- Posted by Ivanhoff on May 26th, 2015 at 12:16 pm
There’s a popular Druckenmiller’s quote circling the Internet as of late:
The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered. I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept everywhere. And if you look at all the great investors that are as different as Warren Buffett, Carl Icahn, Ken Langone, they tend to be very, very concentrated bets. They see something, they bet it, and they bet the ranch on it. And that’s kind of the way my philosophy evolved, which was if you see – only maybe one or two times a year do you see something that really, really excites you… The mistake I’d say 98% of money managers and individuals make is they feel like they got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch the basket very carefully.
If you don’t look at it from different perspectives, you might get disillusioned that Druckenmiller recommends to always take very concentrated bets. There are some nuances that you have to consider:
1. He always has an exit strategy. When Soros and Druckenmiller made their famous bet against the British Pound, the knew exactly how much they could lose – their entire YTD gain of 12%.
Soros is also 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. There are a lot of shoes on the shelf; wear only the ones that fit. If you’re extremely confident, taking a loss doesn’t bother you.
2. He says that the right conditions to make a concentrated bet happen only once or twice a year. Not everyone is able to recognize those conditions. Proper Timing is Everything when you trade big. A good entry point allows you to go through normal market reactions. An amazing entry point allows to use tighter stop and therefore bigger position size. Here’s hedge fund manager Scott Bessent on Stan Druckenmiller:
One of the things that I learned from Stan Druckenmiller is how to enter a trade. The great thing about Stan is that he can be wrong, but he rarely loses money because his entry point is so good.
3. You have to earn your right to bet big first.
It’s my philosophy, which has been reinforced by Mr. Soros, that when you earn the right to be aggressive, you should be aggressive. The years that you start off with a large gain are the times that you should go for it.
The way to build long-term returns is through preservation of capital and home runs. You can be far more aggressive when you’re making good profits. Many managers, once they’re up 30 or 40 percent, will book their year [i.e., trade very cautiously for the remainder of the year so as not to jeopardize the very good return that has already been realized]. The way to attain truly superior long-term returns is to grind it out until you’re up 30 or 40 percent, and then if you have the convictions, go for a 100 percent year. If you can put together a few near-100 percent years and avoid down years, then you can achieve really outstanding long-term returns.
The True Nature Of Predicting
Posted by Ivanhoff on May 26th, 2015 at 8:30 am
Jon Boorman has an interesting piece on the futility of making market predictions. Long time ago, Phil Pearlman wrote an insightful post, pointing out the […]
Is Shake Shack The New Chipotle?
Posted by Ivanhoff on May 21st, 2015 at 10:41 am
Everyone has been looking for the next Chipotle. From a strictly price action perspective, $SHAK’s trend has been a lot more smoother and powerful than […]
What Is The Role Of Luck In Success?
Posted by Ivanhoff on May 12th, 2015 at 8:15 pm
I am currently listening to “The Virgin Way” audiobook by Richard Branson. One of the more interesting stories so far covers the subjects of good […]
When In Doubt, Stay Out
Posted by Ivanhoff on May 6th, 2015 at 5:13 pm
When an event repeats frequently, it becomes a pattern. A pattern, in which a lot of people wholeheartedly believe in and act upon. Buying oversold […]
The Science Behind Achieving High Market Returns
Posted by Ivanhoff on May 5th, 2015 at 3:22 pm
What does it take to achieve 20% return in a year? Let’s make a few assumptions first. Then we are going to elaborate on why […]
Posted by Ivanhoff on May 4th, 2015 at 3:38 pm
One of my favorite movie quotes ever is from the movie Batman Begins: “It is not who you are underneath that defines you. It is […]
The Investment World Is Full of Yelps, Apples Are Rare
Posted by Ivanhoff on April 30th, 2015 at 4:02 pm
Many people look at Apple’s price history and assume that most high-growth, momentum stories have a similar path – up and to the right; always […]
What Does It Take To Catch A 100% Move In A Stock?
Posted by Ivanhoff on April 27th, 2015 at 6:43 pm
You can’t catch a 20% move in a stock if you are not willing to lose 5-6%. This is often a normal pullback within many […]
Dr. Brett Steenbarger On How To Become A Better Trader
Posted by Ivanhoff on April 14th, 2015 at 8:54 am
Brett Steenbarger is one of the most consistent and prolific financial writers, who is also a trader. I highly recommend following his blog TraderFeed and […]
- About Bulls, Bears and Pigs
- The True Nature Of Predicting
- Is Shake Shack The New Chipotle?
- What Is The Role Of Luck In Success?
- When In Doubt, Stay Out
- The Science Behind Achieving High Market Returns
- Empathy Gap
- The Investment World Is Full of Yelps, Apples Are Rare
- What Does It Take To Catch A 100% Move In A Stock?
- Dr. Brett Steenbarger On How To Become A Better Trader
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
- August 2013
- July 2013
- June 2013
- May 2013
- April 2013
- March 2013
- February 2013
- January 2013
- December 2012
- November 2012
- October 2012
- September 2012
- August 2012
- July 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- November 2011
- October 2011
- September 2011
- August 2011
- July 2011
- June 2011
- May 2011
- April 2011