Stanley Druckenmiller

Passion

“I was an English major my first two years, I wanted to be an English professor.   My first semester in my junior year I took a course in economics so I could read the newspaper because I wasn’t very good at it even though I was supposed to be an English major.  I fell in love with the subject and crammed an economic major.  I took 18 of my last 21 courses were economics courses or something absurd like that.  Then I wanted to be an economics professor.   I also have a drop-out in my genes.  I went to get my PHD at Michigan and I lasted a semester and a half and dropped out, and went to work in construction for six months”

Number one, passion. I mentioned earlier I was passionate about the business. The problem with this business if you’re not passionate, it is so invigorating to certain individuals, they’re going to work 24/7, and you’re competing against them. So every time you buy something, one of them is selling it. So, if you’re with one of the lazy people that are just doing it for the money, you’re going to get run over by those people.”

“I love what I do. I do it because it’s fun

“I’d list a number of reasons why I think I had the record I did because maybe you can draw on it in some of your own investing or also picking a money manager. Number one, I had an incredible passion, and still do, for the business.”

Intellectual Honesty

“A big part of my process is taking signals from markets. I’ve always believed markets are smarter than I am. They send out a message and then if I listen to them properly, no matter how powerful my thesis, if they’re screaming something else, it’s telling me you’ve got to re-evaluate, you got to re-evaluate it, and you go back to it, and if it’s still all right, fine. You have to be open-minded

“The other thing I look for [in a money manager] is open-mindedness and humility.  I have never interviewed a money manager who told you he’d never made a mistake, and a lot of them do, who didn’t stink.  Every great money manager I’ve met, all they want to talk about is their mistakes.  There’s a great humility there”

“Probably one of my greatest assets over the last 30 years is that I’m open-minded and I can change my mind very quickly.”

“When you’re betting the ranch and the circumstances change, you have to change, and that’s how I’ve always managed money.”

“If you make a big bet, be open-minded, if the situation changes, you must change.”

“One of the reasons of my success was open mindedness to various asset classes. It gives you the discipline to not play when you shouldn’t be playing. If you look at bonds, currency, equities and commodities, if you are involved in a whole bunch of different asset buckets and open-minded you tend to only play when you should.” 

“The first thing I’d say very clearly, I’m no genius. I was not in the top 10 precent of my high school class. My SATs were so mediocre I went to Bowdoin because it was the only good school that didn’t require SAT’s and it turned out to be a very fortunate event for me”

“I’ve always believed markets are smarter than I am. They send out a message and then if I listen to them properly, no matter how powerful my thesis, if they’re screaming something else, it’s telling me you’ve got to re-evaluate, you’ve got to re-evaluate

“If you’re early on in your career and they give you a choice between a great mentor or higher pay, take the mentor every time.  It’s not even close.  And don’t even think about leaving that mentor until your learning curve peaks.”

Concentration/Diversification

 “At a lot of business schoolsthey teach a lot of nonsense called risk-adjusted returns and diversification

“I think diversification and all that stuff they’re teaching at business school today is probably the most misguided concept anywhere.”

Diversification is the most destructive, over-rated concept in our business. Look at George Soros, Carl Icahn, Warren Buffett. What do they have in common? they make huge concentrated investments. You need ruthless discipline. If the reason you invested changes get the hell out and move on.”

“I don’t believe in hedging, I think it’s a very destructive concept. If you think you have too much risk in portfolio, the last thing you want to do is add S&P shorts etc. When you get into chaos, historic correlations break down and you want low gross in your portfolio.”

“Myself as a practitioner, I like to make very large bets, very concentrated bets when the ducks are lined up and I can analyze it. If you can analyze Donald Trump more power to you. I’ve been more wrong-footed by this guy and shame on me.”

From Soros

“Soros is the best loss taker I’ve ever seen. He doesn’t care whether he wins or loses on a trade. If a trade doesn’t work, he’s confident enough about his ability to win on other trades that he can easily walk away from the position. There are a lot of shoes on the shelf; wear only the ones that fit. If you’re extremely confident, taking a loss doesn’t bother you.”

“And then I read The Alchemy of Finance because I’d heard about this guy Soros. And when I read The Alchemy of Finance, I understood very quickly that he was already employing an advanced version of the philosophy I was developing in my fund.”

“Following Soros’s practice too, Druckenmiller stayed in touch with company executives, reckoning that on-the-ground stories from firms could provide early warning of trends in the economy.” –Sebastian Mallaby

Fed/Interest Rates

“The Federal Reserve was founded in 1913. This is the first time in 102 years that the central bank bought bonds, and that we’ve had zero interest rates, and we’ve had them for five or six years. So, do you think this is the worst economic period looking at these numbers we’ve been in in the last 102 years? To me it’s incredible.”

“In 1981 the public should have seen Volcker’s jacking up of short-term rates to 21 percent as a very positive move, which would bring down long-term inflation and push up bond and stock prices.”

“It’s very clear to me – but not the Fed, and they’ve got the PHD’s and not me –that you need a hurdle rate for investment. And if you don’t have a hurdle rate for investment, bad things happen.”

Technical Analysis

“I never use valuation to time the market. I use liquidity considerations and technical analysis for timing. Valuation only tells me how far the market can go once a catalyst enters the picture to change the market direction.”

“I do believe in the black magic art of technical analysis.”

“The price signals I learned how to read, and learned how to listen to, certainly don’t work like they used to.”

Liquidity is a moving animal. Things can be very liquid and three weeks later there can be no liquidity whatsoever.”

Markets/Companies

“If you really want to understand an industry, look at every company in that industry

“The crowd is usually wrong on the market.”

“We just talk to companies, some companies lead the cycle and some companies lag the cycle. You don’t really like to talk to the CEO’s you talk to the purchasing managers.”

“The number one principle would be do not look at the world today, what’s happened in the past and happening currently, is in the price. Try and think how the world may look differently in 18-24 months from now and try and base your investments on that and not what’s true today. It’s amazing what that single little exercise can do”

“Someone I believe used the term a few years ago ‘This was a beautiful deleveraging taking place.’ I have no idea what he was talking about.”

“We are in a bear market in politics. There’s no question, in every country across the board. You’ve got this populism & protectionism. I don’t care what they say, you’re not going to tell me that protectionism is as good as free trade, I just don’t believe it

“I focused my analysis on seeking to identify the factors that were strongly correlated to a stock’s price movement as opposed to looking at all the fundamentals. Frankly, even today, many analysts still don’t know what makes their particular stocks go up and down.”

Trading

“If you think we have a big problem coming just get out. There’s nothing wrong with preserving capital, having zero money.  Don’t compound it by putting some silly hedge on.”

“You need ruthless discipline

“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” Stan Druckenmiller

“At the end of the year, psychologically and financially, you reset to zero. Last year’s profits are yesterday’s news.”

“I’ve never made a buy at a low that I didn’t just feel terrible and scared to death making it. It’s easy to sell at the bottom. You can go home that night and it relieves you of your nerves. When things are going down it’s hard to buy them.”

“I like to be very patient and then when I see something, go a little bit crazy.”

“You need a certain amount of intelligence, but it’s wasted over a certain level. After that, it’s more intuition.”

“I’ve done well in bear markets. I’d love to sit here and tell you I made it shorting stocks. It’s always very difficult in a bear market. They don’t trade with rhythm, you get these vicious rallies, you get squeezed out of shorts and people play all sorts of games. I always made it in Treasuries, because Treasury yields would go down dramatically.”

Managers

“The other characteristic I look for in a money manager is when I look at their record, I immediately go to the bear markets and see how they did.  I want to make sure I’ve got a money manager who knows how to make money and manages money in turbulent times, not just bull markets.”

“Bulls make more than bears, so if anything, be an optimist about life and about things in general is a great attribute as an investor. You just can’t be starry eyed and naive.”

“You just can’t have two cooks in the kitchen; it doesn’t work.” Stanley Druckenmiller

“If you’re managing money, you must know whether you’re cold or hot. And in my opinion, when you’re cold, you should be trying for bunts. You shouldn’t be swinging for the fences. You’ve got to get back into a rhythm.”

“Every great money manager I’ve ever met, all they want to talk about it their mistakes. There’s a great humility there.”