freight, and the arrival of the jet engine then expanded good profit margins dramatically.
Chapter 6: Just Another Trade
He stated that he had had a good life, a rewarding life, and that he had done everything he wanted to do. He also stated that he felt no shame in doing what he was about to do. As a final practical matter, he set down a short list of upcoming appointments, and noted that they would have to be cancelled. Shortly after the note was finished, the New York City police would find it. Wilson opened a back window of his apartment, one that looked out onto an inner courtyard. The courtyard was about 150 feet down, and it was empty. There was no one out there; no one down there. Wilson would never have considered a jump from the front side of his apartment, onto busy Central Park West. Absolutely nobody else was going to be harmed by what he was about to do. And there was no harm in him. Never. Wilson leapt out of the window. It was certainly a frightening few seconds, and without question it was a very brave thing to do. He was killed instantly. America’s greatest investor—ever—was gone.
- Wilson had no secrets, but he was a very private man. The business press in America was fascinated by Wilson very early, just as I have been later, and the press is the main source of information about Wilson’s unique investment career. My chief source on Wilson is that I knew him for about 25 years, in NYC, and met with him maybe a dozen times, mainly to talk about his work, and the stock market.
- Roemer: Wilson left very little information behind, directly. Journalist John Train’s extensive writing about Wilson was very helpful to me, as were the major American business publications that would not let Wilson go, for very good reason: in the investment game, he was number-one, and everybody knew it. Late in his life, Wilson also appeared in philanthropy publications.
- The number-one reason a person should read this book is to experience, in detail, human greatness. It is truly unbelievable, what all of us can achieve. Secondarily, the book will reinforce the need to work hard to achieve anything. Talent is great, but it must be worked, and shaped, and worked again, to produce real value of any kind.
- His genius is ultimately a mystery. Like Michelangelo.
- Wilson is just about the most productive individual, living or dead, I have ever encountered. A machine; a wonderful machine.
YouTube Interview with Roemer McPhee – December 12, 2016
- A lot of people traded in sympathy with him
- Why is now the time to write this book: “I think he would be hedged out in the business. .. “ – oh no we lost him” [webcast cut short].
TheStreet.com Streetside Chat: Robert Wilson – April 16, 2000
- Wilson’s investment strategy was to go both long and short — long because he believed in the long-term future of America and short because he never wanted to be wiped out in a downturn.
- His fortune, approaching a billion dollars, is managed for him by a small posse of investment advisors — some short, some long; some U.S., some overseas; some value, some growth; some large-cap, some small-cap.
- For more on Wilson, see the chapter on him in John Train’s investing classic, Money Masters
- But if the market went down, 30%, 40% with the kind of growth stocks I owned, I could be rendered worthless, whether I was worth $100 or a million dollars. If you own 50% margin and the stock goes down 50%, you don’t have any money left, no matter how much you started with.
- I was always net long. When I was bearish, I was maybe 25% net long, and when I was bullish, I might be 125% net long.
- “There’s something intellectually much more intriguing about failure, which is knowable, rather than success, which is sort of unknowable. The way people fail is understandable and predictable and almost inevitable, whereas the way people succeed may never have happened, and so an intellectual is drawn towards failure, I think.”
- Where were you getting most of your good ideas, stock ideas, for longs or shorts? “From other people. I networked. Even when I was at a brokerage firm and was not paying for ideas, I would exchange ideas.”
- The people in the research departments in those days didn’t make the multimillion dollars they do now. They tended to be the mundane people. Not moneymakers. They tended to be intellectual types who followed companies painstakingly and knew their stuff. They weren’t dumb, they just didn’t have that aggressiveness, or that spark, to be moneymakers. And it was the institutional salesmen who plucked the pearls among the swine.
- The whole money management business is enormously profitable, but nobody’s rigging it … it sort of amazes me that there are so many people making so much money in a purely competitive market.
- I remember at one point, that Julian Robertson had just acquired some more space and had a lot of very lush offices, which weren’t filled yet. And I said, “Are you going to hire people and give them offices like that?” And he said, “Bob, if they come up with one idea a year, it’ll cover that office and what I pay them, and all other expenses and if it’s two or three ideas … ” and Julian never paid anybody much less than half a million. A nincompoop would make a half a million, and a really bright guy would make $3 million or $4 million. And that was back before the multimillion research.
- Oh, I knew Julian when I was richer than he was. I knew Julian from when he was still a registered rep at Kidder-Peabody — the ’60s — and … well, I don’t think there’s much secret about this, I think one reason Julian amassed so much money under management is he wanted to sell out. And the more money he had under management, the better the price he could sell it for. Julian is a very high-grade guy, so I’m sure he wouldn’t have sold it to just anybody. He would have sold it to somebody who could continue to do a good job for these people. And this I don’t know, but I think Julian wanted to retire, or at least slow down. Again, I think, and I think most potential buyers weren’t very interested without Julian’s aggressive role. And then he — I don’t know how old Julian is now — he’s 67 or something like that, and I’ve always said young men and middle-aged men can make good money in the market, but not many old men can, and I define old as getting over 60.
- Well, he went from $26 billion, down to what? Eight … oh, billion. I mean, the people who ran out on him, the withdrawals, aside from his losses — he could have handled the market losses — but the withdrawals were just breathtaking.
- I think the greatest success of my whole career was the jets, when airlines switched from propeller-driven planes to jet planes. There are very few cases where the airlines’ costs plummeted, the quality of their service skyrocketed, and if ever there was a win-win situation, that was it. People talk about the Internet “revolutionizing” the world. Well, jet travel revolutionized the world, too, and there was a huge amount of money to be made in that.
- I covered it when I got back. I was fundamentally wrong, you see, and once I realized I was fundamentally wrong. … Another thing: I thought competing casinos were closer to approval than they actually were. So Resorts had a monopoly for a couple of years.
- And I said to everybody at the time, I hope next time I make a boo-boo like this, I lose $200 million. Because I’ll be so much richer. You can’t lose $200 million in an individual stock, unless you’re quite rich. I should point out that for the year in which I had that $20 million loss, I was up 25%, in my overall account and that was a very strong year in the market. I should have been up 50%, or 60% or 70%. That was only one position, and I had a lot of longs that did very well. So it was a plus year. This is the point of hedging.
- What would be your general advice to an investor who, for some reason, has bet against a company and suddenly it’s going the wrong way — whether it’s a long that suddenly goes down a great deal, or a short that goes up a great deal? Well, I think you should look at the fundamentals. I always used to say, if I shorted a stock and it didn’t go 20% against me, I probably made a mistake.
- Yet generally speaking, did you make money on your shorts? I would say from the beginning to the end of it, throwing in the Resorts, I may have broken even on my shorts. And it permitted me to make a lot more money on the long side.
- And what would be your advice then to investors in this kind of a market? I would forget the shorting. I think it’s over. It’s over for one simple reason: If shorts start working, that is, stocks go down for any sustained period of time, a great many people who are not now shorting will start shorting. There is a limited supply of stocks to borrow to sell short. Those stocks that are good shorts tend to be very obvious. As I’ve often said, I can predict with confidence that you’ll die. I cannot predict that you’ll be born, and so failure is analytically obvious and so everybody piles into the same short. When I was doing it, it was a rather unpopular procedure, and I was able to borrow, generally. People are able to borrow now, but I do believe if shorting really becomes profitable again, it’s going to become so crowded that most people won’t be able to borrow stock.
- Who do you think was the greatest stock investor that you have ever seen operating in the market when you were active? Oh, well, Warren Buffett, obviously. What is it about him that impressed you? Well, his prescience, his ability to buy stocks and see them go up multiples over a period of years. In other words, whenever I bought a stock, I always dreamed that it would go up a 100-fold over 10 years, and he bought one after another that did that. So, he not only made the most money. There is a correlation, of course. But he did it with such great style and imagination. There’s nobody even comes close to him.
- There is a lot of pooh-poohing of Buffett. Well, Buffett is old. Buffett, I think, is almost my age, and I think his days of being a brilliant investor are over. I think he’s too old, and in a way, is selling out. He can’t sell the stocks, but he bought general reinsurance. He started diluting his equity, and I think he realizes this, too. He’s not exactly a dumb guy, and I think he probably knows this, too.
Lessons from a Legendary Short Seller – CFA Institute – 22 December 2016
- “If it bleeds, it leads,” after all. But there’s a difference between generating clicks and generating alpha: We all know there are no short sellers in the Fortune 500.
- This sentiment is echoed by Chanos, who recently stated: “A good short portfolio allows you to be more long. . . . And that’s the crux of what we do. It enables our investors — and ourselves — to be more long, whether it’s passive investments or stocks we select.”
- There is a twofold takeaway here: The greatest short sellers barely break even. The primary goal of short selling should be to provide cash in a sell-off and let you “back up the truck” on your longs.
- Many managers prefer to wait until the short has already “cracked” and press it on the way down. As famed short seller Marc Cohodes commented: “I never, ever, ever get involved in what I would call open-ended situations. . . . I have avoided pie-in-the-sky names. To use an analogy, I’m not interested in climbing into a tree and wrestling the jaguar out of the tree. I’m interested in someone shooting the jaguar out of the tree, and then I will go cut the thing apart once it hits the ground. Instead of open-ended situations, I like to short complete pieces of garbage with fraudulent management and horrifically bad balance sheets. I look for change, I look for ‘if this goes away tomorrow will anyone miss them’? What do they do well?”
- Why did you first go to Wall Street, what were you seeking to achieve and did you get what you wanted? “I’m dealing with humanity, and don’t have to put up with any feedback.” This speaks to how investing can be a lonely endeavor. Unlike someone in banking or sales and trading, which generally require exemplary social skills to succeed, a money manager like Wilson can generate out-sized returns for a decade all on his own — just a man versus the market.
Adam Smith Interview: Warren Buffett, John Templeton & Robert Wilson Interview From 1985 – posted November 27, 2017
- John Templeton from the Caribbean: “…of course we make hundreds of mistakes all the time. Our average holding period is six years. We are worldwide bargain hunters.” –
- Warren Buffett interview starts at 10.20min. “This is not a business where you take polls. It’s a business where you think.”
- Robert Wilson Starts at 17:10min: “I would be bored to death to live in Omaha or the Bahamas. The most important thing is to enjoy life. … Unlike these other distinguished gentlemen, I am not an original thinker. I tend to rely on other people to feed me ideas. … I’m a derivative thinker. .. I like to be in things that have great potential for huge gains. I’m not interested in buying it if it can’t go down 30%. If the downside risk is limited then the outside potential is also limited. I give a lot of money out in commissions and tend to sit at my desk waiting for people to call me.”
- Interviewer: But, rapidly growing companies, those companies are prizes – they are scanned for by computer screens, emerging growth mutual funds look for them – isn’t this quality already reflected in the price of each of those stocks? Wilson: “Maybe I can refine what I said. The only way one makes money in the market is when the market’s perception of a stock changes – so basically, I am looking for stocks where perhaps earnings have not started to improve yet, or if they have started to improve they are going to accelerate. To buy stocks simply because earnings have been going up 30% per year for the last three years – and to just do that on a rote basis, is a good way to lose money fast because as earnings growth slows down, the stocks tend to go down.”
- “Hubris is a very human thing that happens to all of us, and it particularly happen on Wall Street. We tend, in this business to be terribly right for a while, or terribly wrong, and no matter how wrong and how often we have been wrong in the past, when we have a period when we are right its so wonderful and we think we’re so good.” What happened? “Well, I lost a lot of money.”
- If a young person came to you straight out of college and said I want to be as rich and successful as you, how would I do it? “Money, in the abstract, not what money will buy, has to be the most important thing in the world. It is not the most important thing in the world for the vast majority of talented people.”
- 24:13 min: Do you have an end object in mind in your investment career? “Yes, to make a billion dollars.” Really? “Yes. I am not at all sure I am going to do it but I am going to try.”
Good-Bye Wall Street: A Famed Investor Bows Out – New York Magazine, May 26, 1986
Short Seller Goes Long on the Future – HuffPost 07/01/2009
- Robert Wilson, a retired 82-year-old investment legend, never did get around to building an empire. But he managed to dazzle Wall Street with a remarkable achievement. Namely, he parlayed $15,000 that his parents gave him in the 1940s into an astonishing $800 million net worth.
- He retired in 1986 and placed most of his assets with a group of money managers. Unfortunately, they couldn’t match Wilson’s standard of performance, causing him the loss of a fair amount of money.
- Describing himself as “an old man now,” Wilson says “anyone who thinks they’re young at 82 is on their way to dementia.” Still though, he remains an active 82-year-old. A world traveler, a lover of the arts and a former chairman of the New York City Opera, Wilson exercises 45 minutes a day and he’s still running.
- His advice to the average investor: “I would avoid the stock market and put my money in short-term Treasuries and savings accounts and wait for interest rates to go up, which they’re already doing on the long end.”
- Died Dec. 23 in Manhattan. He was 87.
- Wilson suffered a stroke in June, Gary Castle, his accountant, said Tuesday in a telephone interview.
- In 1949, Mr. Wilson got his first job in New York, as a trainee at First Boston, which was later acquired by Zurich-based Credit Suisse. After serving in the Army during the Korean War, he returned to First Boston in 1953.
- In May 1978, he created a short position of 200,000 shares of Resorts International at an average price of $15 each, according to a 1979 account in Forbes. The company had just opened the first gambling casino in Atlantic City, and Mr. Wilson was betting the stock would fall. Instead, the shares rose to $20. The shares continued to rise and by September reached $190. By then, Mr. Wilson was buying back the stock at appreciated levels, costing him millions of dollars in losses.
- He was divorced from his wife, Marilyn, and had no children.
Robert W. Wilson, Frugal Philanthropist, Dies at 87 – NYT December 23, 2013
- “ ‘Well, now that you’ve given all this money to our schools, I should try to convert you,’ ” Mr. Wilson recalled the cardinal saying. “I said to him: ‘Well, Cardinal, if you do, I suppose I should try to convert you. The only problem is that if I succeed, you’ll lose your job.’ ”
- He was known for his frugal habits. Mr. Wilson rarely took a cab, managing to get where he needed by subway, until he had the stroke. When he had to take a cab, he was known to persuade one of his well-heeled San Remo neighbors to share the fare.
- “One of the dumbest things you can do with money,” Mr. Wilson said in a 1979 interview with Forbes magazine, “is spend it.”
- “The gist of it was that he had had a great life, and done all the things he wanted to,” Mr. Schneidman said, “and that the way he chose to die was nothing to be ashamed of and shouldn’t be kept secret.”
- The note concluded on a practical note, he added: “He wrote a list of appointments that would have to be canceled.”
Philanthropist carefully planned suicide jump; ‘not ashamed’ – NY Post – December 25, 2013
- Friends said Wilson didn’t even shy away from the subject at a party for his 87th birthday last month.
- “His health was failing, and he was ready to go,’’ said pal Stephen Viscusi.
- Wilson’s anonymous female pal suggested that he jumped into the courtyard of his building to make sure he didn’t land on anyone.
- In August 2011, looking out onto the park from the same terrace where he would later jump to his death, he told the Financial Times, “Who needs a summer place? I’ve got one.’’
Tycoon who jumped to his death after stroke leaves $2M to staffer – January 16, 2014
- The openly gay Wilson did not name his family– including his ex-wife, brother, niece and nephew– in the will but Viscusi said they were provided for in other ways.
- “He was an unusual guy,” said Viscusi, who threw an 87th birthday bash for his friend just a month before his suicide.
- Police had read Schneidman Wilson’s suicide note, which said that he “had a great life” and his decision to die was “nothing to be ashamed of,” according to an interview the accountant gave to The New York Times.