go on my own.’” Root explained the names that he worked on... from getting into Visa (V) at the IPO – up more than 1,600% today – as well as dozens of successful shorts like RadioShack and Lehman Brothers – both of which have since bankrupt. “And he didn’t say yes, but he didn’t say no. Instead, he said, ‘Well listen. Why don’t you go find a partner? And if the two of you can convince me, then we’ll think about it.’” SEVEN BUCKS TO $300 Root called his Stanford friend, David Rockwell. “David was really smart. And we both had private-equity backgrounds and knew the credit markets – both from my experience at Blackstone, and his at King Street Capital which was more credit-focused, fixed-income-focused. And so ultimately, Julian said ‘yes’ and gave us $25 million, which was the high end of his typical deal.” That’s when Root met dozens more heavy hitters... Every other Tuesday,
MAKING 40% BEFORE LOSING 50% DLH Capital was started by David Henle, the former head of global-wealth management at Goldman Sachs. “But his focus and expertise was financials,” says Root. “So I helped round out other things – I mostly ran the non- financial book and the shorts. “Believe it or not, we were up 40% in 2007. Because although the U.S. was cracking, we were long a lot of emerging-market financials – our biggest position was the largest investment bank in India. But if you look at the chart, the decade high in that stock was December 31, 2007... and we were down more than 50% in 2008. “I remember having meetings with Julian to discuss DLH’s change in performance. And he’d say, ‘Well David, what exactly are you trying to do? Why aren’t you hedged?’ And David would point to a lot of the shorts that I had recommended.” But the problem was, Root explained, position sizing. The shorts weren’t big enough
to make up for all the huge longs that were collapsing. “That’s one of the biggest things I learned at DLH – position sizing really matters. Yes, you can be right on your trade... but have the wrong size and produce weak returns.” “So I went to Julian, and said, ‘I’d like to
“ Position sizing really ÂããØÜʈxÜʃúÊèà ث¢¨ãÊÃúÊèØãØʈʈʈèã have the wrong size and produce weak returns.
as a part of taking money from Tiger Management, Root would attend idea lunches on the 48th floor of 101 Park Avenue with folks like Chase Coleman of Tiger Global Management, Andreas Halvorsen at hedge fund Viking Global, Lee Ainslie
American Consequences
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