Stanley Druckenmiller
Quick Overview
Stanley Druckenmiller has one of the best track records of all time
He averaged a 30% annual return for over 30 years and didn't have one down year in all that time
Until 2000, he worked for George Soros
They famously bet against the British pound in 1992 and made massive profits
He shut down his $12 billion hedge fund Duquesne Capital Management in August 2010
returning funds to clients
History
Druckenmiller began his financial career in 1977
He was a management trainee at Pittsburgh National Bank.
He became head of the bank's equity research group after one year in 1978.
In 1981, he founded his own firm, Duquesne Capital Management.
In 1988, he was hired by George Soros to replace one of his employees at Quantum Fund, a private hedge fund managed by Soros.
He and Soros famously broke the Bank of England when they shorted the British pound sterling in 1992 making more than $1 billion in profits, in an event known as Black Wednesday.
They calculated that the Bank of England did not have enough foreign currency reserves with which to buy enough sterling to prop up the currency, and raising interest rates would be politically unsustainable.
He left Soros in 2000 after taking large losses in technology stocks
According to Bloomberg News, on August 18, 2010, Druckenmiller announced the closing of his hedge fund "telling investors he'd been worn down by the stress of trying to maintain one of the best trading records in the industry while managing an 'enormous amount of capital.'"
According to The Wall Street Journal, on August 18, 2010, Druckenmiller "told clients that he's returning their money and ending his firm's 30-year run
citing the 'high emotional toll' of not performing up to his own expectations." He indicated it was not easy to make big profits while handling very large sums of money.
Our Lessons from Him
Never Invest in the Present
He explains how when he is making an investment, he doesn’t care about what the company had reported in the past about their earnings for what they are reporting in the present time. What he looks at is where the company is going to be in 18 to 24 months from now. As he says “Too many people focus on the present and neglect the future”.
Top-Down-Method
Unlike other investors, Stanley mostly focuses on macroeconomics. He tries to find events that are going to affect certain stocks and then make bets on them. He calls them asymmetric bets.
Asymmetric Bets
“The principle of asymmetric bets is crucial and connects every investor, despite their different strategies”. As he further continues saying, you only want to invest in unfair bets. Bets where you win a lot when you are right and lose little when you are wrong.
Leveraging
When he bets, he’s very confident and wants to take as much advantage as possible from his gains with leverage.
Diverse Portfolio
Finding opportunities in macro investing can be difficult so you have to look across all types of assets. Stanley often holds multiple asset classes simultaneously.
Mental Flexibility
Besides asset class flexibility, you also need mental flexibility. You need to be able to change your opinion quickly when the facts change. Don’t hold on to a wrong thesis. As soon as you realize the thesis is false, act on the new information.
Our Thoughts
It is very easy to understand that he wants to be nothing but the best at what he does and is very confident in his skills. The place where we found him to prove his confidence the most was when he was leveraging his trades. It’s very easy to talk about your knowledge or say that you are never wrong, but proving them in your actions is another thing. Druckenmiller often made his trades using as much leverage as possible which was unlike any other strategy hedge funds used at the time. Although using leverage would mean you can multiply your profit, it could also mean a multiplication in losses.
As Howard Marks said, “the battlefield here isn’t about somebody who is unafraid, it’s about somebody who is afraid but does it anyway”. We believe this to be very true about Druckenmiller’s thought process as well. Everybody knows that there is no way to predict the future, so no matter how confident you are in your trades, you can never guarantee it. What Druckenmiller decided to do about this instead was to invest in stocks where if his predictions were wrong, he wouldn’t make a huge loss but if he was right, his gains would offset any previous losses.
We believe this to also be one of the very reasons that turned his hedge fund into very successful. Druckenmiller always looks ahead into the future and is always planning on what’s next. This translates into his investments by not just looking at their current value, but also seeing where they would be in one to two years from now. This has led him to return 30% annually for over thirty years without any losses.
What we disagree with was the closure of his firm. He wanted to keep his legacy and close Duquesne without ending his streak of returns. This goes against his confidence in his ability and not giving up. But on the other hand, he had been running it for the last thirty years, during many economic events which could have left an impact on them. So overall, he is a very successful investor that every trader should take note of and truly shows where your beliefs and confidence will take you if you follow them.