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Investing lessons from trading legend Stanley Druckenmiller



If you look at Stanley Druckenmiller’s track record, you’ll find it’s well deserved of all the titles that have been given to him like, “greatest money-making machine in history”, a man with “Jim Roger’s analytical ability, George Soros’ trading ability, and the stomach of a riverboat gambler”.

When you study Druckenmiller you realize that he was built in a laboratory, deep in a jungle somewhere, where he was put together piece by piece to create the perfect trader. Every character trait that makes up a good speculator.

Druckenmiller always knew that ‘Liquidity’ is the expansion and contraction of money, specifically credit. It’s the biggest variable that drives demand in an economy. The federal reserve has the biggest lever on liquidity. This is why a trader needs to keep a constant eye on what the Fed is doing.

Druckenmiller always believed that the market is a future discounting machine, meaning earnings matter for a stock, but more so in the future than in the past. Most market participants take recent earnings and just extrapolate them into the future. They fail to look at the mechanism that drives the bottom line for a particular company or sector. The key to being a good trader is to identify the factors that will drive earnings going forward, not what drove them in the past.

What makes him a star?

Druckenmiller throws conventional wisdom out the window. Instead of placing a lot of small diversified bets, he practices what is called the “Big Bet” philosophy, which consists of deploying a few large concentrated bets. To earn superior long-term returns, you have to be willing to bet big when your conviction is high. And the corollary is that you need to protect your capital by not wasting it on a “bunch of stuff” you don’t have much conviction on.

The main reason behind his success was that he loved this game and to get to Druck’s level, you have to trade because that’s just what you do. It’s what you have to live for, the thrill of the chase.

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