Stanley Druckenmiller talks about if we're in a tech bubble, what makes a great investor, and more

with the especially last couple days uh this week's been kind of ugly for tech and uh i i know there's been a lot of talk about has growth run its path was kobit are you seeing any similarities to the dot com error 2000 and if so what are they if not what are the differences i'm seeing some similarities i'm seeing some differences okay um number one um valuations in both periods got to what i would call mania-speculative levels okay um monetary policy was part of the issue in 99 when greenspan decided he want to run run an experiment where he'd let unemployment go low levels where it had historically been it's nothing like the crazy stuff we're doing now but that helped set it up but what was really going on back then i mean think about the fact that netscape didn't really exist until 95. so other than some nerdy professors back in the early 80s no one even had email right that's all the stuff we had now so literally the internet was just sort of being built and the big winners in 99 were companies like sun micro and cisco that were building the guts of the internet constructing it so what happened was the growth was so rapid as this went on and valuations combined with some easy money got baked in baked in those growth rates as far as the art could see but think of the internet infrastructure like the railroads 150 years ago and think of the tech stocks as a company selling railroad ties building the guts of the internet so once the railroad is built while you're building the railroad your sales are going up 50 60 70 a year but once the railroad is built your growth not only doesn't go up 70 it goes down because on a rate of change basis you don't need any more railroad ties um so what none of us saw me included in early 2000 were a lot of these companies with estimates of 50 60 70 percent for the next two or three years their business was literally about to collapse so the nasdaq went down 95 percent um not 30 95. um because you had this combination of inflated values way overestimated earnings out there and then earnings collapse so today you have something similar and something different so monetary policy is absolutely insane we had no qe back then our rates weren't zero they were four or five when they probably should have been six or seven no comparison so we have an asset bubble now that's not just in tech stocks it's in everything spax dogecoin what maybe some of the young viewers disagree um you name it if you're an asset you've been moving um but what we also have back then you had this incredible wave from 95 to 2000 while the internet was being built what you have now is this incredible wave of digital transformation particularly moving on to the cloud and i used to say two or three years ago in some interviews well we're in like the bottom of the first of the second inning and this is a ten year runway um well kovitt um sort of jumped you from the bottom half of the first to the sixth inning the ninth but to the six right i think the guy from shopify said we went from 2019 to 2030 um in one year because of covet i think i think it was him i think the difference now is if you don't if you're a customer and you haven't moved to the cloud you're dead because who you're competing against they can just beat you because the technology is so important so now full disclosure i didn't see what was coming in 2000 coming but i am really hard up to come up with a scenario while this that this digital transformation thing is going to collapse and these sas companies are going to go away and the biggest problem you have now is the overall bubble in asset prices and where price got to these names in particular the good news is if we had had this conversation two months ago this the good ones were like 45 or 50 times sales not earning sales they're down to there's a range i'd say now 10 to 25 times sales for the good ones so if the problem is price and in my opinion that is the problem a lot of that has been wrung out and i think if you hold these names for three or four years they could easily grow into their valuations where if you held the names in 2000 a lot of these companies um you still have losses of 90 85 90 percent of your value right so those are the similarities and those are the differences right so to summarize it sounds like kind of the key difference it would be the monetary policy completely different and the the names themselves are just as a company and i'm looking in further out in the economy it's just the likelihood of those still existing is much higher yeah the other similarity is back then i remember a lot of value managers were virtually going out of business right at the end of 2000 one of the greatest investors of all time julian robertson who was long value and short these crazy tech names he basically threw in the towel and said he couldn't take it anymore and stop managing money in early 2000 but what happened in the next three to five years was incredible companies like phelps dodge copper companies went up six to eight fold six to eight times for for the old industrial stuff so everything julian was long um went up many fold and the tech stocks went down a lot we do have some similarities there today because these coveted companies beneficiaries so much demand was pulled forward that they got too high and too much ownership and as we're reopening there's also an ownership problem where there's probably more money that needs to rotate out of the secular growers into these i'll call them reflation names but i do want to say very differently i think these things are secular growers and they'll probably be fine long term amazon at 3200 um is not a bubble stock not not whatsoever it's basically decent value right and i don't just mean amazon but a lot of the but the big technology names yeah absolutely um just that uh as a curiosity that i see i actually asked yesterday a bunch of my twitter follows what they want to ask is do you have an opinion of any of the fang kind of names including microsoft uh who will get the 5 trillion first what a great question um i've always answered that with amazon and microsoft i've never really believed apple had the innovation to take you to the next level and it was mainly a hardware company um they obviously have morphed into the services app company but as you know i it's funny that's the one that i haven't talked about being a monopoly but when you look at monopoly behavior charging a 30 rent to all these you know little companies seems a little extreme whereas amazon and microsoft they basically don't raise price so my guess might first of all i have no idea but my number one if you put a gun to my head or we're going to vegas um would be amazon and number two would be microsoft okay um google could have a big pop ironically if the government breaks them up because their core search business is literally the best business i've ever seen um but they keep trying all this experimental stuff that challenges um shareholder value but those guys are so rich they're more interested in changing the world right now and good for them yeah they get to do uh uh mushrooms go to the desert and just think about wild things that you can do in their space with the moonshots right well said well said uh i think the question here that jan and rj had played that uh we thought would be a great follow-up was uh so what is the biggest risk to the equity market right now i think you touched on some of them has to do with i guess the valuations and just the without without a doubt it's um inflation strong enough that this fed responds to it right no doubt about it this bubble has gone long long enough and it's extended enough that the minute they start tightening the equity market should go down a lot um particularly with so much of the cap weighted in growth stocks would which would be hit the worst and our central case is that inflation occurs but we're open-minded to something like 0.708 where you never really got to the inflation because the bubble popped so the inflation never got to the manifestation stage that would be the second one in terms of geopolitical stuff it's become a popular view but um i'm worried about taiwan and i think it's probably not a worry until after the bayesian olympics right i don't think um xi jinping wants to deal with sanctions and white gods and all that but i can't imagine um he's not going to try something right post the beijing olympics and i don't think that's big stuff that's not some little thing where yemen is fighting saudi arabia if if you were to get worried about the united states and china that could be an exogenous event right to get quite nasty absolutely so to summarize then the inflation concern and the fed tightening it's kind of a big risk longer term always just taiwan is actually a massive hot spot and uh post 2022 the winter olympics there there's opportunity for something to happen that's a that's our central case as you know i tend to change my mind but right now if you're asking me what the biggest risks are it would be them absolutely all right so the next one we had here is a more more retail oriented question or actually not necessarily regional oriented but it does concern retail is uh do you see anything from uh as a long-term after effect of what happened earlier this year with wall street bets with retail being able to congregate in one place and kind of direct money flows i know in the past you've talked about the importance of liquidity and do you see any long-term effects of having the ability of millions and millions of retail investors to put their targets on a single name when i started in the business retail dominated institutions okay and you got most your information from your broker um the amazing thing about the curt the current retail investor is they have access to things like toggle so they're actually much better informed than the retail investors were in the late 80s and early 90s and with the internet um they have tools and the way you already mentioned they congregate the big risk is they're all loaded up in this stuff you know don't confuse a genius with a bull market and something exogenous talks like we're talking about and they all lose enough money that they're scarred yeah i've always thought the japanese investor would come back to the market in five or ten years after the bubble burst that was 1990 and they still haven't come back right in the market so i worry about scoring but no i think my guess is the after effect of wall street bets is here to stay and they'll probably migrate away from some of the more radioactive names like gamestop but and i think it'll actually end up being some kind of healthy information sharing that sharing network right so you didn't mention toggle as kind of a tool that can be used in these environments or just in general as an toolkit so how different would that have been you know back in the 80s to have a tool oh my god if you had toggle and nobody else did you've absolutely murdered their results right when i started in the business fed watching was considered unique and i used ned davis and other technical services and i just felt i had a huge advantage right over the general public so any tool you have like toggle which is clearly predictive of price moves but even more interesting in this case because of the mathematical capability of it can analyze thousands of thousands of securities right i only have 16 hours a day and i'm not that fast of a reader um so if you had a tool like that back then it would be like my advantages plus 5x and the way i think about toggle is i don't know how much you know about me but i've always said um i like multi-disciplines in managing money so my first boss taught me technical analysis so i use fundamental analysis and technical analysis and if there's thousands of securities out there and my portfolio is only going to consist of 15 or 20 i'm never going to buy something that doesn't have a great chart and great fundamentals right do that if you brought something like toggle into that it's just one more fantastic screening mechanism that gives me the discipline so now i've got a triple screen to hold or or buy or sell securities wow that would be invaluable and again to the public who doesn't have access to information i have as an institutional investor and paying tons and tons of money to consultants something like this the value added to them could be even more valuable than this to me and i find it value-added right absolutely and uh so you did mention a lot about your trading back in the 80s i don't want to say back in the day it feels kind of wrong to say that but uh you uh you've been described as someone that has a stomach of a riverboat gambler i literally don't even know what that means but what i will say is what do you think are kind of the keys to a good investor right so just from your own experience so when i've looked at all the investors of very large reputations warren buffett carl icahn george soros they all only have one thing in common and it's the exact opposite of what they teach in a business school is they make large concentrated vets where they have a lot of conviction they're not buying 35 or 40 names and diversifying i don't know whether you remember icon a few years ago put five billion dollars into apple and i don't think he was worth more than 10 billion when he did that right um when i went in to tell soros that i was going to short 100 of the fund in the british pound against the deutsche mark he looked at me with great disdain because he thought the story was good enough that i should be doing 200 uh because it was sort of a once in a once in a generation opportunity right so a they concentrate their holdings b concentration this is very counter-intuitive it really gets your intention so it actually in my in my thinking decreases your overall risk because where you tend to be in trouble is if you have 35 or 40 names and you stop paying attention to one if you have big massive positions um it has your attention right so the way uh my favorite quote of all time maybe is mark twain put all your eggs in one basket and watch the basket carefully right um i tend to think that's what great investors do the other thing to me is you got to have to know how and when to take a loss right i've been in business since 1976 as a money manager i've never used the stop loss not once dumbest concept i've ever heard it goes down 15 i'm automatically out but i've also never hang on to a security if the reason i bought it has changed and that's when you need to sell if i buy x security for a b c and d reasons and those long no longer are valid whether i have a loss or a gain that stock doesn't know whether you have a loss or a gain you know it's it is not important your ego is not what this is about what this is about is you're making money so if i have a thesis and it doesn't bear out which happens often with me i'm often i'm often wrong just get out and move on because i said earlier if you're using a multi-disciplined approach you can find something else there's no reason to hang on to any security where you don't have great conviction in it right no absolutely so along that kind of metric where when you're saying what makes a great investor is kind of the mindset and the approach what about from kind of the emotional side like managing the emotions and the psychology you just have to be disciplined and you're constantly fighting your own emotions look i'm not going to lie to you my first boss said they're saying the higher they go the cheaper they look um there's something weird and i know everybody watching this has experienced this and it doesn't make any sense but when a security goes up every bone in your body wants to buy more of it and when it goes down you're fighting making yourself not sell it right it's just the nature of the beast and you have to constantly remind yourself um why you own that security and just because it's going down doesn't necessarily mean you should sell it if it's going down it definitely means you should reevaluate your thesis but it doesn't mean you should sell it and you cannot get crazy when it's going up one of the probably the biggest mistake i ever made in the business and i knew better somebody asked me what i learned from this i said nothing i already knew it um in january of 2000 after writing that tech boom 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 had these it was a smaller portfolio but they made 30 after i sold and i just couldn't stand it anymore and 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 dotcom bubble by an hour i ended up losing three billion dollars on that trade alone i had made more the year before but you know three billion dollars a lot of money and it was all because i got emotional and dropped every tool of discipline i've ever had and somebody says well what did you learn from and i just said i learned nothing i learned that 25 years ago so you can talk about not being emotional but it takes incredible discipline to to act on that i mean that's an incredible you said you started 76 right that's 24 years later you've been going through it for almost a quarter of a century and it still happened yep yep yep so um it's something i want to just add on to kind of what you just mentioned was the actual approach of investing for yourself you you famously talked about uh looking at what makes the stock up and down at a you know what does that mean specifically for yourself when you say what makes stock open down what does that mean in terms of fundamentals it it varies from stock to stock right interesting thing about toggle they'll find things that i didn't even know move the stock right but if it happens over and over again you figure it's not random um so i'll never forget i keep going back to my boss in pittsburgh but i was an analyst and i analyzed retail and i come in with my earnings estimate on kmart and my earnings zestimate on this company and that and he says yeah but what's going to make the stock go up and i said what do you mean and he says everybody knows what you just told me keep looking keep looking finally i came back i found out at the time by the way this has changed since if you graphed the change in food and energy prices over top the retail index it was like clockwork retail and food prices i'm sorry food and energy prices go up retail relative stocks go down it's not rocket science here if you if you take discretionary spending and you increase the cost of it she's got less money to buy a dress and i watched that and it worked for 10 or 12 years and then for some reason it stopped working but there's an analysis of fundamentals which i completely endorse where look at the balance sheet try and figure out a couple years from now what people are going to think about this company or the earnings going to be different than they think now that kind of stuff but then there's all the weird stuff like i just mentioned the beauty of toggle is it comes up with stuff that sometimes i don't even quite understand but frankly i don't care if the stuff works right i'm going to go with it i'm very open-minded i don't need um i don't need to totally understand something if i've seen it work over and over again right absolutely most of these things i understand yeah so it would be the equivalent of toggle finding that relationship you just mentioned right the the food energy and discretionary spending yeah and the beauty of toggle is um i might get a notice one day that xyz looks good then i can do my fundamentals then i can look at the chart so it's not only a discipline in terms of buying and selling it can also be an idea generator absolutely no that makes a lot of sense now i thought this was a good opportunity to hop into something i kind of want to ask it first but i figured it'd be better to kind of move it there i think i know what's coming you're young i can tell by look on your face it's crypto 100 correct so yeah i can predict the future the talk will probably give you the alert right this guy's about to ask him i uh i'm not going to ask you to put a price target or anything but the question just just occurred out there to get the conversation going is uh does bitcoin have the opportunity to the thesis is it replacing nine trillion on gold right or along those lines or it'll imagine do you i mean what is your opinion about that thesis so i've evolved on this okay if you've done your homework about five or six years ago i said more than once um crypto and bitcoin are a solution in search of a problem right so what the hell are these people all looking for we already have that it's called the dollar right okay so for the first move in bitcoin i think it went from what 50 bucks to 17 000. i just sat there aghast and by the way consistent with our earlier conversation i wanted to buy it every day it was going up even though i didn't i didn't think much of it i just couldn't stand the fact that it was going up and and i didn't own it so um fast forward i i never owned it from like fifty dollars to seventeen thousand felt like a then it goes back down to 3 000 again and then a couple things happen and this this is consistent with the fundamental and then let's make something go up or down so solution in search of a problem i found the problem when we did the cares act and chairman powell started crossing all sorts of red lines in terms of what the fed would do and wouldn't do the problem was jay pal and the world central bankers going nuts and making fiat money even more questionable than it already been when i used to own gold then the second thing that happened is i got a call from uh paul jones and he says to me uh do you know that when bitcoin went from seventeen thousand to three thousand eighty-six percent of the people that owned it at seventeen thousand never sold it well this was huge in my mind right here's something with a finite supply 86 percent of the owners are religious zealots i mean who the hell holds something through 17 000 to 3 000 and it turns out none of them you know 86 of people never sold it and i had this new central bank craziness phenomena the other thing that happened um it had been you know it had a few more years under its belt so it goes up to 6 000 in the middle of the last spring and i go well i got to buy some of this just because these kids on the west coast that are already worth more than i am and they're going to be making a lot more money than me in the future for some reason they're looking at this thing the way i've always looked at gold which is a store of value if i don't trust fiat currencies um and then the thing that paul told me and then the fact that it'd been around 13 years it had become a brand right so it's funny i tried to buy a 100 million at 6 200. it took me two weeks to buy 20 million i bought it all around 6 500 i think and i said this is ridiculous you know it takes me two weeks i can buy that much gold in two seconds so like an idiot i stopped buying it um next thing i knew uh the things trading at 36 000 uh i took my costs and then some out of it and i still own some of it my heart's never been in it i'm a 68 year old dinosaur but once it started moving and these institutions start adopting it i could see the old elephant trying to get through the keyhole and they can't fit through in time um i own this company called palantir and i see they announced with their earnings today they're going to start accepting bitcoin and they may invest that's happening all over the place and you know this thing is never going to have more than 21 million it's it's a it's a fixed supply so i think because it's a brand that's been around for 14 years because of the finite supply it has sort of won this store a value game is it going to beat gold i don't know it sure as hell doing a good imitation of it um the last year or two but is it going to beat the other cryptos in terms of digital gold store value i would say it's going to be very very tough to unseat then you go to what i call the uh commerce facilitators which obviously the lead in smart contracts and that kind of stuff would be ethereum there i'm a little more skeptical of whether they can hold their position it reminds me a little of my space before face facebook came along or maybe a better analogy yahoo before google came along google wasn't that much faster than yahoo but it didn't need to be all it needed to be was a little bit faster right and the rest is history and i'm so impressed one of the ways we've always invested in the private sector is to try and figure out where the engineering kids from stanford and brown and mit where those kids are going and so many of them are in love with crypto and that's where they're going i i'm worried about the talent that's like 23 to 28 years old somebody we don't even know who they are yet come up with a payment system or whatever and unseating so again i don't know but my guess is um the winner in the commerce facilitating alcohol whether you want to call it payments or smart contract whatever on there's a good chance that company hasn't even been in or that currency hasn't even been invented yet right absolutely so bitcoin uh as a store value probably safer in the crypto space but as you mentioned the computing aspect there's a lot of potential here to be unseated you know as long as jay powell keeps acting like he's been acting um i think gold and bitcoin and bitcoin seems to be a high beta gold are going to have the wind behind them high beta gold that's a never heard that that is a fantastic uh terminology well it's so fantastic i'm wondering why the hell i didn't just own bitcoin two years ago instead of uh just gold it's a little bitcoin so uh just uh just to put the cherry on top of the crypto combo you mentioned it once earlier dogecoin is it just to you ridiculous and elon's involvement in it like what how does what is your reaction to all that it's just a you know if like nfts it's just a manifestation of the craziest monetary policy in history right and i think since there's no limit on supply i don't really see the utility of this thing right now it's just this wave of money and the greater food theory um no no just enough now having said that i've i'm i wouldn't short it because i don't like putting campfires out with my face um so i just try and pretend dogecoin doesn't exist right i think so little of it it doesn't even bother me when it goes up right bitcoin used to go up i'd go crazy that i didn't own it when dogecoin goes up i just i just started laughing but to me it's all about jerome powell right at the end of the day goes back just to the money printer yeah i i like that how you you said about doge it's a joke uh i mean it was literally created as a joke so for you just to look at that joke that's probably the best way for everyone to look at it right hey this is a joke don't even consider it it's like irrelevant yeah don't go long and don't go short you know unless you like going to vegas then i guess it's okay because it's a lot of action yeah absolutely so uh i think one of the uh one of the last questions we had here obviously thank you so much for your time uh the question we had here was if you were 20 years old today what would you be doing as you started your career uh the number one necessary con condition would be something i was passionate about okay particularly in this business the people that love it like me are so addicted to it and so intellectually stimulated by it if you're not and you're in for the money you have no chance competing with these people they're gonna outwork you they're gonna out execute you so and i think it's probably true of a lot of professors but let's not forget if you're american you're probably gonna spend 60 70 hours a week minimum working if you're in your job for the money and not because you love it you just blew 70 hours a week on the have on the happiness quotient that's pretty rough right so i would tell a 20 year old follow your passion i was just lucky i followed my passion my mother-in-law says i'm an idiot savant that i wouldn't be good at anything else but i would do this for 50 000 a year i really would i just i just love it and i hate to see young people get trapped in something and i would also say keep an open mind i started uh at bowdoin as an english major 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 then i went to i worked construction for six months i got kind of a weak upper body so that didn't work for me then i went to uh the bank and i found out what i was just in love with and so try stuff out and if you're not really really engaged during the day and you're not happy uh move on to something else because there's there's something out there for everybody but i would not let money be the driver of the equation that can lead to a lot of not maximizing what i call the happiness quotient right is the most important quotient in your life well you mentioned that you would be doing this job if you're making 50 grand a year some questions will you will you hand over the family office when do you expect that to happen if ever until what will the handover of the family office to another manager and you just go hands-off happen in the near future this is something you just want to be doing just for your own happiness quotient so as you probably know a lot of people when they retire they start messing around in stock market for fun so if they're all retiring and doing this to other 90 why am i supposed to stop doing it what i will say is my skill set you know i think a lot of my performance has been because i'm flexible in terms of instruments i use in terms of assets so i'm not afraid to just play in bonds or currencies or this or that but my real passion is in macro and i think history would say in macro i'm probably an a plus and in equities i'm probably a b minus um equities are much more labor intensive as you know there's only one yen there's only one euro treasuries i guess my dream to your excellent question would be to find a successor to run the entire equity part of my family office right have me fiddling around in the macro and acting like the old talking head sage uh you know coach to him that that's me where i'd be but i i think i would die if i couldn't if i couldn't do have some connection with the investment market and the markets during the day i just first of all i'm not very good at golf i like doing stuff i'm good at and i think that's part of what we're talking about with passion no one likes being a loser um so yeah i i think i'll probably go to my grave doing this stuff but maybe not with the control i have right now well uh just the last comment on that point is for the equity side we should have toggle right absolutely absolutely um it takes a lot of the labor out i'll tell you that you can cover a lot more ground in an hour than you can trying to do normal reading no that's perfect uh i i wrapped up on my end those are all the questions we had and uh it was amazing stan that was uh incredibly insightful and uh really appreciate your time hopefully this does some good for everybody you

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Length: 39min 28sec (2368 seconds)

Published: Fri May 28 2021