Stanley Druckenmiller’s biography: What is his investment style?
“Good investors do not succeed because of their intelligence, but because of their discipline.”
Childhood and studies
In 1953, in the city of Pittsburgh, Pennsylvania, Stanley Druckenmiller was born on June 14. Although his early years were spent in the bosom of an average American family in the Philadelphia suburbs, the separation of his parents would force him to move with his father to New Jersey and later to Virginia.
Years later, Druckenmiller would attend Bowdoin College, where he studied English and economics, graduating in 1975. He immediately decided to pursue a Ph.D. at the University of Michigan but dropped out when the opportunity arose to work at Pittsburgh National Bank.
From Bank to Quantum
Stanley’s talents soon paid off, and within a year of joining Pittsburgh National Bank, he was appointed head of the equity research department. Just four years were enough time for him to decide to strike out on his own.
In 1981, Stanley Druckenmiller set up his own mutual fund management company, Duquesne Capital Management. However, the reputation he built up earned him a contract with the Dreyfus Fund as an external consultant. This caused him to split between New York and Pittsburgh for the next few years.
George Soros, confident of Druckenmiller’s ability to read the markets, proposed in 1985 that he become the manager of the Quantum fund, replacing Victor Niederhoffer. The new Soros-Druckenmiller duo would leave their name in the history of finance a few years later.
Britain’s Black Wednesday
Druckenmiller’s style of analyzing the macroeconomic environment and projecting in the long term on that basis led him to take positions in sterling and other currencies that, at the time, were not having the best of times.
An imminent interest rate hike from the Bundesbank, and the British government’s insistence on maintaining a high exchange rate, were the blood that the Druckenmiller shark smelled to deliver the bearish blow against sterling.
Since the evening of September 15, 1992, Soros and Druckenmiller had been discussing the situation of the pound sterling in relation to the German mark. Stanley, convinced of his analysis, proposed to Soros to dispose of the equivalent of $1.5 billion.
However, Soros instructed Druckenmiller, if his analysis was correct and the chances of losing very small, to bet $10 billion against sterling.
On Wednesday, September 16, 1992, the British government had to devalue the pound, the worst devaluation in its history, and while that was happening, Druckenmiller made $1 billion in a single day for his boss, George Soros.
Soros and Druckenmiller’s relationship continued until 2000, where, like other victims of the dot-com crisis, they suffered significant losses. Druckenmiller decided to end the working relationship in order to concentrate 100 percent on his own management company.
Duquesne Capital Management continued to operate until 2010. During the time it remained in operation, it offered its investors an average return of 30% per annum. Such was its talent that in all that time it did not have a single year with losses, if anything adding up to 5 quarters in total with negative numbers.
In a letter to his investors, Druckenmiller said that the reason for his retirement was the “heavy emotional burden” derived from the internal and external pressures of managing the wealth of all his clients.
What is his investment style?
Although he has never made a public disclosure regarding the methodology, he has used to make his investment decisions, Druckenmiller has stated on more than one occasion that his analysis focuses on the macroeconomic context.
As an economist, he has implemented his strategies of macroeconomic (top-down), political and social analysis, associated with long-term projection. One of his rules, for example, is not to bet short against a company that has a great future.
Part of Druckenmiller’s investment philosophy is that contrary to what is regularly preached in the financial world, he “does put all his eggs in one basket, but he is vigilant that nothing happens to it”.
This means that if you are very sure of the bet to be made and everything indicates that the probability of losing is very low, there is no reason not to take advantage of the opportunity and bet everything to get the highest profit.
Today, Stanley Druckenmiller is dedicated solely to managing his personal wealth. He defines himself as open-minded, focused on the long term and very disciplined, qualities that allowed him to be as successful as he was.
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