A recent article in The Hustle outlines an in-depth interview with investing legend Stanley Druckenmiller that touched on the earmarks of a great investor and the state of the markets.
Here are some highlights:
- Recent sell-off comparisons: Druckenmiller sees some comparisons between the market sell-off of last year and the Dotcom Bubble in that current tech valuations are “speculative.”. That said, he believes that today’s growth stocks will be able to grow into these valuations within 3 to 4 years.
- Potential for strong value comeback: As the economy reopens, says Druckenmiller, “there’s probably more money that needs to rotate out of the secular [tech] growers into reflation names. But I do want to say, very differently from [the Dotcom Bubble] …I do think these things are secular growers and they’ll probably be fine in the long term.” Big tech names, he says, should not be seen as growth stocks because they offer “decent value at current prices.”
- Biggest risks to equity market: Inflation, says Druckenmiller. “This bubble has gone long enough, and it’s extended enough that the minute they start tightening, the equity market should go down a lot.”
- Long-term effects of retail training: Retail traders will remain a force, according to Druckenmiller, but will probably “migrate away from some of the more radioactive names like GameStop.” He notes, “The big risk is retail is all loaded up in this stuff. Don’t confuse a genius with a bull market. [Retail investors] could lose enough money that they’re scarred.”
- On making high conviction bets: The greatest investors, says Druckenmiller, make concentrated bets in high conviction plays. He adds, “And it’s the exact opposite of what they teach in a business school…They’re not buying 35 or 40 names and diversifying.” He quips, “My favorite quote of all time is maybe Mark Twain: ‘Put all your eggs in one basket and watch the basket carefully.’ I tend to think that’s what great investors do.”
- On when to sell: Druckenmiller says he never uses a stop loss, adding, “It’s the dumbest concept I’ve ever heard.” He notes, “But I’ve also never hung onto a security if the reason I bought it has changed. That’s when you need to sell.”
- On managing emotions: “You just have to be disciplined,” says Druckenmiller, noting that investors are constantly battling emotions: “It doesn’t make any sense, but when a security goes up, every bone in your body wants to buy more of it. And when it goes down, you’re fighting and making yourself not sell it. It’s just the nature of the beast.”
- His biggest investing mistake: Druckenmiller lost $3 billion buying at the top of the Dotcom Bubble. “It was all because I got emotional and dropped every tool of discipline I’ve ever had.”
- What makes a stock price move: Fundamental analysis is just one part of figuring out what makes a stock price move, says Druckenmiller. To gain a deeper understanding requires deeper digging, he argues.
- Bitcoin: According to Druckenmiller, Bitcoin has “won the store of value game” because it is:
- A brand
- Has been around for 13-14years
- Has a finite supply