Stanley Druckenmiller - Soros associate and one of the best traders

In today's text, we will present the history of one of the most outstanding investors in the world, as he is Stanley Druckenmiller. Currently, his fortune is around $ 5 billion. He is an investor who has gained publicity in the mainstream media as a leading Portfolio Manager in the famous Quantum fund, belonging to Georg Soros. However, the history of this investor is much more interesting. We invite you to read!

Childhood and education

Stanley Freeman Druckenmiller was born on June 14, 1953 in Pittsburgh, Pennsylvania. His father, Thomas Druckenmiller, was an engineering chemist. After his parents divorced, he moved to Gibbston with his father. In 1975 he graduated from Bowdoin College, where he studied economics and English. While studying, he became friends with Lawrence B. Lindsey (who later became the economic adviser to President George W. Bush). After college, he enrolled in economics at the University of Michigan. He left his education in his sophomore year after getting a well-paid job as an analyst at the Pittsburgh National Bank.

Career in finance

After a year of working in a bank, he became the head of banking "equity research" where he was responsible for analytical coverage of listed companies. At the beginning, he was involved in the analysis of companies from the raw materials and trade sectors. He was a brilliant analyst and quickly gained the trust of his superiors and clients. However, after 3 years, in 1981, he decided to set up his own company - Duquesne Capital Management.

At the same time, he continued his career in finance. In 1985 he became a consultant at Dreyfus. This resulted in him living between Pittsburgh and New York for a year. After a year, he decided that such a life was meaningless and decided to move permanently to New York. In 1986 he became the boss Dreyfus Fund. Despite working at Dreyfus, Stanley was able to continue working at his own company, Duquesne. 

Working for Soros

George Soros. Source: wikipedia.org

His success in the field of investment saw him be bought by Georg Soros. Stanley's job was to replace Victor Niederhoffer in Quantum Funds. This job was the key to gaining popularity. Together with Soros, they became the people who "They broke the Bank of England". They made $ 1 billion in action against the pound sterling. Additionally, it caused the pound to leave the ERM (European Exchange Rate Mechanism). In the following years, he continued to work for Quantum, but no transaction caused such emotions in the media. 

Stanley Druckenmiller left the Quantum Fund in 2000 after heavy losses in technology companies. The situation itself was so interesting that Stanley Druckenmiller broke many of his investment rules. It was one of the most expensive lessons of his life - its price is $ 3 billion. In the early 2000s, Stanley believed the market was in one of the biggest bubbles in history. As a result, he sold most of the shares in January 2000, which was a monetization of the profits made in 1999. However, many of the managers who manage their portfolios with Soros still held stocks. As a result, they quickly achieved a rate of return on investment of 30%. Regret over the good performance of his colleagues caused Stanley, contrary to his views in January 2000, to start aggressive stock purchases. As he himself said:

"Maybe I missed the top of the dotcom bubble by an hour."

Even though he had earned much more in the previous year, the loss of $ 3 billion had a heavy impact on Stanley's reputation. The reason was not the loss itself, but the lack of emotional control. He broke the investor's primer. Sam mentions that if someone asks him what he learned from this transaction, he replies:

"Nothing. I knew that 25 years before [what should be done]. "

Duquesne Capital Management

After leaving Soros, he focused on developing his own company - Duquesne Capital Management. The fund's performance was amazing until the fund's closure was announced (18.08.2010/30/2001). The average annual rate of return exceeded 2003%. In addition, the fund did not make a loss in any year, which is interesting as there were two major downturns (2007-2009 and 1987-2008) and the 11 crash during that time. In XNUMX alone, the fund's rate of return was XNUMX%. What's more, in 120 quarters, only 5 ended with a loss. The reason for closing the fund was the stress caused by the pressure imposed by Stanley Druckenmiller. Considering that the fund's performance was really exorbitant and capital kept growing, looking for investment opportunities became more and more difficult to find. In 2010, the fund's assets under management exceeded $ 12 billion. After closing the fund and paying cash to investors, Stanley Druckenmiller returned to investing solely on his own account.

Investment and life philosophy

Stanley Druckenmiller has an investment strategy similar to Georg Soros. Like him, he has a group of stocks in which he has a long position and a short position in stocks which he believes do not have a lot of potential. In addition, it uses leverage when investing in futures and the foreign exchange market. It is worth noting that despite its age, it is still open to new asset classes. For example, in November 2020, he began building an exhibition in bitcoinie. The investment philosophy itself is very interesting. Below are some of Stanley Druckenmiller's main investment theses.

• Position size - “It doesn't matter if you are right or wrong. The most important thing is to know how much money you can earn if you are right and how much you can lose if you make a mistake ". It is a very important view of the capital management process. Many novice traders take investing personally, which makes it difficult for them to admit they were wrong. The result is that they may sometimes be afraid to cut a losing position. Another lesson that can be drawn from the view is to have an exit strategy in place before taking a position. This allows the investor to put their emotions aside.
• A good mentor is more important than a good salary - "If you are at the beginning of your career and have a choice between being a great mentor or [working] with a higher salary, always choose a mentor". This is an interesting view because it puts personal development first, not short-term gratuities. Working with a great mentor can result in an employee learning a lot, which will pay off in a later career. On the other hand, an average job with an above-average salary may turn out to be a "golden cage" and slow down your career in the long term.
• Opponent of diversification - "I think that diversification and all the issues [related to it] they teach in school are probably the most misguided concepts [in this industry]". Stanley Druckenmiller is opposed to diversification because it can create a false sense of security. Additionally, having a large amount of assets in your investment portfolio is a distraction and consumes much more time than carefully monitoring several items in your portfolio.
• Flexible approach Stanley was not afraid to be flexible about taking positions. A great example is the situation from the 1987 crash. The day before the 1987 crash, Druckenmiller changed his exposure from "short" to 130% "long". However, he realized very quickly that he had made a mistake. As a result, the next day he moved back to "short" very quickly. Not only did he avoid losses, but also ended the crash with a considerable profit.
• Be humble - “Every great manager I know always wants to talk about their mistakes. There is a lot of humility in it ". As a rule, people tend to talk about their successes and keep silent about their failures. However, it is thanks to the analysis of the mistakes made that you can learn a lesson for the future. The lessons learned will help reduce the number of "mistakes" in the future. This is especially true when managing the position and not missing out on investment opportunities.
• Pay attention to fluency - “Most people in the market focus on performance and conventional metrics. However, it is liquidity that moves the market ". This view is in line with his own investment strategy. Unlike fundamental investors, Stanley did not hold a position with the intention of holding them for 10 years. For this reason, he treated valuation as just information on how far the current market price is from the "fair" price. However, in his opinion, in which period it is not important for the direction, the market will follow.
• Hedging opponent - “I don't like hedging. For me, if an investment needs hedging, don't take a position ". For Druckenmiller, entering a hedge to reduce position risk misses the point. This causes an increase in transaction costs and most likely a mismatch between the investment strategy and the investor's temperament.
• Don't focus on the past - “It is less important how much the company has earned in the past. What other people think about the company's future performance is more important ". This is advice for investors looking for companies that invest only on a "low price-to-earnings ratio". It is often the case that a business is cyclical and occasionally generates high profits that are "eaten" during lean years. Another threat is focusing on the current results of the company and not noticing structural changes that await the company or a given industry.
• Combine technical and fundamental analysis - "I'm never going to buy [a stock] that is not in good technical condition on the chart and the fundamentals". This is an interesting quote because it encourages the amalgamation of two opposing views on company selection. Fundamental analysis allows you to select companies with a strong business, while technical analysis allows you to answer the question "when to buy".
• Control your emotions - “If you bought a company due to the presence of factors A, B, C and D. Then, in the event that the above-mentioned factors no longer exist, you should sell the shares. Regardless of whether the position is profitable or losing (...) Your ego is not the most important thing, the most important thing is to make money on the market ". Stanley is therefore an advocate of separating the ego from the transaction. Trade should be viewed with no emotions and no herd reactions should be allowed. However, according to Druckenmiller, the battle with emotions will continue throughout the investment period. Greed and fear are integral parts of investing in the capital market.

Political views

Stanley Druckenmiller is a supporter curtailing programs such as social programs. He himself believes that too much government spending could contribute to an economic crisis worse than the 2008 crisis. It is no wonder that he supported the Republican presidency candidates. In 2015, he supported the Jeb Bush and John Kasich campaign. At the same time, he is somewhat skeptical about quantitative easing programs, believing that they increase the risk of higher inflation. This was the opinion of, among others in 2020 when help FED in the fight against the pandemic, in his opinion, it was supposed to increase inflation in the country. His opinions suggest that he is not an MMT supporter.

Philanthropy

Like many rich people, Stanley Druckenmiller supports community projects. In 2009, she was one of the most generous people in the United States. Then he allocated $ 705 million to philanthropic activities. At that time, he supported projects related to education, medicine and combating poverty and social exclusion. For example, in 2009, he donated $ 100 million to the NYU School of Medicine. It is also worth mentioning supporting AIDS-fighting projects or founding Stanley F. Druckenmiller Hall in Bowdoin Collage.