Archives of “stanley druckenmiller” tag

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The Legends Are Abandoning the Markets

  
Analysis, Education
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The legends are abandoning the markets. 

Stanley Druckenmiller founded his hedge fund Duquesne Capital in 1981. From 1986 onward he maintained average annual returns of 30%. He also managed George Soros’ Quantum Fund from 1988-2000. During that latter period he famously facilitated Soros’ “breaking of the Bank of England” trade: the legendary trade which netted over $1 billion in a single day. 

Druckenmiller closed Duquesne Capital in 2010, stating that he was no longer able to meet his investment “standard[s]” in the post-2008 climate (he made money in 2008 before the Fed began to alter the risk landscape). 

Druckenmiller’s key strength has always been macro-economic forecasting. That he would feel the capital markets were not offering him the opportunities he needed says a lot. 

Seth Klarman is another investment legend who is returning capital to clients. Widely considered to be the Warren Buffett of his generation, Klarman recently cited a lack of “investment opportunities” as the cause for his decision to downsize his legendary Baupost Group hedge funds. 

Other legends or market outperformers who have returned capital to investors or closed their funds to outside investors are Carl Icahn and Michael Karsch. Indeed, even value legend Warren Buffett is sitting on the single largest amount of cash in the history of his 50+ year career as an investor, stating that stocks are “fully valued” at current levels (Buffett largely does not believe in shorting the market, so his decision to be in cash is a strong indicator of opportunities). (more…)

Is The Market Always Right?

  
  Education
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George Soros likes to joke that market has predicted seven of the past two recessions. And he is right. Since the market is forward looking, it will sometimes discount fundamentals that will never become a reality.

Prices reflect people’s expectations about the future, mostly about the near-term future. To say that the market is always right means to assume that people’s expectations about the future always come true. We all know that this is not the case. No one has a crystal ball. People are often wrong.

Is the market always right?

No, but this does not stop people who follow price trends to make a lot of money. The market could remain “wrong” (irrational) for a very long period of time and even become “wronger”. (more…)

George Soros :Great Investor & The Ultimate Trader

  
  Education
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On September 16, 1992, Soros’ fund sold short more than $10 billion in pounds, profiting from the UK government’s reluctance to either raise its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries or to float its currency.

Finally, the UK withdrew from the European Exchange Rate Mechanism, devaluing the pound. Soros’s profit on the bet was estimated at over $1 billion. He was dubbed “the man who broke the Bank of England”.

Stanley Druckenmiller, who traded under Soros,  was the genius behind the idea. Soros just pushed him to take a bigger size. In this case, the bigger size was one of the reasons why this trade worked. What is more important here is to highlight their position size. They risked their entire YTD gain (they were up 12%).

Just to give you a perspective of how ballsy it is to risk 12% of your capital on one trade, consider the following simplified example:

Let’s assume that your trading capital is 200k and you want to buy a stock at $50 with a stop at 47; hence you risk $3 per share.

Risking 12% of your capital, means 12% * 200k = 24,000.

Divide 24,000 by the amount you risk per share ($3) to get the total number of shares you could afford to buy, which in this case is 8000 shares. (more…)

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