Who is Stan Druckenmiller?
The life, lessons, and investments of a legendary investor.
"Buffett in the last 30 years has compounded just under 20 percent. A thousand dollars 30 years ago would be $177,000 today, 24 up years and six down years of which three of the six were more than 20 percent…our speaker tonight if he invested $1,000 30 years ago, today it would be $2.6 million before taxes"
Who is Stan Druckenmiller?
Stan Druckenmiller is the lead investor at the Duquesne Family Office, and is probably best known for the remarkable returns (30% returns for 30 years) that he generated while managing outside capital
While that track record alone puts him in the discussion as one of the best investors ever, it's perhaps how he actually generated those returns that makes him such an enigma. Druckenmiller has never confined himself to an individual asset class and he's shown a unique ability to be mentally flexible depending on the situation.
Here's a look at how he built his massive fortune:
Early days
Before digging into his investment approach, it's worth taking a look at how he became the legendary investor he is today.
Stan Druckenmiller was born in 1953 and lived in several small towns throughout South Jersey until he was 9 years old, after which he moved to Richmond, Virginia. Though it's easy to see him as highly intelligent today, he says he was anything but that growing up.
“The first thing I'd say very clearly, I'm no genius. I was not in the top 10 percent 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 SATs”
Once he enrolled at Bowdoin College (a small liberal arts college in Brunswick, Maine), he double majored in English and Economics and found a job as a chemicals and banking analyst at Pittsburgh National Bank shortly after leaving school. That's where his investing career really began.
After demonstrating how capable he was, his boss (and the person he calls his first mentor) promoted him and gave him the authority to make investing decisions at the firm. Here's how Druckenmiller describes it:
Source: https://www.scribd.com/doc/311790380/Druckenmiller-SpeechOnce he was tasked with making portfolio management decisions, he made several big bets that paid off and put him on the map. As other prominent investors began to take notice of young Druckenmiller, they encouraged him to start a fund of his own. So in 1981, at the age of 28 and after raising $900,000 in committed capital, he started a hedge fund of his own called Duquesne Capital.
Learning From Soros
While running Duquesne, Druckenmiller came across another investor who's investment style resonated with him, George Soros.
Soros, who by that time had built up a massive fund of his own, was impressed by Druckenmiller and asked him to come manage the Quantum Fund on his behalf. So from 1988-2000, Druckenmiller successfully managed both the Quantum Fund and Duquesne Capital simultaneously.
While managing the Quantum Fund, Druckenmiller says Soros taught him how to truly bet big when the odds are favorable.
"If there’s one thing I’ve learned from him, it’s that when you’re right, and you know something, you really feel it, you can’t have enough.”
Source: https://www.nytimes.com/2010/08/19/business/19hedge.htmlFamous Investments
While not all of Druckenmiller's investments are public record, he's described several of them over the years throughout speeches. Here are some of his most notable:
- 1979 Oil Bet: Shortly after being named as a portfolio manager at Pittsburgh National Bank, the Shah of Iran went under, which in his view, meant that the price of oil was likely going to shoot up.He says: “I’m 26 - 25, excuse me. I don’t have any experience. I don’t know anything about portfolio managers. So, I go well, this is easy. Let’s put 70% of our money in oil stocks and let’s put 30% in defense stocks and let’s sell all our bonds.”While that might seem reckless to some, the list he proposed went up 100% while the S&P was flat. That’s when they decided to name him Chief Investment Officer.
- 1981 Treasury Bet: Shortly after he started Duquesne, he placed a well-timed bet on US treasury bonds. As many people know Paul Volcker (the head of the federal reserve at the time) was absolutely keen on taming inflation. Inflation then was 12% and everyone thought it was going to go higher. Here's how Druckenmiller describes the situation:"Paul Volcker had other ideas. And he had raised interest rates to 18% on the short end, and I could see that there was no way this man was going to let inflation go. So I had just started at Duquesne, I had a small amount of new capital. I took 50% of the capital and put it into 30-year treasury bonds yielding 14%, and I owned nothing else… And sure enough, the bonds went up despite a bear market in equities. Right out of the chute I was able to be up 40%.”
- 1992 British Pound: This is probably the investment Druckenmiller is most well-known for. After receiving some info from a housing analyst that he was employing in Britain, he believed that Britain was going into a recession. Simultaneously, Germany was keen on keeping inflation low due to their "disastrous" inflation they experienced in the 1920's. At the time, the two currencies were linked together which presented an issue.Druckenmiller describes it: "That all sounds normal except the deutsche mark and the British pound were linked. And you cannot have two currencies where one economic outlook is going like this way and the other outlook is going that way. So, in August of ‘92 there was 7 billion in Quantum. I put a billion and a half short the British pound”After some "encouragement" from George Soros, Druckenmiller raised the bet even more.
Source: https://www.scribd.com/doc/311790380/Druckenmiller-Speech- ‘06 Housing Market: Given how successful Stan Druckenmiller has been at predicting the economy throughout his career, it's almost unsurprising that he also called the great financial crisis. Here's how describes his thinking during that time:"An analyst from Bear Stearns came in and showed me some subprime situation, the whole housing thing, and we were able to figure out by mid-'05 that this thing was going to end in a spectacular housing bust… we were lucky enough that it turned out to be correct. My returns weren't very good in '06 because I was a little early, but '07 and '08 were - they were a lot of fun."
- Nvidia in 2022: After hearing a convincing pitch on the future of Artificial Intelligence by his young partner, Stan Druckenmiller took a position in Nvidia in October of 2022."I bought it and then a month later ChatGPT happened. Even an old guy like me could figure out what that meant, so I increased the position substantially."Over the following 2 years, Nvidia's stock soared more than 350% and Druckenmiller decided to reduce the position. While that might sound like fortunate timing, it wasn't just blind luck. In late 2022, Druckenmiller recognized how much the big tech companies were going to have to spend in order to keep up with the evolving AI landscape. And for Nvidia, that meant a massive surge in demand for their chips.
Source: https://finchat.io/company/NasdaqGS-NVDA/?statement=segments-and-kpisCurrent Holdings
Though Stan Druckenmiller closed his hedge fund to outside capital in 2010, he has been managing his own personal fortune in the Duquesne Family Office ever since.
And since his family office exceeds $100 million in assets, he is required to report his holdings every quarter in a 13F filing to the SEC.
FinChat.io tracks these holdings every quarter. Here's where his portfolio currently stands:
Source: https://finchat.io/investor/duquesne-family-office-llc/5 Lessons from Stan Druckenmiller
1) Focus on the future
"Never, ever invest in the present. It doesn’t matter what a company’s earning, what they have earned... you have to visualize the situation 18 months from now, and whatever that is, that’s where the price will be.”
2) Learn multiple asset classes
“I was also lucky to travel across asset classes. I traded commodities, currencies, bonds, and equities, and it gave me the discipline, if I didn’t have a good idea in equities, I was happy to have no equities.”
3) Know when to participate
“The mistake I’d say 98% of money managers and individuals make is they feel like they got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch that basket very carefully."
4) Don't be afraid to bet big
“If there’s one thing I’ve learned from him (George Soros), it’s that when you’re right, and you know something, you really feel it, you can’t have enough.”
5) If you actively invest, make sure it's your passion
"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."