Investing Career & Duquesne Capital | Stan Druckenmiller

let's talk about before we you present some of your slides but let's talk about your career and shift to that weird world I forget I grew up in a small town three small towns in South Jersey until I was nine and then I moved to Richmond Virginia when I was nine I was there until I was 18 and and what did you study in college and what were your early career aspirations you didn't always want to be an investor I was an English major my first two years and I want to be an English professor my first semester of my junior year I took a course in economics so I could read the newspaper because I wasn't very good at it even though I was supposedly an English major and fell in love with a subject and crammed an economics major and I think I took 18 on my last 21 courses where economic course is something observed like that and then I want to be an economics professor so I want to be I wanted to teach I love teaching so yeah you have teaching in your genes it sounds like at least that called early what well I also have a dropout of my genes I went to get my PhD in economics at Michigan and I lasted a semester and a half I didn't handle them as well as you guys handled him on the football field back then anyway I lasted a semester and a half and I I dropped out went to work construction for six months and then my first marriage which was a practice marriage in a 22 in a 22 out of 23 don't get married at 22 okay it was my first great cutting my losses okay actually she's cut up not me we have her here anyway she lived in Pittsburgh and she was more connected than I was and I got a job at Pittsburgh National Bank through her stepfather and for those who aren't in the financial services injury industry can you explain what exactly a hedge fund manager does and how is that different than a traditional money manager in simple terms I have no clue hedge fund it's become the wildest term out there under the most gigantic umbrella but I think the original concept was you used you borrowed me you were able to borrow money so you didn't just if you had a hundred dollars you might invest a 120 130 over by borrowing and your fees were a percentage of the profits you made for your client pre hedge fund you would just charge one percent of whatever the client gave you under the hedge fund format there's really the only two things they have in common is they generally use leverage and they generally charge the client as a percentage of profits okay and you started your company Duquesne capital in 1981 I believe when you started your so you know shift shift back a bit how old were you when you started your first fund and and how much did you raise I was 28 years old I was I when I was 27 I was director of investments for Pittsburgh National Bank I was running six billion dollars and I was doing a pretty good job because the Shah of Iran went under and I had no experience whatsoever so I said this is easy let's put all our money in oil stocks and defense stocks if I had been a little older a little wiser I would have diversified it went up a lot so everybody thought I was a genius it wasn't a genius better so I go to this dinner in New York I'm making 43 thousand a year and I give a presentation on the gold and the guy says you don't sound like you're from a bank why don't you want you start a firm and I said with what I'm worth about four grand and and he says well I'll pay you ten thousand dollars a month to talk to you so I started do King capital and he said you can raise money well I'm such a good salesman after a year and a half I'd raised nine hundred thousand dollars so that's what I sort of with the hundred thousand dollars two years later the guy that paid me ten thousand left to talk to me I woke up one morning and he was going to jail he had some scheme when it cost Chase Bank two hundred fifty six million by then I was up to a grand total of seven million dollars with a one percent fee for those of you who went to the wrong school I know a USC people can do the math I had seventy thousand year in revenues and my overhead was 160 and I was in deep you know what so that's how it starts so started small you started small but still you started young at 28 years old to raise a million bucks is no easy feat in the introduction I did say at the time you retired in 2010 your firm was managing 12 billion so the growth was was pretty stratospheric give us a couple quick answers just to educate us what is a typical annual return for a hedge fund these days like what's a good hedge fund return yeah I'd say people are pretty happy and pretty proud of say 12 percent 12 percent a year 12 percent a year so over the course of 30 years that you ran your fund what was your average annual return 30.4 but who's counting and and you know they're up and up and downs particularly in hedge funds because you make big bets how many down years zero zero zero down is so if you have the same question that I had which is have you invented a time machine yet and can we go back and invest in your fund the answer is no unfortunately you must have made a lot of people a lot of money and you know applying these same things so talk about your investment philosophy and why you know you got those types of results how did you do it well my idea of risk control is a little non-conventional I like putting all my eggs in one basket and then watching the basket very carefully I think I don't know what they teach it Marshall but at most business schools they teach I think a lot of nonsense called risk adjusted return and diversification as a money manager if you look at a normal portfolio most people will make 7080 percent of money that year on two or three ideas even though they'll have 30 or 40 things in their portfolio my concept was to put into those two or three ideas that I had the most conviction in I was also lucky to travel across asset classes so I traded commodities currencies bonds and equities and it gave me the discipline if I didn't have a good idea in equities I was happy to have no equities or the same thing with bonds so when you have a quiver with a bunch of arrows in it you can usually find something to put a lot of money into the only other thing I'd say is too many investors look at the present the president is always is already in the price you have to think out of the box and sort of visualize 18 to 24 months from now what the world is going to be and what securities might trade at you know what a company's been earning is redic what you have to look at is what people think what a company is earning what people think it's going to earn and if you can see something two years it's going to be entirely different than the conventional wisdom that's how you make money my first boss used to say the obvious is obviously wrong if you invest in conventional wisdom you're going to lose your butt because everyone's already there let's talk quickly about philanthropy and then we're going to go to your slides in 2008 you had a big year publicly it was reported that you made a quarter of a billion dollars in 2009 you were listed as the most charitable person in the United States giving away seven hundred million dollars to foundations supporting medical research education and anti-poverty why do you give and how do you decide where to invest your philanthropic and service dollars well the first reason I give is because I can so I don't know where it came from I was given a gift I mean I I'm good with compounding money I'm a competitive person I got an ego problem I like winning I like beating somebody it's something but it really doesn't give you that much satisfaction it is a great irony to me that my wife and I get honored when we go places forgiving and people think you're nice people I don't do it to be a nice person first of all it's a privilege and it's fun when you have this much money and there's so many things out there to be able to give it and shape things and direct things if it is it is really a source of great pleasure and satisfaction and you know to be able to meet people like Jeff and he's in the trenches I mean what he does compared to I do it's it's not even close but to be able to fund them and maybe make a difference through their efforts and still what I do for a living because I love what I do you know it's it's I do it because it's fun to tell you the truth and you can make a difference what could be a better life than doing well and I mean why wait till you're gone to get money I mean to see it at work during your lifetime it it's just a great way that there's there's statements out there about guys being greedy or whatever who don't give money away and I don't really look at that I think they're stupid I mean they have no idea that joy they're missing and you take a guy like Buffett who is revered around the world good for him the man never gave away a penny until he was 70 years old and then he hands it all over the gates to do the fun of it is getting in there and watching these great people like Jeff Canada operate and sourcing them and working with them just to write a check is not what it's about

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Length: 10min 37sec (637 seconds)

Published: Sat Oct 26 2013