A Collection of Notes and Thoughts from Stan Druckenmiller's 2021 Media Appearances
I recently spent some time going through Druck’s 2021 media appearances and thought I would share some of the big takeaways and things I thought were interesting.
Note that this isn’t meant to be a summary of any one of these pieces nor Druck’s overall positioning. It’s just things that stood out to me and that I personally found interesting. So please don’t think you have the whole picture without watching them yourself. And even then, keep in mind that he wouldn’t be where he is without his ability to change his mind at the drop of a hat.
Some of the below are direct quotes, some are paraphrased, but anything that isn’t from him will be marked “Author’s Note.”
Goldman Sachs Interview Feb 2021
Watch here.
On growth stocks- we are only in 3rd or 4th inning of cloud. So earnings will continue to grow. But if inflation picks up to 3-5% over the next couple of years and we get an increase in bond yields, it will be a tougher environment for growth than it has been. Which maybe isn’t saying much.
Trung Phan/Toggle Interview May 2021
Watch here.
One big difference between the tech bubble today vs the dot com bubble- lots of the companies that were most expensive in 99 were building the internet (CSCO, Sun, etc.). It was like selling railroad ties for railroads. Well once the railroad is built, those earnings don’t continue to grow. Now, the market is being driven by digital transformation. And those earnings shouldn’t fall off a cliff anytime soon, so those companies can grow into their valuation over time (esp. with SaaS valuations having fallen from 45-50x rev two months ago to 10-25x now). Where if you held a lot of the dot com names for a couple years, you could still lose 80%+. Also- we didn’t have ZIRP back then. So all asset prices are inflated relative to the 90s. And this is just how you see it playing out in SaaS/Internet.
Biggest risk to equity market- “inflation strong enough that this fed responds to it… No doubt about it. This bubble has gone long enough, and it's extended enough that the minute they start tightening, the equity market could go down a lot, particularly with so much of the cap weighted in growth stocks, which would be at the worst. And our central case is that inflation occurs, but we're open- minded to something like'07-'08, where you never really got to the inflation because the bubble popped.”
Note that he is positioned short USD
“I've always said I like multidisciplines of managing money. So, my first boss taught me technical analysis. So, I use fundamental analysis and technical analysis. And if there's thousands securities out there, and my portfolio is only going to assist 15 or 20, I'm never going to buy something that doesn't have a great chart and great fundamentals.”
The one thing in common among all great investors is concentrated, high conviction bets.
“The other similarity is back then, I remember a lot of value managers virtually going out of business. Again, in 2000, one of the greatest investor of all time, Julian Robertson, who was long value and short these crazy tech names. He basically threw in the towel and said he couldn't take it anymore and stop managing money in early 2000. But what happened in the next three to five years was incredible. Companies like Phelps Dodge copper companies, went up six to eight fold, six to eight times for the old industrial stuff. So, everything Julian was long, went up many fold and the tech stocks went down a lot. We do have some similarities there today because these COVID companies, beneficiaries, so much demand was poked forward, that they got too high and too much ownership. And as we're reopening, there's also an ownership problem where there's probably more money that needs to rotate out of the secular growers into these, I'll call them, reflation names. But I do want to say very differently, I think these things are secular growers and they'll probably be fine long- term. Amazon at 3,200 is not a bubble stock, not whatsoever. It's basically decent value. I don't just mean Amazon, but a lot of the [big tech/FANGM stocks].”
Once thought BTC/crypto were a solution in search of a problem. What’s changed:
Found the problem- CARES Act, Powell and world’s central bankers going nuts. Calling fiat even more into question
PTJ called me and said- when BTC went from $17k to $3k, 86% of the people that owned it never sold. Finite supply and 86% of the owners are religious zealots.
Lindy (not his words). Had a few more years under its belt. It’s a brand.
Will be very tough for other cryptos to unseat it as a store of value
ETH little less certain. Lots of talent will be trying to come up with something better.
NFTs, Doge, etc.- just a manifestation of the craziest monetary supply in history
Author’s note. Previously, this would have read to me as “it’s just irrational”. But @Biohazard3737 had an interesting tweet: “1) For most people it has become almost impossible to buy a home or retire with income from labor (due to ZIRP). To get ahead, you MUST speculate. Shibu Inu has become your only opportunity.” From lots of people’s seats in life, this isn’t irrational. That said, I can’t see myself getting involved because I don’t see when, if, or how the music stops.
Author’s note: There’s something to be said for the idea that even traditional, fundamental equity investors can position themselves with certain macro tailwinds in mind. And/or diversify themselves with certain macro risk exposures in mind. Every equity investment has macro tailwinds or headwinds involved and you need to be aware of that. Even a vanilla/Buffett type strategy has macro assumptions underlying it. As @winerex put it: “The problem with the Buffett strategy currently is that there is an inherent tenet in their strategy that believes interest rates will revert to the mean... as well as their thinking that population growth will revert to the mean.” I’m not saying I necessarily agree or disagree with this, but it’s worth considering what a given approach’s implicit assumptions are. So how should we diversify? Maybe we find stocks to pick in China/Asia. Maybe we find stocks to pick that benefit from inflation (leveraged cos? If they can pay it down without having to refi at higher rates…). Maybe special situations are better for certain macro environments, or at least a sort of hedge? And then there are idiosyncratic asset classes/investments, like litigation financing. These are all options we, as investors, have at our disposal to diversify our underlying risk exposures and implicit macro assumptions. This probably seems obvious for lots of L/S funds that incorporate factor exposure, but I don’t hear much discussion of it from LOs.
USC Interview May 2021
Watch here.
Positioned short the dollar. We are long all sorts of commodities. Equities we are long but I’ll be very surprised if we don’t make the exit by end of this year.
I don’t know who’s going to replace [USD as reserve currency] but my best guess is the biggest threat is a crypto derived ledger system that will be invented by armies of engineers leaving universities.
I’d be even dumber than I am to give you some sort of expected return for crypto. Don’t think there is a way to know. I do think it’s probable that we’re going to end up with a ledger system that requires cryptocurrency as the medium to execute it. But I want to remind you - FB was the 11th social network. Before GOOG there was yahoo. There’s a very good chance that if crypto ends up being an actual medium of exchange and currency, that the winner not only has not been identified. It may not even have been invented yet. I wasn’t kidding when I talked about this army of 25yo engineers working on this stuff. One of the things we have always looked at in investing privately is where are the hot young graduates from the great engineering schools going? Remarkably, I haven’t understood it. Probably because I’m approaching 68yo. The lion’s share of them are going into crypto and they will solve the problem in terms of using this stuff for a payment system.
BTC- I have it at ~1% of net worth. I tried to buy $100m last spring at $6800. I bought $20m it took me ten days so I said to hell with this it’s too illiquid I don’t want to play with it. Then I sold it back down to - that was only a 0.4% position. Then when it went to $36k I couldn’t stand it and I sold it down to a 1% position. And I haven’t touched it since. I don’t think BTC will ever be a currency. Doesn’t make sense to me, there is too much vol. But it does look like - and I don’t disagree with Munger that this was created out of thin air- but you know what, there’s a painting above my fireplace in the living room that’s worth more than my apartment and if someone thinks that’s worth what it is, that’s what it is. For whatever reason - millennials and maybe more importantly zillionaires on the west coast in the tech economy prefer BTC to gold. It’s been around 13-14 years now and it’s a brand so it’s probably here to stay. And now you’re in a space that’s like an elephant trying to get through a keyhole. The people that own this are sort of religious zealots. And now you have institutions coming in so I wouldn’t doubt that BTC continues to go higher. But as you can tell I don’t really believe in it or not believe in it so I only have 1% of my net worth in it.
Bowdoin Interview by Paula Volent June 2021
Watch here.
“During your undergrad years, there’s many myths and stories about you. You were not in a fraternity, though many people claim you were because there’s a picture of you in a fraternity. You ran the game room and through that got to meet lots of different people at Bowdoin. Students from all different backgrounds. You ran casinos. You walked dogs to make money. You are and Larry Lindsay ran a hot dog stand. Summers you worked construction. And you worked maintenance on a golf course. And you thought you were going to be an English professor.”
It’s “very possible” that regulation targeted at big tech actually ends up helping them by making it very costly for smaller competitors to be compliant.
Crypto – worried about ransomware (and energy from miners) providing the government with an excuse/opportunity to crack down on BTC. Which the Fed wants because it threatens their monopoly on money. “For that reason, I don’t own any crypto right now. Which I could not have said to you two months ago.”
Still optimistic on blockchain/crypto technology in general. Maybe not as a currency. Lots of young talent working on the tech. “I don’t think it will be as big as the internet, but it will be big. And there will be a new payments system. And a new world derived around this. Probably some of the companies you want to be invested in aren’t even founded yet.”
What to own when inflation hits? Commodity oriented companies. “You know how everything has been going up the past two years, it doesn’t matter what it is? GME, bonds, etc. It will probably be more of the opposite.”
China- don’t want to own the big tech cos. There is only one monopoly in China and that’s the government. If you get too big, you start to bump up against them. Summarily, want to own the challengers but not the incumbents. Great VCs and people like Chase Coleman will probably do well here next 10y.
“There will be innovation in the carbon space.” Paula: “Many of our VC funds are looking for and seeing great opportunities there.”
MSNBC July 2021
Watch here.
“If I was Darth Vader and I wanted to destroy the US economy, I would actually do aggressive spending in the middle of an already hot economy. Which is exactly what we have. The reason is – that creates – two things: 1) you usually get a bubble out of that, 2) you could get inflation out of that. Frankly, we have both. This is the biggest bubble I have ever seen in my career. We have crypto craze, we have SPACs, we have booming housing prices, we have these things called NFTs, and equity prices as a percent of GDP are at an all-time high. And inflation is literally at a 30 year high.”
Nothing will hurt the poor more than inflation and a financial crisis.
November 2021 Conversation with Seth Klarman
Duquesne 13F
As far as 13F obsession goes, I feel like this one doesn’t get talked about enough?
Some things that stood out to me (2Q21):
Note that he has substantial investments outside of 13F securities
He has owned AMZN and MSFT since 2015
He owns ~$100m of CVNA, which he added to substantially in 2Q21.
I’m not seeing many “reflation” names of the sort that he mentioned in the Toggle interview. Some materials companies. Do any others jump out to you? It does sound like he is short USD in currency markets so that may explain it.
Thanks for compiling these! 💚 🥃