America's Most Profitable Investor You Never Heard Of | A Documentary on Stanley Druckenmiller

this film is brought to you by the daily upside a free unbiased finance newsletter that tells you exactly what the market is doing check out the link in the [Music] description for 30 years stanley druckenmiller has delivered 30 profit every year for his investment an unparalleled record on wall street but then at the peak of his career he closes his 12 billion dollar hedge fund at 57 having managed other people's money for 30 years he said it was enough he he didn't want the stress anymore of managing other people's money druggie miller is a legend on wall street through discipline and an unorthodox investment strategy he turned his humble upbringing into billions [Music] phineas [Music] stanley draco miller is raised in ordinary middle class household in philadelphia but there's nothing ordinary about the guy even from an early age people noticed that he was unusually smart and also kind of eccentric even as a young man dracula dreams of something better and taking a chance but he knows he will have to do it his own way in spite of his intelligence stanley dracumela was not accepted to an ivy league school he goes to a liberal arts college in maine instead but to pay for his expenses he opens a hot doc stand on campus this entrepreneurial experience given a more practical understanding of how business works i think this is one of his hallmark traits which is that he learns by doing rather than from theories miller excelled in college he becomes a ph.d candidate for economics at university of michigan but he quickly finds his courseworks too theoretical and impractical i took economics just so i could read the paper intelligently i went to get a phd in economics and i went there i said these people are crazy they're trying to shove the economy into a math formula it doesn't make any sense we have to be honest with ourselves that a lot of math has crept in for purposes of intimidation to make cryptic which is otherwise simple and to create a kind of interference competition where the field could be restricted to a smaller number of players so i think that there's a tremendous amount of abuse of mathematics draco miller realizes the phd program isn't going to teach him how to make money the only way to become rich is by actually playing a game of market he leaves the phd program and becomes a stock analyst for pittsburgh national bank and pnc's daily dracumela learns the art of chart reading also known as technical analysis technical analysis is the analysis of stock prices or maybe other speculative asset prices by looking at charts of the prices and looking for patterns that suggest movements in prices [Music] although most investors disregard technical chart patterns as useless dracula believes there's always a practical explanation behind them he doesn't look at a chart as some abstract lines for example during a bear run there tend to be a falling wedge pattern darker mellow believes that patterns like this are not random instead they represent the behavior of real traders behind them as a practitioner dracumela will use any technique as long as it makes some money he quickly masters the skill of stock predictions by combining fundamental factors such as earning industry capacity with technical analysis i like multi-disciplines in managing money so my first boss taught me technical analysis so i used fundamental analysis and technical analysis his career takes off at 25 he becomes the youngest head of equity research for the bank i've worked for a very eccentric brilliant investor who made me at the age of 25 this was 1978 director of research which was basically the number two position in the in the investment division of the bank and i was a little confused also i was a little cocky and eric and i was 25 years old so when i walked in he said to me do you know the reason i'm promoting you above all these people i said no he said for the same reason they sent 18 year olds to work you're too stupid and young to know not to charge dracula miller becomes a market wizard for pnc bank and regularly gets invited to give talk to finance professionals impressed by drug miller a wealthy investor offers him ten thousand dollars a month just to consult with him it goes to show how much people wanted to listen to his views on the market he also realizes that if people are willing to pay him that much just to speak with him he could very well start his own fund he raised one million dollars at the age of 28 truckee miller started his own hedge fund duquesne capital in 1981 in a dangerously unstable market it will be a true test of his ability the decade of 1970s is known for its out-of-control inflation earlier president nixon abandoned the gold standard destabilizing the currency by the end of it the economic suffering of the middle class has led to the election of a populist president ronald reagan but during the first year as a president his policy doesn't seem to work an economic crisis is looming behind every crisis there's an opportunity after starting his hedge fund at the age of 28 stanley druckenmiller is ready to make a fortune by riding this financial storm inflation is our friend people don't like to raise interest rates it's not very popular and there was some resistance and fear of creating a recession and so forth the trick of investing sometimes is not about predicting a future event it's about knowing how much other people know about this event so in this case drucker miller buys a lot of long-term bonds because people don't yet realize about this crash and when they know a crash is coming they will bid up the price of long-term bonds and drucker miller is set to make a fortune draco miller's bare play pays off by may 1982 an economic recession has fully materialized he makes almost 50 profits and more investors start giving their money to this young hedge fund manager with a total of seven million dollars assets under management finance is an interconnected game sometimes it's impossible to fully avoid the ripple effect of a crash although dracumela made great returns one of his consulting clients went bust his phone lost a major income source to pay for his overheads druckenmello is forced to sell 25 percent of his management company to raise 150 grand [Music] it turned out his difficulty was only temporary a year later his fund grows to 40 million dollars once unable to pay for its college tuition now draco miller is about to make more money than what he could possibly dream of like all investment funds mutual funds started out by delivering impressive returns to their investors in the early 1980s funded by the dynamic investor jack dreyfus dreyfus funds is one of the pioneers in the mutual fund industry but as any industry grows competition leads to lower profits drivers fears that if their fund does not outperform the market it will go under they must find someone who represents a new breed of investors who aren't indoctrinated by the old investing paradigm stanley druckenmiller seems to be the most likely candidate for them but he isn't about to quit his own profitable fund and joins dreyfus dreyfus is willing to accept any conditions from him as long as he agreed to run their fund from drivers perspective they're looking at druckenmiller as a money-making machine that could double or triple their assets in just a few years hiring druckenmiller is a genius move at dreyfus he actively trades stocks bonds and currencies his performance outshines every other money manager at the company draco mello continues to hone his unique trading strategy which is a combination of valuation and technical analysis determined to get the most out of this young talent drivers decide to let him take over five funds all at the same time by the end of 1986 all of them are up at least 40 percent it's hard to see that kind of returns today for essentially a collection of mutual funds reagan's economic policies led to a boom in the stock market they love the fact that shoppers are out in full force and say business has never been better with an audacious trading strategy druckenmiller makes tens of millions of profits for a mutual fund company called dreyfus his use of technical analysis allows him to time the market a skill mastered by few but what worked in the past may fail to work today that seemed to be the issue with chart rating because the market doesn't always react the same way especially during periods of extreme volatility drunken miller is about to learn this lesson the hard way trading is a competitive game to have an edge over your opponents it all comes down to information i want to thank the daily upside for sponsoring this video the daily upside is a free business and investing newsletter that over hundred thousand people subscribed to myself included in today's internet age the signal to noise ratio is unbelievably small that is why a group of former investment bankers journalists and scholars came together they started the daily upside with the intention to provide a clear precise picture of the market instead of pushing clickbait headlines and bias news the daily upside provides you with a news information that you can actually take actions on every weekday they deliver a morning brief followed by more detailed stories that are shaping the business world i'm a big believer in creating impactful content and i think the daily upside is doing exactly that they provide high level unbiased analysis that will help you stay ahead of your game click the link in the bio and join me to read the daily upside every morning the warning signs of stock market crash are evident economic growth has slowed while inflation is still climbing the strong dollar is putting pressure on u.s exports the stock market is getting overvalued with a p e ratio way above 20. druckenmiller knows the market is set for a correction a bubble is destined to burst eventually to pull the trigger on shorting the market he needs to verify that his technical indicators are in place but on friday october 16 1987 he sees all the technical signals to suggest that the bolt run will continue for a while since the dow has come down to 2200 from 2700 he believes it was oversold and that there's a tremendous support near that 2200 level it will likely go up the next monday so he goes all in in the stock market and even borrows 30 percent to boost his potential returns he executes his trades just before the market closes and has to meet his mentor george soros [Music] like draco miller sorrows has built a strong bold position on the market hoping to catch one last ride before it crashes during the meeting soros shows a report to druckenmiller written by relatively unknown money manager paul tudor jones in the report jones demonstrates a historical pattern that draco miller was unaware of paul tudor jones convincingly laid out his argument that a crash is imminent trucker miller falls into a great panic he devices an exit plan come next monday morning if the dow drops anything below 30 points he will sell his entire position fortunately that morning the market didn't quite grasp that a storm is here it actually bounced back from that negative 200 points for truckee miller he got out without losing much money he actually went net short by the end of october 1987 wall street is in ruins even sorrows lost 200 million dollars but drucker miller's fund actually went up all thanks to his quick actions to colossus on that fateful morning of 1987. most investors lack discipline they get excited when things are great in a situation and it's usually already in the price i think as long as you're disciplined and you stick to it you make money um i have the polar opposite investment philosophy i'm a um put all your eggs in one basket and watch the basket carefully even though sorrows lost money on black monday drucker miller's admiration for him hasn't diminished george soros is perhaps the greatest speculator in finance in his first decade running his quantum fund he achieved three thousand percent return the 1987's crash makes sorrows want to retire sorrows knows without audacious risk-taking his fund's performance would diminish he needs to find someone to take his place impressed by dracumela's ability to time the market soros believes he is a perfect successor drunken miller independently discovers that there is a dance between market fundamentals and its price it is like sorrel's theories of reflexivity which holds that there is a feedback mechanism between market fundamentals and market pricing at age 36 stanley druckenmiller becomes the second most important guy in quantum fund but to become number one he needs to impress his boss even more soon historical world event will present him an opportunity to do just that with the berlin wall coming down the deutsche mark falls with it draco miller sees this as the best opportunity to bite the marks typically when there's a budget deficit increase of a country is currency value tends to decrease but there is an exception to this role in sars book the alchemy of finance he argues that physical deficit plus expressionary physical policy plus tight monetary policy equals increase of currency value the wall came down i had a very very strong belief that germans were obsessed with inflation and when the wall came down and it looked like they're going to merge with east germany the world's thesis was this is going to be terrible for the deutsche mark my thesis was the bundesbank is the most powerful institution in germany the public's obsessed with inflation and they will do whatever it takes on the right side to keep that currency strong and there's no way the deutsche market's going down in fact the place is going to grow like a weed with all this labor from eastern germany he goes all in building a position worth two billion dollars [Music] we were all revolutionaries and the revolution has been a success 1989 is the last year of reagan's presidency under his role america has been on the roller coaster ride leaves the oval office with a 220 billion dollars deficits the us economy is at a turning point after just three years running the quantum fund by 1992 miller has nearly tripled the funds assets solely for organic growth a record surpassing that of even sorrows himself as the u.s economy is shaking and the world gets more chaotic drucker miller is ready to capitalize [Applause] on when europe got together to form the eurozone i think it was probably one of the greatest accomplishments of mankind ever it was an amazing thing that all those countries after centuries of war not just world war ii and world war one but no napoleonic wars franco-prussian wars hundred years of war war the roses 30-year war got together and you think you can hold hands and say let's learn to live in peace to force the eu as a collective economy they set up erm the exchange rate mechanism in 1979 hoping to gradually transition to a single currency but western europe is a collection of countries with vastly different cultures some value hard work and discipline while others value leisure but by 1992 strong currencies like french franc and germany mark carry the rest of the weak currencies but joining the erm failed to bring instant prosperity britain had already been sliding into recession over the next 18 months it got much worse after britain suffers a recession it becomes harder to maintain the ratio of pounds against german mark to save their economy the bank of england will have to print more money which breaks the erm or the british economic suffering will get even worse typically when a central bank prints more money the currency value will decrease and the stock market will go up this is what should happen with britain but the central bank is very hesitant to act a crisis is brewing to drug and miller this is a potential killing of a lifetime just before pulling a trigger he consults sorrows i'll never forget i walked into his office and told him the fund at the time was seven billion dollars that i wanted to put a seven billion dollar position on um along along the deutsche mark and short the pound i explained my reasoning to him which i thought was very sound he looked at me with like the most disgusted look and i was getting angry just with the with the body language feedback i was getting and he said look um you only get an opportunity like this this is a one-way bet maybe two three times in your career and you're just not betting enough i we shouldn't put 100 of the fund in this trade we should put 200 percent of the fund in the trade because the most you can lose it is a half a percent and you can make 20 in it so your risk reward is tremendous and i said go for the jugular go for the kill rather than simply shorting the weak currencies he also bets on the security markets that will be affected by the currency realignments by september 10th after sorrows and dracula fully execute their trades they wait today has been an extremely difficult and turbulent day the government has concluded that britain's best interests serve by suspending our membership of the exchange rate metals when a dust settles quantum fund pocketed one billion dollars profit under drug and miller's management quantum fund goes up 69 in 1992 at 72 percent a year later hiring druckenmiller was the best investment decision made by george soros drucker miller has made more money for sorrows than he could have made himself by 1999 quantum fund has grown to have 8.2 billion dollars assets based on their past performance they can make another two billion dollars the year after except the market has changed such a change will throw everything they learned about the market out of the window and make them rethink about what it means to be a traitor computers are supposed to make life easier about one in three american households has bought that theory and purchased a pc by the late 1990s the age of information has dawned if if you don't get on this technology boom if you don't compete if you just kind of look around and resent that you're falling behind you're gonna just be left in the dust you're gonna miss the whole thing even though sorrows and draco miller have been making ungodly amount of money using their knowledge of the market they are unaware that a deeper change is happening the effect of technology and information is a pattern they haven't seen before in 1998 dracumela realizes tech stocks represent an opportunity for a massive return based on his knowledge of stock patterns he makes a healthy profit that year by the start of 1999 he doubles down but he ignores one factor small retail investors have flooded in as never before that was virtually a new development on wall street before that the players in finance are professionals whom druckey miller understands he knows their behavior and made a bloody fortune out of it the massive participation of retail investors makes the market structurally unstable from its peak in 2000 the nasdaq technology index had lost three quarters of its entire valley draco miller certainly finds himself in an unfamiliar situation by april 29 2000 quantum fund is down 22 percent for the year in january of 2000 after writing that tech home to a tee and making billions of dollars in 99 i sold everything out in january and i had a couple of internal portfolio managers at soros who didn't sell out and they had these it was a smaller portfolio but they made 30 after i sold and i just couldn't stand it anymore i'm like watching them make all this money every day and like for two days i'm like ready to pick up the phone and buy this stuff back and you know there's a little devil there and then the angel and she's saying don't do it and he's saying buy it and i pick up the phone and i buy them i might have missed the top of the dot-com bubble by an hour i ended up losing three billion dollars unable to accept his failure druckenmiller quit quantum fund and goes back to solely managing his own ducang fund [Music] i had quit quantum and duquesne was down 15 and i had given up on the year and i went away for four months and i didn't see a financial newspaper i didn't say anything so i come back and to my astonishment the nasdaq has rallied back almost to the high turkey miller immediately realizes that this is a chance to recover his previous losses when the price of oil has gone up the dollar has gone way up and it's gone up since i was on my sabbatical and i knew that normally this particular cocktail had always been negative for earnings in the us economy so i started buying very large positions in two and five-year us treasuries so i keep buying these treasuries and greenspan keeps giving these hawkish speeches and they have a bias to titan and i'm almost getting angry and every time he gives a speech i keep buying more and more and more and that turned out to be one of the best bets i remain and again there was no price movement i just had such a fundamental belief so sometimes it's price sometimes it's just such a belief in the fundamentals in 2008 his fund achieves a positive return while the rest of the market is gutted but he comes to realize that it is getting more difficult to maintain his performance by 2010 the world has changed beyond recognition never in history have the world economies being so interconnected drucker miller decides to return his investors money and stops trying to live up to his past performance well let's be clear i'm not making 30 a year anymore since i retired and i'm not running the size i used to and i do feel like i left so much on the table however since his retirement the market has entered into an unprecedented boom the structure of the market has evolved even further and retail investors once again are flooding the market there just there have been a number of instances over my career where it was very clear to me that the world had changed the world changed on 9 11. the world changed when the wall came down in germany the world changed the night donald trump was elected and these set in place usually two to four year trends of concentric circles you can play and i've always felt comfortable again i'm not the man i used to be of jumping in big with a thesis and if it's working staying with it thanks again to daily upside for sponsoring this video if you haven't subscribed already click the link in the bio to receive their weekday and weekend edition absolutely free [Music] you

Channel: FINAiUS

Views: 731,167

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Id: BtMNls7O3FY

Length: 27min 39sec (1659 seconds)

Published: Mon Jan 24 2022