Killing the Market | Roemer McPhee


Published in: 2016
Amazon | Goodreads

The book is about the American investor Robert W. Wilson who during the 1960s to 1980s competed with Buffett and Soros for the place as the world’s best investor. In 1969, he started the hedge fund Wilson & Associates, where he almost exclusively managed his own money. He started with $15k which he inherited from his mother and had $800m at the end of his life. During his career, he had an annual return of 28%. Before he took his own life in 2013, he donated much his entire fortune to charity.

LONG-TERM TRADER. Unlike Buffett and Soros, Wilson said he was not an “original thinker”. He lived with the phone in his ear with brokers who fed him ideas. He was not an industrial magnate but a player. He saw himself more as a long-term trader than as an investor. Wilson was not interested in shares with a limited downside because then he considered that the upside was usually also limited.

”I would be bored to death simply by living in either the Bahamas or Omaha. So the most important is to enjoy life.”

WILSON’S METH LAB. Wilson knew that the risk was very high in every single position he held. In addition, the portfolio was heavily geared. This meant that there was no room for major accidents – which is why he had to diversify greatly. He likened his process to someone running a meth lab (which is very risky – if something goes wrong, everything can blow up). But if you instead ran 200 separated labs, it did not matter much if some blew up – the others ticked on and gave a good return.

RISK IS THE LACK OF A HEDGE. According to Wilson, risk was an unhedged portfolio. How leveraged the portfolio was had nothing to do with risk. Wilson worked for 30 years with a leverage of around 400% and was always aggressively geared. Overall, he did not create much wealth going short, but the shorts allowed him to earn all the more on the long positions. The short positions gave him liquidity in market crashes. With his aggressive investment style, he also knew that he would not be able to manage other people’s money emotionally – it was enough to master his own feelings.

”There is a great old saying about debt: it requires you to get up in the morning, and go to work.”

A GAME OF PERCEPTION. Wilson believed that the big money was earned by being good at being positioned before the perception of a company changed – both long and short. That’s what he attributes to his excess return. He was classified as a growth investor and tried to get into companies before they became “growth darlings” on Wall Street. In the same way, he shortened “growth darlings” which he considered used aggressive accounting or which for some reason faced tougher times.

“I was always net long no matter how bearish I was since I never wanted to get up in the morning hoping things would be worse.”

AIM HIGH. Wilson set the goal early on to become a billionaire – a high goal if you start with $15k and do not manage other people’s money. He knew it would be difficult, but by setting such a high goal he would be successful even if he did not reach all the way. He has also said that to duplicate his career requires someone who loves money above all else. He has said that the best feeling in the world is to make money – nothing beats it. In the end, he never became a billionaire, his fortune peaking at around $800m.

“My goal is to make a billion dollars. I may not get there; the important thing is to try”

THE THIRD STRIKE. Wilson retired after underperforming the market for three years in a row. He was then in his 60s and no longer as hungry. He believed that if he could no longer beat the index, it was better to become a passive investor and spend his time on other things. After that, he was depressed for a few years knowing that the most exciting time of his life was over. He then applied the “three strikes and you’re out” principle to his life when, as an 87-year-old, he threw himself out of his home on the 16th floor of his building on Manhattan. He had during his last year had two strokes and knew that he did not have much time left. Wilson had no family and left $100m behind.

Leave a Reply