The Druck hates to lose money

On some level, most investors want to be at least a bit like Stanley Druckenmiller, the former hedge fund manager whose name is synonymous with swashbuckling and highly lucrative adventures in global macro.

You can see why. The 69-year-old billionaire does not manage other people’s money any more. He pulled the ultimate macro bro move of eschewing pesky clients and managing money just for himself back in 2010 — the classic mark of an investor who is sufficiently confident and loaded to have given up worrying what everyone else thinks (or has imploded). 

Druck’s record nonetheless speaks for itself. In a conversation by video link this week, Nicolai Tangen (himself no slouch, he runs the world’s largest sovereign wealth fund, in Norway) asked for a reminder of Druckenmiller’s average returns.

They weren’t so average. “When we had clients, it was just over 30 per cent net a year for 30 years,” he replied. Number of down years: zero. This was not new news, but it still drew gasps and jocular shakes of the head among the asset managers assembled in the capacity crowd at the oil fund’s inaugural investor day.

So, but seriously, how? Perhaps his most famous manoeuvre was as sidekick to George Soros when the celebrated Hungarian fund manager (now philanthropist) took on the Bank of England over sterling 31 years ago and won, reportedly netting billions of dollars in returns in a single day.

In conversation with Tangen, though, Druckenmiller dispensed some handy tips. The first, and you might want to write this down, was: don’t lose money. “I’m a sore loser,” he said. “I don’t like to lose.” But most of all, it was just simple maths according to Druck.

If you go down 50 (per cent) you have to go up 100 (per cent) just to get back to even. I’ve always thought the way to build a long term track record, is when you really see the ball — swing really big. And when you don’t see the ball, don’t swing. You can build a record when in terrible years you’re up zero to five (per cent) and then throw a couple of 50s and 60s and the numbers look pretty good over time . ..

I had a lot of fives and sevens in there. I didn’t like, make 20 or 30 a year. It was a matter of never losing, and then throwing some big numbers in there, maybe 10 times.

See? Simple.

The other big tip, he suggested, is not to overthink it. “With analysis comes paralysis,” he said, recalling how Soros’ own phrase was “invest, and then investigate”. 

That may sound . . . oddly cavalier given his investing record. But it’s actually more important than ever these days, Druck said, because things move faster than ever.

If I get an idea and I think it’s attractive for whatever reason . . . I generally go ahead and buy it, and then tell the analysts to poke holes in it and if it turns out I was wrong I get out. I don’t like to wait around.

I’m not that smart. If I’ve seen whatever is going on, someone else might have seen it, and by the time we’re done analysing it I might have missed 30-40 per cent of the move. We’re in the camp where if we get a strong feeling we’ll cut the analysis short, and then by all means do our analysis and unload it if turns out my thesis was wrong.

I try to have young people around me who are not afraid to speak their minds and argue with me. If someone has been here too long and agrees with everything I say they’re not going to be here much longer. I need healthy debate.

Clearly that does not always work. The investor admitted he failed to jump on board with the bet on the dollar that made massive returns for many big macro hedge funds last year. “It was probably the biggest miss of my career,” he said. But he allowed politics to get in the way. “I couldn’t bring myself to buy Joe Biden and Jerome Powell,” he said.

But he’s more than happy to latch to the dollar now that is in retreat — betting against the buck and on gold is now his only conviction trade in an otherwise strikingly confusing market where he’s convinced a hard landing is on its way for the US economy. (More on that here.)

Is any of this remotely useful in real life? For wannabe legends of macro hedge fund management, sure. But such success stories are rare, and they are likely on track to get rarer. Markets are just not what they used to be 20-30 years ago, Druckenmiller said.

That’s not because of index funds (which a lot of old-timers love to blame) but because of quantitative hedge funds, high-frequency traders and other types of algorithmic model-based strategies that have broken the old relationship been news and market moves, Druck said.

I don’t think it’s so much to do with passive [investing] . . . Honestly, these factor investors, algos and quants definitely really mess up what used to be historical price action versus news.

Since the algos got involved, price action is not what it used to be 20-30 years ago. 20-30 years ago, if a company reported horrible results and opened down say 10 per cent and ended up on the day, you could almost guarantee that the stock was going to be higher in three months. It’s not the case any more. Everybody seems to know these tricks.

But sensibly, he doesn’t waste time bellyaching about the loss of the supposed good old days.

A lot of people in my position complain about it. To me it’s just a new world and I’ve got to deal with it. People have got to deal with me. I might as well deal with them.

Over prosecco and nibbles after his speech, one local fund manager giggled at his advice, which is a tough strategy to pursue for asset managers with customers to keep happy. (Tangen himself pointed out he has only one, but it’s, err, Norway.)

“Luckily I don’t have any clients,” Druckenmiller said. Quite.