Sunday, November 24, 2013

Stan Druckenmiller talks trading: Bloomberg interview

Stanley Druckenmiller, a hedge fund Hall of Famer, speaks with Bloomberg TV at the Robin Hood Investment Conference and shares his thoughts on IBM and Amazon, technological innovation, his trading methods, and the current state of the hedge fund industry.

A few notes and quotes from Stan Druckenmiller's latest interview (watch the full interview below):


On IBM: Druckenmiller is short IBM. Sales have been declining since 2009. The cloud and Amazon's AWS is "killing" IBM. Says Druckenmiller, "I think the truth teller in companies is free cash flow and the free cash flow [declined considerably] since last year.".

Amazon: Thinks Jeff Bezos is an incredible businessman who "creates monopolies". AWS is killing it and the market doesn't fully realize how important this area is for Amazon's revenues. Notes that his Amazon long is not as big a position as his IBM short. 

Note: You'll find a bit more about Amazon's stock and the AWS service in our recent post, "Amazon: long term AMZN chart and thoughts".

Google and innovation: "If you want to be long innovation, you should be long Google. If you want to be short innovation, you should be long IBM. I do not want to be short innovation." 

Trading style and conviction: "I only focus on what is black or white and kind of sift out the gray area, so yes, in my investing style I have always made big concentrated investments. I don't believe in diversification. I don't believe that's the way to make money.". 

Echoing Mark Twain's famous quote, Druckenmiller prefers to "put all your eggs in one basket and watch that basket carefully." He builds concentrated positions in his high conviction investments and only talks about the ideas he feels strongly about.

Hedge funds: Druckenmiller thinks the current crop of hedge fund managers are not producing returns that would justify the standard 2 and 20 fee structure. 

Citing his former colleagues George Soros, Nick Roditi, and Paul Tudor Jones, he adds, "We were expected to make 20 percent a year in any market. In fact, if the markets were down more than 20 percent, we were expected to make more because that's where the opportunity was.". 

He is amazed that managers today earn their huge fees while returning 8 percent a year. He finds it ironic that his own returns over the past decade, which he still finds subpar ("they stink"), are superior to what's out in the market today.

Stan advises current investment managers to take more risk: "You are not going to make money talking about risk adjusted returns and diversification. You've got identify the big opportunities and go for them."

On David Tepper: "I think David Tepper is awesome and if he'd take my money, I'd give him some but I think his fund is closed". 

Japan and QE. "If there's one thing we've found, it's that QE will just wear you out. If you continue to print money, that money just spills out into financial assets.". He points out a strong seasonal period for Japanese stocks that has endured throughout their long secular bear market.

Note: Stan Druckenmiller said more about QE and its effect on U.S. economy in this recent CNBC interview

Great investments and mistakes: Druckenmiller shares a great story about how his emotions led him to ignore years of experience and investing discipline during the height of dot com bubble. He also notes that he salvaged that same terrible year, 2000, by taking a sabbatical and building new bearish trades, including "the biggest negative bet on the economy I'd ever made", upon his return. 

Being right vs. making money: "It's not about whether you're right or wrong in our business. It's about whether you make money.".

You'll hear more from Stan Druckenmiller about his positions and charitable endeavors in the full Bloomberg interview clip and in our related posts, below. 

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Related posts

1. Amazon: long term AMZN chart and thoughts.

2. Nassim Taleb and Stan Druckenmiller talk crisis on Bloomberg TV.