Since I first learned of hedge funds, I’ve been fascinated by Julian Robertson and the Tiger Cubs. Of those, one of the most well known is Coatue Management. Coatue famously is very private, but with Philippe sending out his first Tweet (not a comment), I figured it would be a good time to resurface this video and share the transcription I made of it back in 2013.
Part I:
Part II:
Transcript:
Skiddy von Stade (SvS): Hi there, Skinny von Stade, CEO of OneWire, and welcome to Open Door. Today we’re gonna go interview my very good friend Philippe Laffont, who is the founder and CEO of Coatue, one of the most successful technology hedge funds on the street. He’s a great guy. He really knows his stuff. Let’s go see what he’s up to.
Skiddy von Stade (SvS): Today, I’m here with my good friend Philippe Laffont, who is the CEO of Coatue, which is one of the most successful technology oriented hedge funds on the street today. And Philippe you’re also a tiger cub, I believe, as well. You really know your stuff. You have a math and science background. Take us from your, first of all, why did you decide to go to MIT? And did you think you were gonna get into finance? How did you get to where you are today? Yeah.
Philippe Laffont: Yeah. When I was 16, I either did not have the confidence or my parents did not let me go out enough. So I was stuck at home. And I developed the love of computers. And that led me to go to MIT. When I was at MIT, I realized that there were a lot of people that were so much smarter than me that I had to find a new way to repurpose my interest in computers. And when I graduated from MIT, I desperately tried to get a job at Apple Computer. And I interviewed three different divisions at Apple Computer, and I got turned down all three times. Now 20 plus years later, I’ve sort of built our fund, in part, thanks to investing in Apple that’s done so well. So it just shows how sometimes you do get the things that you want, but maybe through a different door. Again, you have to be a little practical and show a little bit of grind. So it wasn’t easy. It wasn’t immediate. The engineering world is very interesting intellectually, but it’s not where you’re going to necessarily find the most… sort of… not interesting, because the people are very interesting, but animated. And it’s sort of a culture engineering where a lot of stuff you create on your own you work late at night, this was just not for me. There are some unbelievable tech investors that also have not studied tech. So I’m not sure whether having studied technology and investing in it, if it helped most PhDs would be great investors, and thus, we would all be put out of business. I think the PhDs are much smarter than us. But investing… it’s about… I think it’s a different set of skills.
SvS: Okay. From MIT, did you immediately go to Tiger, or what was your path?
Philippe Laffont: After MIT, I spent some time at McKinsey. The career advice that I would have for people is you need to do two things when you graduate. You need to do them both passionately. You need to do one thing passionately that is the obvious thing that you’re supposed to do after you graduate. So if you want to go in business, going to Goldman Sachs, or Morgan Stanley or McKinsey is probably an obvious one. But then really dedicate your wealth for two or three years to take and learn the most that you can from there. At the same time you do that, in my mind, you need to do one thing completely off the beaten path, but also passionately, because some things come through the regular channels, also some things come through completely different channels. You never know. So in my case, I was at McKinsey for three years. I fell in love with a beautiful Spanish woman who’s now my wife, and she did not want to move to the US immediately. So I was stuck for one year in Spain doing nothing. So I went to work for her families. And of course, that didn’t really pan out. But I had nothing to do because the uncle put me in an office in the basement and so I got stuck here. And so I started buying the Herald Tribune and reading stocks. And the way I would find out about stocks is literally the next day the Herald Tribune, I would find out what the price of stocks were. And my brother and I started buying stocks in the blue chips, Microsoft and Dell, whatever they were in the mid 90s. Dell. And at that time, we just bought companies that we knew a bit like Peter Lynch said, and we were incredibly lucky that we started a period of time where the market was up 50% every year. So of course our stocks were going up. We confused luck with skill. But nevertheless, it gave us the passion. And then I said that’s it. Stocks, tech, it works. And I came back to look for a job in the US. But let me tell you, if the market had gone down the three years that I did this, I would have for sure given up and done something else. So the luck is very important. And also being able to try different things, you don’t want to spend too much time doing something obvious. But you also don’t want to have your resume full of like you spent two months here one year there two years there and like the guy looks at your resume and says, Wait a minute, you’ve been a bit everywhere. Your career is too scattered, right? So you need to show the appropriate amount of commitment, but also creativity. I would try to find a way to do a bit of both.
SvS: Well listen, that’s hugely helpful. In terms of, you worked at McKinsey, and then, when did you get into the hedge fund space?
Philippe Laffont: After McKinsey, and after my sort of one year of bubbling around in Spain, I came back to the US. And I looked for a job. And I couldn’t find a job because it was harder. I arrived in New York and I knew nobody. And then, I got a job at a mutual fund, very small mutual fund, where I worked for free. But while I was there, somehow I went to a conference, met someone so I sent my resume to Tiger. But since they saw that my resume was MIT, they sent me to the IT department to fix the computers. The IT department said they don’t need me. So the first letter I got said, we have no space for you. But you have a wonderful resume. Thank you. And then by pure luck, through another coincidence, a friend of a friend knew the founder. And I got to meet him for two minutes. And he sent me off to some of the analysts and I got to interview there. And somehow I managed to get the job.
SvS: And what was it like meeting with Julian Robertson?
Philippe Laffont: The first meeting was very brief. But I went straight to the point, he said, What do you want to do? And I said, I want to work for you. I know about technology. And I want to pick tech names. And I was so direct to what I wanted, I gave him no choice but to sort of say, Okay, fine, I’ll introduce you to the people who are my tech guys. I think that when someone opens a door for you, and you will, everyone in life will have a few times doors open. You have to come to that meeting prepared to achieve one thing. For me, I knew I would only speak to him for 60 seconds. I was like, This is what I want. Yeah, I went straight for it. Because if you’re like, hey, great to meet you, yes. Tell me more about your company. There’s too many ways that he can just brush you out.
SvS: And so you ended up going to tiger, which was obviously one of the best hedge funds out there on the street. And how many years were you there?
Philippe Laffont: I was there for three and a half years. And enjoyed every minute of it. And he’s obviously done so well at Tiger, after Tiger. He’s an amazing mentor and amazing person. And it’s one of those, again, what, I mean, most of my business today is in part due to the fact that I had started working at Tiger before.
SvS: That’s great. Now listen, Julian is a fantastic guy. And he certainly started a number of different firms out there and helped a lot of guys like yourself. If you could give us a little background as to your investment philosophy and strategy, that would be awesome.
Philippe Laffont: Sure. Well, I started go to in 1999. And it wasn’t an easy ride to where we are today. We started with $50 million dollars in 1999. And the NASDAQ was at 4000. And then one month later, it was at 5000. So February 1, 2000, the NASDAQ was at 5000. In 2003, the NASDAQ was at 1300. So in our first two years, the NASDAQ went down 80%. And I just say that and I’ll get back to the investment philosophy, because in your professional life, you’re gonna more than once come across something that goes absolutely the opposite way of what you were hoping and the only people who, sort of things go their way all the time, is the sort of the one in the million guy who also wins 300 million bucks in the lottery. They will be the one person who by luck, his roommate founded Microsoft, and he’s part of Microsoft from the beginning, right? But for the average person, you have to be ready for the fact that things are not going to be as expected, and how do you prepare yourself to deal with the unexpected? Back to the question around the investment philosophy, like many people at Tiger, for us the key to investing is thinking about how can a company perform three to five years out? What can be great investments over three to five years? Not focused so much on the short term. Try to see the forest from the trees. Think about the long term. Few people in the market think about the long term. And that’s our edge. It’s sort of patience and a longer term thinking.
SvS: And you guys are long-short, how do you how do you go about picking short stocks?
Philippe Laffont: The long side is hard, because, again, you’re sort of like trying to project what could happen five years out and come back. And it’s really hard to prove something in life. It so happens that it’s much easier to disprove things. And in fact, some of these little math problems, that when you go to prove is that you disprove that the opposite is possible. Therefore, you’ve proved the problem in the first place. So for instance, on the short side, if you find a company where the stock’s gone from one to 100, and the company has one product and two customers, and the CEO is selling a lot of shares, you’re like, hmm, you know, maybe that’s a good telltale. And if there’s enough red flags, sooner or later, it’s like a sandcastle. If there’s too many bad pillars, sooner or later, the castle crumbles. So the short side is more about pattern recognition, and seeing a lot of odd things. And if there’s enough odd things that leads you to believe the company is wrong. There’s a second type of shorts, which is the opposite of your long, which is, if Google does really well, the Yellow Pages are probably not gonna do well. If Apple does really well, that’s probably not great for Nokia Rim. So that’s the sort of the thesis anti-thesis, winner loser. But there’s a whole big other groups of shorts that are more sort of like strange anomalies that you have to pick.
SvS: Philippe, you hire a lot of people here. You don’t hire a lot of people, but you do hire a few. What is it? What’s the DNA of somebody that you sit there and say, you know, this guy is perfect, this woman’s perfect, gotta hire her.
Philippe Laffont: The first… we don’t have a lot of time. We have a couple people that work on this. We get a lot of resumes and stuff. So the first one is we obviously screen according to the education. If you’ve gone to a better school versus not better school that makes a difference. The second one is that on Wall Street, there’s sort of a true and proven way to succeed when you’re young. Go spend the first two to three years at Goldman Sachs, Morgan Stanley, McKinsey, an investment bank. There’s so many people right now who say, oh, working on Wall Street, you’re not gonna learn anything, you’re not adding any value. I disagree. Wall Street is a very competitive environment full of smart people. And if you can start your career in a competitive environment full of smart people, you’re gonna learn a lot. And you can choose to carry those skills, whether you want to work at a large corporation, whether you want to create your own small business, whether you want to go to Silicon Valley, create a tech company, it doesn’t matter. But what a great training ground. In fact, if you spent some time at Wall Street when you’re young, you may not even need to go back to business school. It’s that good of a training. So I would encourage people, despite the fact that now it’s much less in Vogue, is go spend two or three years with a bunch of competitive, high testosterone people, see if you like the environment. And then after that, while you’re there, like when I graduated, I have no idea what’s the difference between M&A, proprietary trading, sales, equity, Private Wealth Management, all these things, like I didn’t even know one of them. If you spend your two to three years there, you’re going to know what all these areas are, you’re going to figure out what you’re interested in, what you’re good at. And then there’s ways to migrate from that. I think it’s hard to start right after college in a hedge fund, and that you need some training before. And also, if you’re the hedge fund, you want to make it there when you have the best training possible so that your chance of succeeding is good. But imagine that you don’t know anything. And the first two investment funds or mutual funds or private equity you go at, you sort of you don’t really learn anything. But then after a while, we like oh, you had a chance to work here, here, and here. And it didn’t work out, you know, what are you? I think it’s much better to prepare yourself in a large company, so that the smaller the company is and the more entrepreneurial it is, the more incredible the opportunity is, but the most prepared you have to be. People don’t expect you to be prepared at JPMorgan on day one. But when you come to a small company, you have to be up and running because we don’t have as much time to train people. We expect them to be already productive.
SvS: Yeah. Well, Philippe, listen, really appreciate your time. You’re a very busy man. Philippe Laffont, CEO of Coatue. Thank you so much.
Philippe Laffont: Thanks.
Kinetic Energy Ventures 