Investment mogul Stanley Druckenmiller: My advantage is not my IQ, but my decisiveness in pulling the trigger; I regret selling Nvidia "to the core."

Facing the current market environment, Druckenmiller pointed out that the U.S. economy is already very strong and will become even stronger under a large amount of stimulus policies, and the Federal Reserve is unlikely to raise interest rates and may even cut rates. Based on this macro background and the expectation of "huge disruptions and changes" in the next 3 to 4 years, he has constructed a long-short intertwined investment matrix. On February 28, Morgan Stanley released the "Hard Lessons" series of interview videos. In this interview, Iliana Bouzali, Global Head of Derivatives Distribution and Structured Business at Morgan Stanley, had an in-depth conversation with legendary macro investor Stan Druckenmiller. As the founder of Duquesne Capital Management, Druckenmiller achieved an astonishing annualized return of about 30% from 1981 to 2010, with no losing years. According to a previous article from Wall Street Insight, both Treasury Secretary Bentsen and Federal Reserve Chair candidate Waller are disciples of Druckenmiller. In terms of foreign exchange and commodities, he bluntly stated, "We are bearish on the dollar." He believes that the dollar's purchasing power is at the top of its historical range, and foreign investors are heavily over-allocated to the dollar. As trade balances and positions adjust, "the dollar will decline on its own." At the same time, he is heavily long on copper and gold. His bullish stance on copper is based on an extremely tight supply chain over the next eight years and the significant incremental demand brought by AI data centers; while holding gold is mainly based on geopolitical considerations. In the bond market, Druckenmiller chose to short U.S. Treasuries. His logic is very clear: "If I am right about the economic trend, this is a growth that is disinflationary, I can probably break even and not lose money, which allows me to continue holding other risk assets; but if I am wrong, strong growth triggers inflation—if the Federal Reserve cuts rates during an economic boom leading to soaring inflation, that wouldn't be surprising—we could make a lot of money." Investment Philosophy: Contrarian Investing is Overrated, the Advantage Lies in "Pulling the Trigger" Reflecting on his decades-long investment career, Druckenmiller has reconsidered the popular investment dogmas in the market. He believes that with the influx of quantitative and smart money, the effectiveness of traditional "technical analysis" is now only 20% of what it used to be, and the strategy of "good news not leading to price increases must result in a big drop" has also failed because everyone has learned it. Regarding contrarian investing, his viewpoint is very sharp: "I think contrarian investing is overrated. Soros once said that the crowd is right 80% of the time. You just can't get stuck in the other 20% because that will wipe you out... But I do like to invest when I have extreme conviction and others do not believe, as it gives me stronger confidence. As long as the logic is right, I don't care whether a trade is crowded or not." When discussing his unique and irreplaceable success, he candidly attributes it to an indescribable intuition and execution ability. "My advantage is not my IQ, but my ability to pull the trigger (to act decisively)," Druckenmiller said. "My mother-in-law says I'm a 'idiot savant.' I couldn't even make the top 10% in my class. Many people think I'm smarter than I actually am, but I only possess a very narrow form of intelligence that allows me to love and play this (investment) game well." He particularly emphasized the most important lesson from his mentor George Soros: "It's not about whether your judgment is right or wrong, but how much you made when you were right and how much you lost when you were wrong." Interestingly, this legendary figure suffered from "imposter syndrome" for the first 15 years of his career, not believing for a long time that his performance was not due to chance. "I can't stand success," selling Nvidia too early Once, Druckenmiller's investment portfolio was heavily influenced by AI, but over the past six months, he has significantly adjusted his positions. When discussing Nvidia, the most notable AI star stock over the past two years, he shared a dramatic and somewhat regretful trading experience. As early as mid-2022, noticing that top talents from Stanford University were shifting from cryptocurrency to AI, Druckenmiller bought Nvidia at the strong suggestion of his young partner. Two weeks later, the launch of ChatGPT made him "truly understand the immense significance of this," so he immediately doubled his position. Then, during a macro call at Morgan Stanley, a tech analyst's viewpoint prompted him to double his Nvidia position again. "I must admit, three months ago I didn't even know how to spell Nvidia," Druckenmiller confessed. As Nvidia's stock price soared from $150 to $390, he publicly stated he would never sell in the next two to three years. However, when the stock price actually reached $800, he broke his promise. "I can't stand success," Druckenmiller joked, "It went from $150 to $800. I was supposed to be a long-term investor, but I didn't know how to handle it, so I sold it. Then five weeks later it went to $1400, and I was kicking myself." He humorously summarized his current trading mindset: "I backed down, I've always backed down. I'm 'Mr. Taco,' just not T, it's DACO (Druckenmiller Always Chickens Out)." Looking for overlooked corners: Heavy investment in generics and biotech As AI trading became "unsettlingly frenzied" and began to show shadows of the 1999 internet bubble, Druckenmiller turned his attention to more cost-effective corners. He highlighted the Israeli pharmaceutical company Teva (TEVA). At the time of purchase, the company had a price-to-earnings ratio of only 6 times, and was in a high-growth phase transitioning from low-margin generics to biosimilars and innovative drugs. However, there was a severe pricing error in the market: "Value investors hated this growth strategy and sold the stock, while growth investors had yet to realize this shift." "After they built their position at $16, the stock has now risen to $32, and the price-to-earnings ratio has been revalued. In addition, he is making a big push into the biotechnology sector. He pointed out that the biotechnology sector has been at the bottom for four years, and as a board member of the Sloan-Kettering Cancer Center for 30 years, he knows well that, "The best application of AI is in biotechnology, including drug discovery, diagnostics, and monitoring." Here is the original dialogue: Druckenmiller: I think contrarian investing is overrated. But I do like those moments when you have a strong conviction and no one believes it, which actually strengthens my conviction. Narrator: Welcome to Morgan Stanley's "Experience Talks," where iconic investors reveal the key moments that shaped their achievements today. Today's guest is legendary macro investor Stan Druckenmiller, and the interlocutor is Irina Buza, Head of Global Derivatives Distribution and Structuring at Morgan Stanley. Druckenmiller managed Duquesne Capital Management from 1981 to 2010, achieving an annualized return of about 30% with no losing years. He now leads the Duquesne family office managing proprietary capital and is also a philanthropist dedicated to education, medical research, and anti-poverty efforts. Buza: Stan, thank you very much for joining the interview. Druckenmiller: I'm glad to be here. I value Morgan Stanley highly, so this is the least I can do. Buza: It's our honor to have you. Over the past year or so, I've had the privilege of learning about some of your stock trades, and it seems you sometimes enter positions early. I'm curious if you could take us through one or two examples and tell us how they came about. Druckenmiller: I'll pick an example that might surprise you; it's not very glamorous and has nothing to do with artificial intelligence, but I think it illustrates our process at Duquesne well. Last summer to fall, AI started to get overheated and unsettling, at least reminiscent of what I experienced in 1999 and 2000, so we began looking for other areas. The team brought in Teva Pharmaceuticals, and if you don't know the situation, you might think it's just an unremarkable generic drug company from Israel with a price-to-earnings ratio of only 6 times. We met with the company's management and found they were undergoing a significant transformation. Richard Francis joined, who had executed the same strategy at Shire. He impressed us; he knew how to pick the "low-hanging fruit" in operational efficiency. But more importantly, he was transforming the company from a generic drug company into a growth company by embracing biosimilars and even some truly innovative drugs, which was the reason for their low price-to-earnings ratio of only 6 times. Surprisingly, the investor base at that time was value investors who were not optimistic about it. Therefore, the stock price remained at a 6 times price-to-earnings ratio while incredible changes were happening internally, but almost no one believed him. Growth investors didn't want it because they hadn't seen the transformation happen, and value investors didn't want it and were actually selling because he was executing a growth strategy. That was about six or seven months ago when the stock price was $16 Today the stock price is $32, and there haven't been many substantial changes during this period, except that it has proven the feasibility of biosimilars, and they have also launched a non-generic drug. So the valuation has been re-priced from 6 times earnings to, I guess, 11.5 or 12 times. The situation with this deal is completely different, but it summarizes what we are focused on. If you only look at today, you won't make money. You have to look forward and think about what might change and how investors will view certain things in the future. This deal has progressed a bit faster than I expected, but it's a recent example. Buzali: Very intriguing. I say it's intriguing because many people, perhaps those outside the market, but certainly many people, when they think of Stan Druckenmiller, they think of a super macro investor. But I see you involved, not just involved, but really diving into those more segmented areas of the market, especially in stocks like healthcare or biotechnology. My question is, do you have to become an expert, to be that kind of analyst who understands the entire drug development pipeline to get it right? Druckenmiller: Thank goodness, the answer is a resounding "no." But I have to have an expert at Duquesne, he has to be, and I have to trust his judgment, and then I have to have a sense of how the market will accept the changes he describes. But we have indeed made a big push into biotechnology. I can feel the potential leadership sector switch, just because of the fear of artificial intelligence. And I have served on the board of the Sloan Kettering Cancer Center for 30 years, so I know that the best external application cases for artificial intelligence might be in the biotechnology field, through drug discovery, diagnostics, monitoring, and so on. And biotechnology had been in a slump for about four years at that time. I also grew up on technical analysis, and you can see the momentum changing. So that's the logic behind investing in biotechnology. But honestly, when analysts start talking about gene sequencing, gene editing, and proteins, Stan doesn't understand it. But I can feel their level of enthusiasm. We have a very excellent biotechnology team, which is very important because I trust them. When they are truly passionate, that is as important to me as the actual facts because I'm not smart enough to understand a lot of the actual facts. Buzali: So you're filtering not just the data, but also the people who work for you. Druckenmiller: Yes. My strength is not my IQ, but my ability to pull the trigger. I admit that this is a kind of wisdom, but my mother-in-law says I'm a "dummy genius." I don't even rank in the top 10% of my class, and many people think I'm smarter than I actually am because I'm very good at what we do. But I have a very narrow kind of wisdom that allows me to love and play this game well. Buzali: I know many people want to delve into your mind and understand your thinking model. You talked to us about your way of thinking. I have a very candid, basic question: how much of this is teachable, and how much is innate? Druckenmiller: Listen, I was given a gift, a gift for making money grow, and I don't know why. Of course, part of it is innate; you either have the skills required to be in this business or you don't. That said, I had a great mentor when I started in Pittsburgh, and I find that great investors often have extraordinary mentors, which is common. So for me, having this innate skill or talent is a necessary condition, but having a mentor on top of that is almost a necessary condition as well. I'm sure there are some people out there who don't have that, but for me, it's a combination of both. I was lucky to have two mentors. One taught me all the things we're talking about now. Then there was Soros. Interestingly, when I first went there, I thought I would learn what makes the yen go up and down in the market. Without being modest, I found that I understood this much better than he did. What I learned from him was position management. The key is not whether you are right or wrong, but how much you make when you are right and how much you lose when you are wrong. This is an invaluable lesson. So, you can have some talent, but without a mentor and someone to teach you, you can't maximize your talent like you can with them. Buzali: Should we talk about the market? Druckenmiller: Do we have to? Buzali: With you, it seems inevitable. Druckenmiller: Alright. Buzali: So, when it comes to the market, it seems to me that you approach it not so much as a prediction, but more like a self-revealing system. Let's assume you don't have a hedge fund, and you've just come down from Mars, and you have to build a portfolio from scratch. At this point in time, how would you anchor it? What would you buy first? Druckenmiller: That's a tough question. Before we start, let me state a few basic principles. In my view, the U.S. economy is already strong, and it will become even stronger because we are seeing the "Inflation Reduction Act" and a lot of stimulus measures. I guess the Federal Reserve will definitely not raise interest rates and is likely to cut them. So that's the backdrop. But if we were undervalued in this context, that would be fantastic. We are not undervalued; we are at the high end of the historical valuation range. The exciting thing about building a hedge fund portfolio now is that the only thing I'm certain of is that there will be huge disruptions and significant changes in the future. So I'm really excited about the opportunity set for the next three to four years. Macro has been quiet for 10 or 15 years, and I don't think that's the case anymore. If you know me, I tend to change my mind every three weeks. But given the current backdrop, we might go long a more diversified stock portfolio. Because for the three years leading up to last fall, our portfolio was largely driven by artificial intelligence. We still have some sporadic AI positions, but to some extent, it is no longer the driving engine. We still have large positions in Japan and South Korea, some of which are AI-related and some are not. We are bearish on the dollar, mainly because purchasing power parity is at the top of its historical range, and foreigners are heavily overexposed to the dollar I don't know if this is a "sell America" trade, but it seems more like if they don't net buy American assets due to trade balance and position conditions, the dollar itself will decline. We believe this is the most likely path. We hold copper, which is not a genius trade, but a large consensus trade. There is no new, meaningful supply for the next eight years, which is very tight. Clearly, demand from artificial intelligence and data centers will see significant growth. We are not long on copper equities that much; we are just continuously rolling near-month contracts. I have some gold, which is mainly a geopolitical trade, not so much a monetary trade. Then, because we are long on all these risk assets I just mentioned, we are shorting bonds. I don't necessarily expect to make money by shorting bonds, but if my economic judgment is correct and it is deflationary growth, I might break even, not lose anything, but it allows me to hold the other assets I mentioned. If I'm wrong and strong growth triggers inflation—if the Federal Reserve cuts rates during an economic boom and inflation rises, especially considering the trends in commodities—that wouldn't be too unusual. So I keep an open mind about it. But we have built a matrix where bonds are helpful in both scenarios. Buzali: Over the past decade, the stock market has changed significantly, with various new types of capital emerging, whether multi-strategy hedge funds, retail investors, quantitative traders, or ETFs. How has this changed your sense of the time horizon for hedging compared to ten years ago? Are you more comfortable with trades over a week, a month, or a year? Or perhaps there are no rules, how do you think about it? Druckenmiller: Most of the trades I make have a time horizon of 18 months to three years; I think they may take that long to evolve. Not every trade is like that; some are a year, some are five years. But I admit I have made a three-year trade and ended up exiting five days later, even reversing. However, if you ask me how I conceptualize it, all this noise about how the market system has changed has not changed what I just said. The extreme volatility it brings is more useful for entry points, especially if it contradicts my beliefs within a specific time frame. So, I think a lot of it is noise. It makes my life annoying because I would prefer the market to move smoothly and directionally, but it also creates opportunities; you have to take advantage of volatility rather than be abused by it, aside from the mental abuse—I certainly would have that. But you can't let yourself be a victim of volatility; you can leverage it, it's just mentally difficult. Buzali: But you have said you prefer trending markets, which makes sense. I sometimes wonder if you are more suited to going against the trend; is that the idea? Or do you more accept the consensus? How do you see it? Druckenmiller: I think contrarian investing is overrated. Soros often says, the crowd is right 80% of the time. You just can't get caught in that other 20% of the time because that will cost you dearly. There is some intellectual satisfaction in gaining from contrarian investing. But as a concept, I think contrarian investing is overrated However, when I have a strong belief and others do not believe, I really enjoy it; it makes me more certain. I don't care if the trade is crowded; if I think the investment theme is right and the trend is favorable to me. I care about the entry point, but I don't really care about the investment itself; it doesn't bother me. Buzali: We had an investor Zoom call in December 2022, discussing macro, interest rates, the dollar, and comparisons between the U.S. and the rest of the world. After we talked for a while, I asked you, what do you think about interest rates? I will basically quote you word for word. You said you don't care about interest rates at all; the only thing that matters is artificial intelligence and NVIDIA. Druckenmiller: I don't remember, but that's pretty good. Buzali: What was going on at that time? How did you see it? Druckenmiller: The NVIDIA story is interesting; it perfectly embodies the process we talked about earlier, which is that I rely on others. There are a few young superstars in my company who have personal networks, and around early to mid-2022, they started really talking about artificial intelligence. Then I began to notice that the kids from Stanford were shifting from cryptocurrency to investing more in artificial intelligence. One point we've been focusing on in venture capital is where the young people are going. We bought Palantir in 2008-2009 because it was a cool company at the time, and all the young people wanted to work there. So, my partner brought in people from the AI circle in Palo Alto, and they came in to explain artificial intelligence. Most of it I didn't understand, but I knew it was really significant. Buzali: Why did you think it was significant? It might just be a passing fad; you didn't feel that way about other fads. Druckenmiller: Because I completely trust my partner, and I believe I grasped its enormous potential. It turns out I didn't fully grasp its enormity because at that time I didn't know about large language models, but I knew all the other traditional things happening in the field of artificial intelligence. So, I asked my partner what I should buy. He said, NVIDIA, that's the way to participate in artificial intelligence. So, based on what I heard, about as much as you just heard, I bought a not-so-large position in NVIDIA, but enough to either get hurt or make some money. Then about two weeks later, ChatGPT was released, which wasn't mentioned in our conversation. Well, even for me, when I saw it could do those fundamental things at that time, I understood its enormous potential. So, I doubled my position. Then, one of the services provided by Morgan Stanley is these great macro calls, where all the macro people, including myself (thankfully I hadn't spoken yet), were articulating their views on the world — views that might only be worth fifty cents and a cup of coffee — and at that moment, an analyst from the tech sector said, "You guys are only seeing the trees and not the forest; there is something much more significant than anything you are discussing, even from a macro perspective." He then elaborated on everything I had heard about artificial intelligence three or four weeks ago But this time, between that conversation and him, I had already experienced ChatGPT. So, I doubled my position again. To be honest, three months ago I probably couldn't even spell the word Nvidia. When the stock took off, I knew from years of experience that when huge, massive changes happen, investors themselves can't keep up. Interestingly, the person who understood artificial intelligence ten times better than anyone else in the room, possibly fifty times better than I did, sold Nvidia shortly thereafter. But I knew this stock would rise for at least two to three years, and it would rise a lot. About five months later, I said in a public interview that I couldn't imagine selling Nvidia in the next two to three years because it had risen from 150 to 390. That person couldn't believe I still held it. What I meant at the time was basically not only to hold but that the development and evolution of such things couldn't possibly not rise for at least three years. Then the stock price rose to 800, and I went against everything I said in the interview. I couldn't stand the success; I held it from 150 all the way to 800, which was supposed to be a long-term investment, but I couldn't take it anymore and sold it. As a result, about five weeks later, it rose to 1400, and I felt terrible. But surprisingly, I knew so little about Nvidia that I couldn't even tell you what its earnings were. Buzali: This is a reflection of confidence. It's precisely because you are Stan Druckenmiller that you can speak so candidly about your views on these matters. I think this is very inspiring for the fund managers growing in the industry, who often feel the need to be at their intellectual best all the time. What I learn from this is that the ability to filter information and manage teams, rather than just staring at spreadsheets, is indeed unique and very helpful. You mentioned that you went against what you said and sold at 800 dollars. Would you have done that 20 years ago? Does this indicate that the way of trading now is more mature than in the past? Druckenmiller: Probably not. I'm not used to making six times my money on a stock in two years, and I'm not Warren Buffett. I think even if I went back to when I was in good shape 20 years ago, I would have messed it up. Buzali: What are some things in the past two or three decades that you needed to discard or had to discard? Druckenmiller: I wouldn't discard anything because those scars have always been in my mind, and they help you get through tough times. But I will say that due to some situations I wouldn't want to repeat, I was promoted too early. I was an analyst at 23 and became a sort of chief portfolio manager around 26. I never went to business school, so I never learned all the foundational knowledge needed for analysis. Therefore, I relied heavily on technical analysis—my mentor was very keen on it, and at that time, no one used it—I learned all its complex details. I can tell you clearly that the effectiveness of technical analysis today is only about 20% of what it was back then because no one used it then. But when everyone uses it, it becomes ineffective because you don't have a unique basis for taking action. It's a bit sad because it's simple and makes you lazy; you don't have to work that hard, just look at the charts instead of delving into things like 10-Q reports But technical analysis is indeed a problem. Similarly, for me, the comparison between price and news over the past two to three decades has been very important. If you have significant good news and the stock price does not react, then in 90% of cases, the good news has already been fully priced in, and the situation is not good. Unfortunately, around 2000, many smart people began to enter our industry. I think I was the only one from my class at Bowdoin College who entered finance because we experienced a decade of bear markets. As a result, every smart person learned the set of rules I just mentioned, so it is no longer effective. Back then, when a company released poor earnings and the after-hours trading dropped, it could still rise 10% the next day, and it was almost certain to be higher six months later. That is not the case now because others have learned it too. So these are two major changes. I haven't abandoned them; I just don't rely on them as much as I used to. Buzali: They have basically been overused. So conversely, have any other signals gained importance? Druckenmiller: No. There is no panacea. I benefit from 40 years of scars and successes that I can look back on, and I have a lot of pattern recognition ability because there are not many things I haven't seen in this industry. If I were to say my biggest disappointment in my career, it is that I feel I am wiser now than I was in my thirties or forties and have more trading tools, but I was a better fund manager back then because I had the courage to take bigger bets. I am trying to regain some of that courage, just because it is more fun. Buzali: So you are retreating? Druckenmiller: Oh, of course. I have been retreating for a long time. I am "Taco" man, just not T, but DACO—Druckenmiller always retreats. Buzali: So, about your other experiences, or is there a never-give-up mentality? Has that mentality made you better in this regard? Druckenmiller: No. It's just that I grew up playing games with my dad and sisters, and I am a sore loser. I love games but really hate losing. So I am very motivated; it is a pathological thing, and I don't know where it comes from, but I might as well channel it into something productive rather than just consider it a flaw because it is indeed a bit undignified. But that is the real me. Buzali: Embrace it. Finally, this show is called "Lessons Learned." Can you reflect on your life or career and share something you had to learn the hard way? Druckenmiller: I just want to say I have so many scars that you wouldn't believe it. Everyone knows how I operated during the Nasdaq bubble in '99. I sold perfectly in January and then bought back at the top. When someone asks me what I learned from that, I say, I learned nothing; I learned not to do that 20 years ago, but I got emotional, and that is something I struggle with every day. In the past, when I faced drawdowns, I would almost vomit from anxiety once or twice a week. At some point in my career, I realized that you will continue to make mistakes and continue to be emotional; that will happen from time to time. But you have a gift, so don't torture yourself for 48 hours or even longer about it Because you have been in this industry long enough and have a long enough performance record, this is no longer a random accident — I didn't believe this for 15 years. So, the so-called difficult experiences are hundreds of mistakes, but they are just moments in time. When you encounter a drawdown, if you are an excellent fund manager — easier said than done — just get through it and keep moving forward. Buzali: So, did Stan Druckenmiller have 15 years of impostor syndrome? Druckenmiller: Yes, maybe even longer. Buzali: As we conclude the interview, I want to thank you for being here. I only got to know you later in your career, and watching you think, trade, and seeing your actual operations is truly fascinating. You have generously given your time, and on behalf of Morgan Stanley, I sincerely thank you. Druckenmiller: As I said at the beginning, I don't do this for many people. I value Morgan Stanley very much, so I'm glad to be here. Buzali: Thank you, Stan. Druckenmiller: Thank you, Ilena