Lone Pine Capital LLC was founded in 1997 by Stephen Mandel and is based in Greenwich, Connecticut with satellite offices in London, Hong Kong and New York. Lone Pine Capital LLC is a privately owned hedge fund sponsor which invests in the public equity markets across the globe. From its initial, humble launch with $8 million, the fund has today established itself as a “mega fund” with $20 billion in assets under management and an estimated personal wealth of $1.5 billion for Mr. Mandel. The fund has consistently beaten the S&P 500 index by over twenty percentage points since its inception.
To understand the fund’s success one has to look no further than at the investment philosophy of its founder and managing director, Stephen Mandel. On paper, Lone Pine Capital is a classic long/short equity hedge fund employing fundamental analysis together with a bottom up stock picking approach to formulate its portfolio. However, its Mr. Mandel’s acumen and singular approach towards fundamental analysis — Seth Klarman once described him as a “fantastic analyst” — that separates Lone Pine Capital LLC from the generic pack.
Mr. Mandel is neither a value nor a growth investor, per se, but uses both methodologies to configure his own strategy. He seeks out good businesses run by good people, with stock valuations which he reckons to be lower than their intrinsic value. Now, since the long/short equity strategy involves mainly investing in stocks, and its ilk, the strategy is more exposed to global macro events and these funds are prone to experience higher movement in their positions due to the cyclical nature of the market.
Most believe that Mr. Mandel’s success can be imputed to his methodology of “bottom-up” investing that plays down the impact of macroeconomic events and indicators, and his focus on the fundamentals of the business in question. Mr. Mandel believes in conducting a thorough fundamental analysis of the business to decipher and understand its practices, operations, and future growth. This is the time between dog and wolf, making the final stock selection and deciding whether to long or short. And here is where Mr. Mandel’s aforementioned acumen comes into play and unlike most managers, Mr. Mandel deftly moves in and out of positions relying on his strong judgments and quick decisions. His holdings in Citigroup and Schlumberger are prime examples of Mr. Mandel’s dexterity.
After graduating from Dartmouth College, Mr. Mandel enrolled in the MBA program at Harvard Business School. In 1982, upon completion of his MBA he started his financial career as a consultant for Mars and Company. By 1984, he had honed his networking skills and proved his financial prowess enough to join Goldman Sachs as a mass-market retailing analyst. Mr. Mandel spent the next six years at Goldman Sachs learning market trends and digging deep into the financial sector. In 1990, Mr. Mandel left Goldman Sachs to work for Tiger Management, where the legendary Julian Robertson took him under his wing. After successfully serving for seven years as a managing director and consumer analyst, Mr. Mandel went solo, with of course Mr. Robertson’s blessings, and launched Lone Pine Capital LLC. He was by now a bona fide “tiger cub”, an illustrious nomenclature in the financial world.
Mr. Robertson not only left an indelible mark on Mr. Mandel’s investment philosophy, but also helped Mr. Mandel make his own mark in the corridors of finance. Mr. Robertson’s approach keenly observed cyclical movements of the market to make major stock purchase decisions based on those cyclical movements. However, Mr. Mandel did not share Mr. Robertson’s ideology in its entirety, but begged to differ and carved his own exclusive methodology. Even though Mr. Mandel took into account the cyclical movements in the market, he juxtaposed the movements with a bottom up investment approach. Patterns of individual stocks became of greater significance to him over shadowing macroeconomic events and indicators. He studies each company and its market trends to fully comprehend the dynamics of each company. He buys stocks in established companies and deals with them at a micro level.
Mandel cycles are difficult not only to comprehend but to study as well. Even though Mr. Mandel does his due diligence, he believes that it is safe not to give too much importance to minutiae as it can saddle one’s decision. He is a fast and unpredictable trader, and seems to follow a formula for balance where his reduction is immediately matched by another buying. To fully understand Mr. Mandel’s investment methodology and success as a market player, his top investments must be examined to understand his mechanism of establishing balance. His top five investments are in: Citigroup, Yum Brands Inc, Schlumberger, Apple, and Cognizant Technologies.
Mr. Mandel has been revered as a very swift player with alertness on the brink of all depths and abysses* of the market. He does not hold many stocks for very long. It is safe to assume that most of his trading is very hard to gauge on a trend curve due to his constant unpredictability. The most prominent example of this can be derived from his management of Apple shares. In 2006 he had 3 million Apple shares valued at $85 per share. He sold 1.5 million of these shares between April and June 2007 at $120 per share. Upon reaching $150 per share, he sold another quarter million shares. As soon as it hit $200 benchmark, Mandel reduced his shares significantly to 600,000 shares. However, when Apple shares went down to $140 in 2008, Mandel unexpectedly added a round of 2.3 million shares in March 2008. He sold them by June 2008. He abstained from Apple for a year till he purchased 3.1 million shares again in Q3 2009. It was worth $190 per share at that time. Again when the shares increased in value to $210, he reduced his holdings by 500,000. He sold another 300,000 by March 2010. By Q2 2010, he again followed his cycle and purchased 350,000 shares.
Apart from being the Magister Ludi of the financial world, Mr. Mandel is also recognized for his civic and philanthropic involvement, in particular his commitment to educational institutions and causes. His loyalty to his alma mater is obvious in not only that he sits on Dartmouth’s college board but that he even named his hedge fund after, according to lore, a Dartmouth pine that survived a 1887 lightning strike! He is also a co-chair of the $1.3 billion Campaign for the Dartmouth Experience and founder of the Lone Pine Foundation which helps distressed families in NYC. Furthermore, he is a trustee of Teach For America and a member of both the Council on Foreign Relations and the Harvard Business School Board of Dean’s Advisors.
*Herman Hesse: “The Glass Bead Game”
On fixed income: ”Heads I win very small, tails, I lose very big.”