Oh, how the mighty have fallen…
Over the past few months, major investment firms have gotten the wind knocked out of them.
Brad Gerstner, founder of tech-focused fund Altimeter said: “If you owned growth stocks this year … you got your face ripped off.”
So, what went wrong?
They forgot to ask a key question that could’ve saved them billions of dollars.
And one of the biggest casualties of this mistake was Tiger Global Management…
Bust to Boom
It’s the best-known of the Tiger Cub investment firms.
Founder Chase Coleman was recruited to Julian Robertson’s Tiger Management in the 1990s.
Coleman was incredibly smart and quickly rose in the ranks from protégé to partner.
And when Tiger Management went belly-up during the dot-com bust, he launched Tiger Global Management in 2001.
Coleman’s focus was fast-growing internet companies.
Once the tech boom picked up steam in the 2010s, Tiger Global began pouring even more money into tech.
It bought into companies like Carvana and Peloton.
And when COVID-19 hit the market, these tech stocks were soaring.
With low inflation and interest rates, they had little in the way of earnings, but were projecting huge growth.
At the time, that’s all investors needed to hear.
And it put Tiger Global in a great spot.
At the end of 2020, the fund was up 48% — with about $10.4 billion in gains.
But it didn’t end there…
Aggressive Funding
In 2021, Tiger Global’s venture capital business had made 361 deals.
And by March 2022, it had raised a $12.7 billion fund.
During the peak, it was funding more startups than any other U.S. investor.
One example was the cloud company, Snowflake.
Tiger Global invested more than $2 billion into it.
That put Snowflake’s market capitalization at around 100X its annual revenue — insane!
But valuations and earnings didn’t matter to Tiger Global in the tech bull market.
And that was a recipe for disaster.
Disaster Strikes
The hedge fund has now lost about $17 billion this year, down 52%.
And its long-term holdings fund — which managed $11 billion — is down over 60%.
Overall, it’s erased about two-thirds of the dollar gains it made for investors since its 2001 launch.
The question Tiger Global forgot to ask is one that Ben Graham — Warren Buffett’s teacher and mentor — says causes “the most dreadful losses”…
And that’s: “How much?”
The bottom line is that valuation always matters.
It’s something Alpha Investors know well, and a lesson that Tiger Global learned too late…
That’s why I only recommend stocks to Alpha Investor when we can get the most value.
The stocks in our portfolio are real businesses with real earnings, free cash flow and cash on the balance sheet.
And we only buy them when they trade below the underlying worth of the business.
If they don’t, we don’t buy. It’s that simple.
Because at the end of the day, price is what you pay, and value is what you get.
Regards,
Founder, Alpha Investor
P.S. Recently, I’ve been telling you how spinoffs are my favorite stock catalyst.
Because they give everyday investors like us an edge over Wall Street thanks to a glitch in the market.
And I just put together a video series on how spinoffs can hand you huge gains — if you know where to look.
You can watch the first one right here. And stay tuned for the next video tomorrow.