Value Investing

Whitney Tilson: “Why The Hell Didn’t I Listen To Charlie Munger?”

Whitney Tilson, one of the world’s most followed value investors, announced the closure of his hedge fund in September 2017.

[mungrt]

See 2017 Hedge Fund Letters.

“If I were managing only my own money, the fund’s recent results wouldn’t bother me quite so much,” Tilson wrote in a letter to investors.

“But investing and running a money management business are two very different things, and reporting sustained underperformance to you was making me miserable.”

But Mr. Tilson is hardly going away. After many years in the spotlight, Mr. Tilson is turning his attention to a new business venture named Kase Learning that will offer seminars on value investing, hedge fund entrepreneurship and short selling.

During a recent discussion at his Manhattan office, Mr. Tilson shared a never-before-told story about Charlie Munger’s personal advice to him on short selling.

What follows is a slightly edited transcript of Mr. Tilson’s story as told to Jesse Koltes.

The Charlieton:  You’re a well-known follower of Charlie Munger and Warren Buffett. What do you make of the fact that Munger and Buffett recommend against short selling, and why did you decide to short stocks in your fund?

Whitney Tilson: I’ll tell you something, a story I’ve never told publicly. My very first experience with shorting was with Farmer Mac and then MBIA. That was with Guy Spier, who was pitching Farmer Mac to Bill Ackman and me as the long. Bill correctly identified it as a short and helped get Guy out. We all shorted it.

These were two of the first activist short campaigns in history. No short seller ever talked about shorts back then. Today, it’s a daily event that somebody’s going after some company publicly.

The companies did not like it. They sicced the SEC and Eliot Spitzer’s office on us. That was a very unpleasant early experience. They pitched a story to The Wall Street Journal that ran that talked about this cabal of market-manipulating short sellers.

This is back in 2002. I was three years into my fund. I managed less than $10 million. Here I am getting smeared in The Wall Street Journal. Then, a day later, I was getting subpoenas from the SEC and the New York Attorney General. i.e. Eliot Spitzer. I thought my life was over.

Here I am getting smeared in The Wall Street Journal…I thought my life was over

I called Buffett up to ask for a little bit of advice. He said, “Whitney, this too shall pass. It doesn’t appear you’ve done anything wrong and I know it feels very vivid right now but this will pass,.”

Then he said, “You know what, Whitney, I’ll bet Charlie would have something to say about this. Why don’t you call him up?”

I said, “Mr. Munger? I’ve never talked to him. I don’t know him. Does he even know who I am? Will he take my call?”

Buffett chuckled and said, “Oh, yeah. Charlie knows who you are. He’ll take your call. Give him a call.” I called him up and sure enough, he picked up the phone. He’s my hero. Imagine, you know?

Charlie had some very interesting things to say. The first thing he said was, and I still remember the exact tone of voice and his exact words. He said, “First of all, Whitney, you and Bill are exactly right about MBIA.” Then, he said, “The idea that anyone would ever think that this company is triple A is so ludicrous,” in those exact words.

I was feeling pretty good—my hero thinks my analysis was correct!

Then he said, “From a societal perspective, Whitney, I think it’s a good and healthy thing that you and Bill are out there raising correct, legitimate questions about this company and companies like this. I think it’s a healthy thing.”

But he said, “My advice to Whitney Tilson is don’t do it because,” he said, “If you go around in life stepping on people’s air hoses, they’re going to hate you and they’re going to attack you

If you go around in life stepping on people’s air hoses, they’re going to hate you and they’re going to attack you

and they’re going to do things like smear you in the Wall Street Journal and sic regulators on you and do things to make your life miserable.”

“You know, Whitney, shorting is a tough business.” He said, “I remember back when I was just a young guy and I shorted a few stocks. I remember I’d shorted the Yen once and they all ended up working out but the Yen doubled against me or something before it finally worked out.” He said, “It cost me a lot of sleepless nights.” He said, “I eventually concluded that just wasn’t worth it and I stopped doing it. That would be my advice to you, Whitney.”

Then he paused, sort of like he was almost speaking to himself. He sort of chuckled and said,

You know what? Young guys seems to have to learn this for themselves.

“You know what? Young guys seems to have to learn this for themselves.”

I look back on that moment as one of the great mistakes of my career – why the hell didn’t I listen to Charlie Munger? Charlie Munger himself, my idol, told me, “Whitney, just don’t do it?” Instead, I did it for another 15 years and it was still early. I’d only shorted two stocks in my life up to that point.

Here I am hundreds of stocks later, millions of dollars of losses later. If I was really clever, I would have stopped right then. I would have listened to Charlie Munger.

Editor’s Note: Mr. Tilson has offered readers 20% off on all Kase Learning seminars. Visit KaseLearning.com and use code TC20 to register.

Article by Jesse Koltes, The Charlieton