Stanley Druckenmiller is up there in hall of fame for investing AND trading- a very rare combination – for that reason, he is my favorite financial trader/investor of all time.
you will see many great investors and many great traders – however, it is very rare to find both top investing and top trading skills in one single individual – this makes Stanley Druckenmiller one of the best and I always listen to what he has to say whenever his interview is available.
Luckily for us (and me), he was at 2022 Sohn investor conference and Sohn conference made his interview publicly available for FREE on YouTube.
It was a relatively long interview that lasted for one hour. For those that do not have one hour to spend, I have listed out my key takeaways so that you can save time! I strongly recommend listening to the whole thing when you are road trip, etc.
Below are his advice on investing methodology / process
LESSON #1: RAISE YOUR BETS WHEN YOU ARE ON HOT STREAK AND GO SMALL WHEN YOU ARE COLD
this is counter-intuitive – “hot hand” hypothesis in basketball is largely debunked, but Druckenmiller has had a very long career following this methodology. He does this when allocating capital to his analysts at his firm.
LESSON #2: DRUCKENMILLER NOW BELIEVES IN “PUT THE POSITION ON FIRST AND THEN INVESTIGATE”
This is due to the fact that investment industry has gotten extremely competitive. His view is that analysts often talk to peers that as the pitch goes around with time, it can make entry price (long or short) for the trade much less exciting – he mentioned the P&L opportunity could move 30-40% once the analyst has done fully due diligence over the 1-2 weeks.
If due diligence negates the hypothesis, he covers right away. Probability is that stock will not have moved much during that timeframe if there is indeed nothing going on.
LESSON #3: INVESTING IS NOT ABOUT INCREASING HIT RATE, BUT IT IS MORE ABOUT MAKING BIG WHEN YOU ARE RIGHT AND LOSING SMALL WHEN YOU ARE WRONG
This refers to the famous “slug rate”, rather than “hit rate” – one of the best lessons that Druckenmiller mentioned that he learned from George Soros.
As a avid market reader, Druckenmiller also shared his view on the market
WE ARE IN PRIMARY TREND BEAR MARKET – HISTORICALLY, THERE HAS NOT BEEN A TRUE BEAR MARKET THAT LASTED ONLY 6 MONTHS – HOWEVER, HE IS NOT PRESSING SHORTS BECAUSE 1) THE MARKET HAS MADE SIGNIFICANT DOWNSIDE MOVE ALREADY AND BEAR MARKET RALLY IN A FEROCIOUS SELL-OFF CAN “RIP HIS FACE OFF”
I really respect his opinion about investing process / methodology and his view on the market.
BEAR MARKET CAN BE PAINFUL, but don’t forget the saying that “you make money in bear market – you just don’t know that you are making money at that time. “
*not investment advice.
