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Robert Wilson: the world’s greatest investors
Robert Wilson's investment strategy was risky, says Matthew Partridge. But it paid off in the long run.
Robert Wilson was born in Detroit, Michigan, in 1926. After studying at Amherst College and the University of Michigan, he took a job as a stock analyst. In 1958, he received a gift of $15,000 from his mother, which he invested in stocks. He continued to work on Wall Street, but by 1970 he'd retired from managing other people's money to focus on his own. By 1986 he had invested his fortune and turned to philanthropy.
What was his strategy?
Wilson focused on buying growth shares, which he thought had more upside potential. To ensure he wasn't wiped out by a fall in the market, he took short positions in companies that he felt were overvalued. To boost returns, he employed large amounts of leverage, getting around stockmarket rules on margin by borrowing from overseas bankers rather than from brokers.
Did it work?
Wilson's $15,000 investment (worth around $123,000 in today's prices) swelled to $230m ($497m) by 1986, an astounding 40% annual rate of return over 28 years. His wealth would peak at $800m in 2000, which means that over 42 years his net worth grew by 30% a year. He pledged to give away $560m, and by his death in 2013 he had given away a further $700m.
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Wilson made several good bets, including one on data firm Compaq. He also made a huge amount of money from shorting oil stocks in 1980. However, he is best remembered for one of his few investment disasters. From 1976 to 1978 he began aggressively shorting casino Resorts International. Resorts investors decided to buy up shares in their company, at the same time as the stockmarket boom began, pushing up the price from $16 to $180. Wilson was eventually forced to cover his position at $187, costing him $42m, though hedges reduced the loss to $14m.
Shorting shares is extremely risky, as Wilson found out the hard way with Resorts International. Using leverage is also something that can badly backfire. However, it also has the potential to produce huge returns, provided you are willing to deal with huge risks. While growth tends to underperform value over the long run, it can also be more tax-efficient under certain circumstances. Wilson's success shows how compound interest can transform a relatively small sum of money into a huge fortune.
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