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Whitney Tilson wants to help tomorrow's hedge fund managers avoid his mistakes

Julia La Roche

Former hedge fund manager Whitney Tilson, who identifies as a value investor, says there’s not a lot of room for young hedge fund managers to make mistakes these days.

“It’s a tough environment, to be sure,” Tilson told Yahoo Finance in the video above. “Hedge funds, in general, have been underperforming in this bull market. And if anything, that’s why I think young people, who are thinking about getting into the business, need more than ever to have the experience and not be making any mistakes because there’s not a lot of room for error. It’s been a very tough market for value investors, in general, and honestly, I couldn’t figure it out.”

Tilson, 51, closed his hedge fund, Kase Capital, in September after nearly two-decades in the money management business, citing sustained underperformance amid a market characterized by high prices and complacency. Now he’s beginning his next adventure, this time teaching investing to the next generation through a new venture called Kase Learning.

“I love the business, and I feel I want to give back and teach other people all the lessons — both the things I did right and the many things I did wrong. I’ve got a lot of scars on my back,” Tilson said.

Kase Learning will offer three programs. The core program is a bootcamp called “Lessons from the Trenches: Value Investing, Entrepreneurship & Life.” The second is a conference dedicatedly to short-selling with speakers like David Einhorn of Greenlight Capital, Carson Block of MuddyWaters Research, and Andrew Left of Citron Research. He’ll also host a one-day seminar on how to launch and build a hedge fund.

In 2017, hedge funds, on average, delivered returns of 8.5%, the best year for performance since 2013, but still lagging the S&P 500’s 21% return. Last year, approximately 618 hedge fund liquidated, while 545 launched, according to data from HFR. Meanwhile, assets continued to flow into the hedge fund space, with total estimated assets surpassing $3.15 trillion.

Former hedge fund manager Whitney Tilson speaks to Yahoo Finance’s Julia La Roche about his new business, Kase Learning.
Former hedge fund manager Whitney Tilson speaks to Yahoo Finance’s Julia La Roche about his new business, Kase Learning.

Value investors have been vocal about their struggles

On Tuesday, Greenlight’s David Einhorn said it’d been a “challenging environment” for this investment style.

“Despite it being a good year for the market, it was a challenging environment for our investment style,” Einhorn wrote in an investor letter dated January 16. “We do not mimic any index and we think ‘outside the box.’ We have a value orientation and we take comfort from the margin of safety afforded by the low valuations of our long investments. Though most people understood our last quarterly letter as tongue-in-cheek and while we certainly don’t believe value investing is dead, it is clearly out of favor at the moment.”

Tilson, who navigated the global financial crisis in 2008, said he became skeptical of valuations during this bull market and found himself sitting on too much cash and had a short book that hurt him causing him to “throw in the towel.”

“I’ve got a lot of lessons learned I want to share with the next generation,” he added.

Looking back, Tilson said he doesn’t have many regrets. He noted that he was better in his early years when he didn’t take macro views.

“What I did very very well for more than ten years — very successful first ten years — was I had no opinion on the market, no opinion on valuations, and I just went out and found ten or fifteen great stocks on the long side and wasted almost no time on the short side, no time having macro views, and that’s when I was just doing well just sticking to being a very plain vanilla stock picker, and I was good at that.”

Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.