Stanley Druckenmiller was one of the most successful hedge fund managers in history. Duquesne returned an average annual return of 30% with no losing years. He founded Duquesne Capital in 1981 and grew it to $12 billion under management. After two decades of great returns he closed the fund in 2010 because he felt he could not continue to create the same level of returns going forward that met his own expectations due to the disadvantage of trading with such a large amount of capital.
From 1988 to 2000, he also managed money with George Soros as the lead portfolio manager for Soro’s Quantum Fund. Druckenmiller made $260 million in 2008.
Stanley Druckenmiller’s net worth is currently $4.6 billion. The following are quotes giving some insight into the wisdom and trading strategies of this market wizard.
“Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks, and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.” – Stanley Druckenmiller
The ultimate fundamental driver of the financial markets and trends is liquidity. The Federal Reserve is the ultimate provider of liquidity their decisions are the single biggest driver of price action.
“I don’t really like hedging. To me, if something needs to be hedged, you shouldn’t have a position in it.” – Stanley Druckenmiller
Hedges can be expensive and good trades don’t need them, a good exit plan is the best hedge.
“Once an economy reaches a certain level of acceleration… the Fed is no longer with you… The Fed, instead of trying to get the economy moving, reverts to acting like the central bankers they are and starts worrying about inflation and things getting too hot.” – Stanley Druckenmiller
The Fed is a Bull’s friend until the end when inflation becomes their enemy. If the Fed believes the economy is growing too fast, and that inflation or rising prices may happen, they will increase the fed funds rate to slow growth.
“Bitcoin is like anything else: it’s worth what people are willing to pay for it.” – Stanley Druckenmiller
Prices are set by bid/ask spreads not opinions or predictions. Price action is the current truth regardless of any one’s opinion.
“Whenever I see a stock market explode, six to 12 months later you are in a full blown recovery.” – Stanley Druckenmiller
The first step out of a bear market in the stock market is a big move to the upside that never retraces.
“Soros is the best loss taker I’ve ever seen. He doesn’t care whether he wins or loses on a trade. If a trade doesn’t work, he’s confident enough about his ability to win on other trades that he can easily walk away from the position.” – Stanley Druckenmiller
George Soros lets price action tell him when his trade is wrong and he will immediately exit a trade when proven wrong and keep his losses small.
“What a company’s been earning doesn’t mean anything. What you have to look at is what people think it’s going to earn. If you can see something in two years is going to be entirely different than the conventional wisdom, that’s how you make money.” – Stanley Druckenmiller
Actual current earnings don’t drive price action it is the expectations of future earnings is what drives price moves. Money is made by trading errors in expectations not earnings.
“I don’t put Tesla in the Amazon category. They have not proved to me that, as a financial model and an economic model, it is going to work.” – Stanley Druckenmiller
Druckenmiller loves Amazon as a company, stock, and business model but he doesn’t think Tesla is going to work out in the long term.
“If you’re running a business for the long term, the last thing you should be doing is borrowing money to buy back stock.” – Stanley Druckenmiller
Druckenmiller believes borrowing money is a terrible allocation of capital. This is not a good way to drive positive long term price action.
“The way to build superior long-term returns is through preservation of capital and home runs…When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.” – Stanley Druckenmiller
The two elements of profitable trading is limiting draw downs of existing capital and letting winners run to maximize growing it. You have to trade with enough size to make your wins meaningful but at the same time limit the size of your losses with the exit plan.