Our next member of the Masters of Finance series is hedge fund manager Robert Wilson. Wilson & Associates was not the first hedge fund (that is reported to be Alfred Jones) but was one of the early pioneers in the space.
While Wilson was a great investor, he will probably be remembered for two other things-his enormous charitable donations and, unfortunately, his suicide. This was accomplished by jumping from his 16th floor apartment on Central Park West in Manhattan in 2013 at the age of 87.
There are stories of stock brokers who committed suicide following the stock market crashes of 1929 and 1987 (though these are largely myths) by the same method as Wilson, jumping out of a building. Legendary speculator Jesse Livermore, who famously made a fortune shorting stocks during the stock market crash of 1929, also took his own life years later. This terrible consequence may be attributed to the fact that an investor can easily (and quickly) lose all of his money with one bad trade if they aren’t careful. It can also happen even if you are careful.
Wilson suffered none of these same financial setbacks but had recently suffered a stroke, which may have been a contributing factor.
Robert Wilson Background
Wilson was born in Detroit in 1932 to a middle class family. His father was in the insurance business, which probably gave Robert his keen eye for risk. Wilson graduated from the University of Michigan with a Masters in Economics degree in 1947.1 He subsequently began a law program at the school but left to begin working. In 1951, Wilson was drafted into the army during the Korean War.2 Upon returning, he worked as a securities analyst at various firms before opening his hedge fund Wilson & Associates in 1969.
Robert Wilson isn’t a huge name in financial circles, and doesn’t have the same recognition today as managers like Warren Buffett, Paul Tudor Jones or Ray Dalio. At Wilson & Associates, he traded both the long and short sides of the market (like a hedge fund manager is supposed to do, hence the moniker). But he is remembered as a famous short seller. Despite being an active short seller, he says he was still always ‘net long’ in his fund.3
He could be more aptly labeled an infamous short seller because of one disastrous short sale he had in 1978.
The Short Debacle (H3)
The trade involved borrowing the shares of the hotel chain Resorts International and selling it short into the market. In 1978, Resort’s share price had reached $15. The stock was previously a penny stock and had run up all the way from 70 cents per share after it built the first casino in Atlantic City. That 2,042% run is what surely attracted Wilson to the short idea.
Wilson wasn’t sold on the popularity of gambling in Atlantic City so he shorted shares around $15. But the stock had much more to go, eventually reaching a high of $190 later that year. According to Wilson, it cost him $20 million.4
You may be wondering after such a debacle, why is he in our ‘Masters of Finance’ series? Amazingly, his overall account was still up 25% for the year, including the Resorts fiasco.5 Wilson shut down his fund in 1986 and retired. At that point, the original $15,000 he started with in 1949 had grown to roughly $200 million.6 Still, his personal wealth continued to grow, at one point during the technology boom reaching $800 million according to Business Week.7 But the reason for inclusion is his untiring philanthropic work.
Other Famous Short Sellers (H3)
There have been famous short sellers in history, including. Joe Kennedy, patriarch of the Kennedy clan, is reported to have contributed to the family’s fortune by short selling stocks, including Paramount Pictures, around the time of the Crash of 1929.8 There are also more modern examples such as John Paulson, Jim Chanos and Steven Einhorn, the one-time boss of Meredith Whitney at Oppenheimer.
Michael Burry is considered the king of this generation of short sellers’. He was not technically a short-seller, he used a different bearish strategy involving derivatives. Specifically, Burry purchased credit default swaps on mortgage backed securities and collateralized debt obligations (pools of MBS). These products are not available to all investors, mainly institutions or sophisticated, high net worth clients.
As an institutional investor for his tiny hedge fund Scion Capital (named after a favorite science fiction book series Burry read as a kid) he had access to partake in particular trading arrangements with investment banks including Morgan Stanley.
Burry’s fund made somewhere in the neighborhood of $750 million on the trade.
Robert Wilson’s Charity Work
Wilson gave large donations to conservation groups including the World Monuments Fund, the Environmental Defense Fund, the Nature Conservatory and the Wildlife Conservation Society.
Wilson was also a major donor to Catholic schools, despite the fact that he was an “openly gay atheist” according to the New York Times.9 He felt Catholic schools offered better educations than the New York City public school system.
What made his philanthropy so note-worthy, aside from the vast sums, was that he was instrumental in developing the “matching” system so common in philanthropy today. In fact, matching donations was usually a contingency with his gifts.
For example, Wilson’s $100 million donation to the World Monuments Fund was matched by others, which he orchestrated, and totaled $300 million when it was all said and done.10
Wilson was also a big opera fan, serving on the Boards of the New York City Opera and Metropolitan Opera.
Wilson was known for being quite thrifty with his money (the New York Times dubbed him the “frugal philanthropist”).11 According to their article, despite astounding personal wealth, Wilson would often take the subway instead of a cab. And if he had to take a cab, he would try and split it with other wealthy residents from his building.
Wilson reportedly stated “the worst thing you can do with money is spend it”.12
But this trait served many beneficiaries well. According to a Bloomberg news article, Wilson gave away more than $500 million of his own money to charities.13 That number was provided by Gary Castle, Wilson’s accountant.
Charitable giving is also catching on among those with more modest wealth. Popular personal finance experts like Dave Ramsey and Rachel Cruze encourage giving money as part of their personal finance journey. They spread their message through many churches which offer parishioners Ramsey’s ‘Financial Peace University’. Religious organizations have a long history of donating money to a variety of causes, most notably poverty.
Robert Wilson will certainly be missed. But his legacy continues through his generous contributions which will last much longer than the memory of his investing successes.