Investment Tycoon Druckenmiller: My edge is not IQ, but the decisiveness to pull the trigger; I deeply regret selling Nvidia too early

Facing the current market environment, Druckenmiller pointed out that the US economy is already very strong and will become even stronger under massive stimulus policies, while it is highly likely that the Federal Reserve will not raise rates and may even cut them. Based on this macro backdrop and the expectation of “tremendous disruption and change” over the next 3 to 4 years, he has constructed a long-short mixed investment matrix.

On February 28, Morgan Stanley released a series of interview videos titled “Hard Lessons.” In this interview, Iliana Bouzali, Morgan Stanley’s Global Head of Derivatives Distribution and Structuring, held an in-depth conversation with legendary macro investor Stan Druckenmiller. As the founder of Duquesne Capital Management, Druckenmiller achieved an astonishing approximate 30% annualized return between 1981 and 2010, with no losing years. According to a previous article by WallstreetCN, Treasury Secretary Bessant and Federal Reserve Chair candidate Walsh are both considered Druckenmiller’s protégés.

In the forex and commodities space, he stated bluntly: “We are bearish on the dollar.” He believes the purchasing power of the dollar is at the top of its historical range, and foreign investors are heavily overweight on the dollar. As trade balances and positions adjust, “the dollar will fall on its own.”

At the same time, he is heavily long copper and gold. The long copper position is based on an extremely tight supply chain over the next eight years and huge incremental demand brought by AI data centers; holding gold is mainly based on geopolitical considerations.

In the bond market, Druckenmiller has chosen to short US Treasuries. His logic is very clear:

“If I’m right on the economic trend, and this is a disinflationary growth, I’ll probably break even and won’t lose money, which allows me to continue holding other risk assets; but if I’m wrong, and strong growth triggers inflation—if the Fed cuts rates during an economic boom, causing inflation to soar, that wouldn’t be surprising—we could make a lot of money.”

Investment Philosophy: Contrarian Investing Is Overrated, the Edge Is in “Pulling the Trigger”

Reflecting on decades of investing, Druckenmiller reconsidered popular market doctrines. He believes that with the rise of quants and smart individuals, the traditional “technical analysis” is now only about 20% as effective as it once was, and strategies like “if good news doesn’t drive the price up, there must be a big drop” based on price and news reaction have also lost effectiveness, as everyone has learned them.

On contrarian investing, his views are sharp:

“I think contrarian investing is overrated. Soros used to say, the crowd is right 80% of the time. You just can’t get caught in the other 20%, because that will wipe you out… But I do like investing when I have extreme conviction and no one else believes, that gives me even stronger confidence. As long as the logic is right, I don’t care if a trade is crowded or not.”

Discussing his unreplicable success, he frankly attributed it to an indescribable intuition and execution ability.

“My edge is not IQ, it’s pulling the trigger (decisiveness),” Druckenmiller said. “My mother-in-law says I’m an ‘idiot savant’. I wasn’t even in the top 10% of my class. Many people think I’m smarter than I actually am, but I just have a very narrow type of intelligence that allows me to love and play this (investment) game well.”

He especially emphasized the most important lesson from his mentor George Soros: “It’s not about whether you’re right or wrong, but how much you make when you’re right, and how much you lose when you’re wrong.” Interestingly, this legend suffered from “impostor syndrome” for the first 15 years of his career, only coming to believe much later that his results were not accidental.

“I Can’t Stand Success”: Selling Nvidia Too Early

Previously, Druckenmiller’s portfolio was deeply AI-driven, but in the past six months, he has significantly adjusted his positions. When talking about Nvidia, the most eye-catching AI stock of the past two years, he shared a dramatic and somewhat regretful trading experience.

As early as mid-2022, noticing that top talent from Stanford University was shifting from crypto to AI, Druckenmiller bought Nvidia under the strong recommendation of a young partner. Two weeks later, the launch of ChatGPT made him “truly understand the magnitude of this,” so he immediately doubled his position. Later, at a Morgan Stanley macro call, the view of a tech analyst made him double his Nvidia position again.

“I must admit, three months ago I didn’t even know how to spell Nvidia.” Druckenmiller admitted frankly.

As Nvidia’s stock price soared from $150 to $390, he once publicly stated he would never sell it in the next two or three years. However, when the price actually rose to $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. Then five weeks later it went up to $1,400, and I was sick with regret.”

He humorously summarized his current trading mentality:

“I chickened out, I always chicken out. I’m ‘Mr. Taco’, only it’s not T, it’s DACO (Druck Always Chickens Out).”

Finding Overlooked Corners: Heavy Positions in Generic Drugs and Biotech

As AI trading became “uncomfortably frenzied” and began to show shadows of the 1999 internet bubble, Druckenmiller shifted his focus to better-valued corners of the market.

He specifically mentioned Israeli pharmaceutical company Teva (TEVA). When he bought in, the company’s P/E ratio was only 6 times, and it was in a high-growth phase transitioning from low-margin generics to biosimilars and innovative drugs. But the market had made a serious pricing error: “Value investors hated this growth strategy and sold the stock, while growth investors hadn’t realized the transformation.” After building a position at $16, the stock has now risen to $32, and the P/E has been re-rated.

Additionally, he has made big moves into the biotech sector. He pointed out that biotech had been languishing at the bottom for four years, and as a 30-year board member of Sloan Kettering Cancer Center, he knows well that,

“The best application of AI is in biotech, including drug discovery, diagnostics, and monitoring.”

The following is the original conversation:

 

Druckenmiller: I think contrarian investing is overrated. But I do like those moments when I have extreme conviction and no one else believes, that actually makes my conviction even stronger.

 

Narrator: Welcome to Morgan Stanley’s “Hard Lessons,” where iconic investors reveal the defining moments that shaped their journeys. Today’s guest is legendary macro investor Stan Druckenmiller, in conversation with Morgan Stanley’s Global Head of Derivatives Distribution and Structuring, Iliana Bouzali. Druckenmiller used to manage Duquesne Capital Management, achieving about 30% annualized returns from 1981 to 2010 with no losing years. He now leads the Duquesne Family Office managing his own capital, and is also a philanthropist dedicated to education, medical research, and anti-poverty causes.

 

Bouzali: Stan, thank you very much for joining the interview.

 

Druckenmiller: I’m glad to be here. I hold Morgan Stanley in very high regard, so this is the least I could do.

 

Bouzali: It’s an 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 get in early. I’m curious, could you walk us through one or two examples and talk about how they came about?

 

Druckenmiller: I’ll pick an example that might surprise you, it’s not glamorous, and unrelated to artificial intelligence, but I think it well illustrates our process at Duquesne. From mid-summer to fall last year, AI started to get overheated and unsettling, reminiscent at least a bit of what I experienced in 1999 and 2000, so we started looking elsewhere. The team brought up Teva Pharmaceuticals. If you didn’t know the situation, you’d think it was just a nondescript Israeli generics company, trading at only 6 times earnings. We met with management and found out they were undergoing a major transformation. Richard Francis had joined, having executed this exact strategy at Sandoz. He impressed us, he knew how to pick the “low-hanging fruit” in operational efficiency. But more importantly, he was transforming the company from generics, which is why it traded at only 6 times earnings, into a growth company by embracing biosimilars and even some truly innovative drugs. Surprisingly, the investor base at the time was value investors, and they didn’t like this. So, the stock stayed at a 6 P/E, while incredible change was happening inside, but almost no one believed him. Growth investors didn’t want it because they hadn’t seen the transformation, value investors didn’t want it, in fact, they were selling because he was executing a growth strategy. That was about six or seven months ago, the stock was at $16. Today it’s $32, and not much has changed except he’s proven the viability of biosimilars and launched a non-generic drug. So the valuation has re-rated from 6 times earnings to, I guess, 11.5 or 12 times. This trade was completely different, but it encapsulates what we focus on. If you only look at today, you can’t make money. You have to look ahead, think about what might change, and how investors will view things in the future. This trade developed a bit faster than I expected, but it’s a recent example.

 

Bouzali: That’s very intriguing. I say intriguing because many people, maybe those outside the market but certainly quite a few, when they think of Stan Druckenmiller, they think of a super macro investor. But I see you working in, not just dabbling, but really entering more niche areas in the market, especially on the equity side, like healthcare or biotech. My question is, do you have to be an expert, the kind of analyst who understands the entire drug development pipeline, to get it right?

 

Druckenmiller: Thankfully, the answer is an emphatic “no.” But I do have to have an expert at Duquesne, and I must trust his judgment, then I need to have a sense for how the market will accept the changes he describes. But we have indeed made big moves into biotech. I can sense an underlying sector leadership shift, just because of the AI craze. And I’ve been on the board of Memorial Sloan Kettering Cancer Center for 30 years, so I know that the best application case for AI externally might be in biotech, through drug discovery, diagnostics, monitoring, and so on. And biotech had been languishing for about four years. I also grew up with technical analysis, you can see momentum was shifting. So that’s the logic behind investing in biotech. But honestly, when analysts start talking about gene sequencing, gene editing, and proteins, Stan doesn’t understand. But I can feel their level of enthusiasm. We have a very strong biotech team, which is crucial, because I trust them. When they’re truly passionate, that’s as important to me as the actual facts, because I’m not smart enough to understand a lot of the actual facts.

 

Bouzali: So you’re filtering not just data, but also the people who work for you.

 

Druckenmiller: Yes. My advantage isn’t IQ, it’s the ability to pull the trigger. I admit that’s a kind of intelligence, but my mother-in-law says I’m an “idiot savant.” I wasn’t even in the top 10% of my class, a lot of people think I’m smarter than I really am because I’m so good at what we do. But I have a very narrow intelligence that allows me to love and play this game well.

 

Bouzali: I know many people want to get inside your head and understand your mental models. You’ve talked to us about your way of thinking. I have a very honest, basic question: how much of this can be taught, and how much is innate?

 

Druckenmiller: Listen, I was given a gift, a gift for compounding capital, I don’t know why. Of course, part of it is innate, you either have the skills to be in this industry or you don’t. That said, when I started in Pittsburgh I had a great mentor, and I’ve found that great investors almost always have extraordinary mentors, that’s very common. So for me, having this innate skill or gift is a necessary condition, but then having a mentor is almost also a necessary condition. I’m sure there are people out there who don’t, but for me it’s a combination. I was lucky to have two mentors. One taught me all these things we’re talking about. Then there was Soros. Interestingly, when I first got there, I thought I’d learn what made the yen go up and down. Modestly, I found I understood that much better than he did. What I learned from him was position sizing. The key isn’t whether you are right or wrong, but how much you make when you’re right, and how much you lose when you’re wrong. That’s an invaluable lesson. So, you can have some talent, but if you don’t have a mentor and someone to teach you, you won’t maximize your talent like you would with them.

 

Bouzali: Should we talk about the markets?

 

Druckenmiller: Do we have to?

 

Bouzali: With you, it seems unavoidable.

 

Druckenmiller: All right.

 

Bouzali: So, when it comes to markets, it seems to me you treat them less as something to predict and more as a kind of self-revealing system. Let’s suppose you don’t have a hedge fund, you just came 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 I begin, let me say a few basic principles. In my view, the US economy is already strong, and will get even stronger, because we’re seeing the “big and beautiful act,” a lot of stimulus. I guess the Fed certainly won’t raise rates, and is more likely to cut them. So that’s the backdrop. But if we were undervalued, having that backdrop would be fantastic. We’re not undervalued, we’re at the high end of the historical valuation range. The exciting thing about building a hedge fund portfolio now is, the only thing I’m certain of is, there will be huge disruption and big change in the future. So for the opportunity set over the next three or four years, I’m really excited. Macro has been dormant for 10 or 15 years, 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 context, we might build a more diversified equities portfolio. Because in the three years up to last fall, our portfolio was heavily AI-driven. We still have sporadic AI positions, but in some ways it’s no longer the engine. We still have big positions in Japan and Korea, some AI-related, some not. We are bearish on the dollar, mainly because purchasing power parity is at the top of the historical range, and foreigners are heavily overweight the dollar. I don’t know if this is a “sell America” trade, but more like, if due to trade balances and position status they stop buying US assets on net, the dollar will fall on its own. We think that’s the most likely path. We own copper, it’s not a genius trade, but a big consensus trade. For the next eight years there’s no meaningful new supply, it’s extremely tight. Clearly, there will be huge demand growth from AI and data centers. We’re not as long in copper equities, we just keep rolling nearby contracts. We own some gold, mainly as a geopolitical trade rather than a monetary trade. Then, because we’re long all these risk assets, we’re short bonds. I don’t necessarily expect to make money on the bond short, but if I’m right on the economy and it’s disinflationary growth, maybe I break even, but it allows me to hold the other assets I mentioned. If I’m wrong, strong growth triggers inflation—if the Fed cuts rates in a boom, inflation picks up, especially given how commodities are behaving, that’s not so unusual. So I’m open-minded on that. But we’ve built a matrix, and bonds help in both cases.

 

Bouzali: Over the past ten years, the stock market has changed a lot, with new capital types emerging, whether multi-strategy hedge funds, retail investors, quants, or ETFs. Compared to a decade ago, how has this changed the time horizon you feel you need to hedge? Do you feel more comfortable with a week, a month, a year? Or maybe there’s no rule—how do you think about it?

 

Druckenmiller: Most of the trades I do, I conceptualize as taking 18 months to three years to play out. Not every trade is like that, some are a year, some are five years. But I admit, I’ve done a three-year trade and exited or even reversed it five days later. But if you ask how I conceptualize it, all the noise about how the market system has changed hasn’t changed what I just said. The big volatility it brings is more useful for entry points, if it disagrees with my conviction in a specific time frame. So I think a lot of it is noise. It makes my life annoying, because I’d rather the market move smoothly in one direction, but it also creates opportunities, and you have to use volatility, not be abused by it, except for mental abuse—which I certainly get. But you can’t let yourself be a victim of volatility, you can use it, it’s just mentally tough.

 

Bouzali: But you said you’d prefer a trending market, that makes sense. I sometimes wonder, are you more suited to going against the trend, is that right? Or do you embrace consensus? How do you see it?

 

Druckenmiller: I think contrarian investing is overrated. Soros often said, the crowd is right 80% of the time. You just can’t get caught in the other 20%, because that will really hurt you. There is some intellectual satisfaction from contrarian investing. But as a concept, I think it’s overrated. Still, when I have extreme conviction and no one else believes, I really like that, it makes me more confident. I don’t care if a trade is crowded, if I think the theme is right and the trend is in my favor. I care about entry points, but as for the investment itself, I don’t really care, it doesn’t bother me.

 

Bouzali: In December 2022 we had an investor zoom call, talking macro, rates, the dollar, US versus the rest of the world. After we talked for a while, I asked you for your view on rates. I’ll basically quote you verbatim. You said you don’t care at all about rates, the only thing that matters is AI and Nvidia.

 

Druckenmiller: I don’t remember, but that sounds right.

 

Bouzali: What was going on? What was your thinking at the time?

 

Druckenmiller: The Nvidia story is interesting, it perfectly illustrates the process we talked about earlier, where I rely on others. I have some young superstars in my company, they have personal networks, and around early to mid-22, they started really talking about AI. Then I noticed Stanford kids were moving from crypto to more AI involvement. One thing we always watch in venture capital is where young people are going. We bought Palantir in 08 or 09 because it was a cool company at the time, all the young people wanted to work there. So, my partner brought in his contacts from the Palo Alto AI circle, they came in and explained AI. I didn’t understand most of it, but I knew it was really big.

 

Bouzali: Why did you think it was big? It could just have been a passing fad, and you didn’t feel that way about other fads.

 

Druckenmiller: Because I completely trusted my partner, and I thought I was capturing its enormous potential. It turns out, I didn’t fully capture its enormity, because at the time I didn’t know about large language models, but I knew all the other traditional things happening in AI. So I asked my partner, what should I buy? He said Nvidia, that’s the way to participate in AI. So, based on what I’d heard—which was about as much as you just heard—I bought a small Nvidia position, but enough to get hurt or make some money. Then about two weeks later, ChatGPT came out, which wasn’t mentioned in our conversations. Well, even I, when I saw it could do even the basics at that time, I realized its enormous potential. So I doubled my position. Then, one of the services Morgan Stanley provides is these great macro calls, all the macro people, including myself (fortunately I hadn’t spoken yet), were expounding their views of the world—which might be worth 50 cents and a cup of coffee—when a tech analyst said, “You’re missing the forest for the trees, there’s something much bigger than anything you’re discussing, even for macro.” He went on to detail everything I’d heard about AI three or four weeks earlier. But this time, after that conversation and him, I’d experienced ChatGPT. So I doubled my position again. Honestly, three months earlier I probably couldn’t have spelled Nvidia. When this stock started to take off, from years of experience I knew that when huge, huge changes happen, investors themselves cannot keep up. Interestingly, the guy in the room who understood AI ten times better than anyone, maybe fifty times better than me, sold Nvidia soon after. But I knew this stock would go up for at least two or three years, and go up a lot. About five months later, I said in a public interview that I couldn’t imagine selling Nvidia in the next two or three years, because it had gone from $150 to $390. That guy couldn’t believe I still held it. What I meant was, not only would I hold it, but with developments like this, it simply couldn’t not go up for at least three years. Then the stock went up to $800, and I broke everything I’d said in the interview. I can’t stand success, I held it from $150 to $800, was supposed to be a long-term investor, but I couldn’t take it, so I sold. Then about five weeks later, it went to $1,400, and I felt terrible. But surprisingly, I knew so little about Nvidia I couldn’t even tell you what its earnings are.

 

Bouzali: That’s a sign of confidence. Only because you’re Stan Druckenmiller can you so candidly share your take on these things. I think it’s quite inspiring for fund managers growing in the industry, who often feel they need to be at their intellectual best at all times. What I take away is that this ability to filter information, manage teams, rather than just stare at spreadsheets, is truly unique and helpful. You mentioned you went against what you’d said and sold at $800. Would you have done that 20 years ago? Does this mean you’re more mature in your trading now than before?

 

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 20 years ago when I was at my best, I’d have messed it up.

 

Bouzali: Over the past twenty or thirty years, what have you needed to abandon or had to abandon?

 

Druckenmiller: I haven’t abandoned anything, because I keep those scars in mind, they help you get through tough times. But I’ll say, due to some circumstances I won’t repeat, I was promoted too early. I was an analyst at 23, became some sort of lead portfolio manager at 26. I never went to business school, so I never learned all the basics needed for analysis. As a result, I relied heavily on technical analysis—my mentor was very keen on it, and no one used it then—I learned all its intricacies. I can tell you clearly, today technical analysis is only about 20% as effective as it was then, because no one used it. But when everyone uses it, it’s no longer effective, because you don’t have a unique basis for action. It’s kind of sad, because it’s simple and makes you lazy, you don’t have to work as hard, just look at the chart, not dig into 10-Qs and so on. But technical analysis really is an issue. Also, for me, over twenty or thirty years, price versus news was very important, if you had huge good news and the stock didn’t move, 90% of the time the good news was priced in and things weren’t good. Unfortunately, around 2000, a lot of smart people started coming into our industry. I think I was the only one in my Bowdoin class to go into finance, because we’d had a ten-year bear market. Turns out, every smart person learned what I just said, so it no longer works. Back then, companies would release bad numbers, trade down after hours, and rally 10% the next day, you could almost be certain it would be higher six months later. Now, not anymore, because everyone’s learned it. So those are the two big changes. I haven’t abandoned them, just don’t rely on them as much as before.

 

Bouzali: Basically, they’ve been overused. So, have any other signals become more important?

 

Druckenmiller: No. There’s no silver bullet. I benefit from forty years of scars and successes to look back on, and a lot of pattern recognition, because there’s not much in this business I haven’t seen. If I had to say my biggest disappointment in my career, it’s that I feel much wiser now than at thirty or forty, with more trading tools, but I was a better fund manager back then because I had guts and took bigger bets. I’m trying to get some of that back, just because it’s more fun.

 

Bouzali: So you’re chickening out?

 

Druckenmiller: Oh, absolutely. I’ve been chickening out for a long time. I’m Mr. “Taco,” only it’s not T, it’s DACO—Druck Always Chickens Out.

 

Bouzali: So, with your other experiences, is there an attitude of not wanting to lose? Does that make you better at this?

 

Druckenmiller: No. I just grew up playing games with my dad and sisters, I’m a bad loser. I love to play, but I really hate losing. So I’m motivated, it’s kind of a sickness, I don’t know where it came from, but I might as well channel it productively rather than just treat it as a flaw, because it really is a bit unseemly. But that’s who I am.

 

Bouzali: Embrace it. Finally, this show is called “Hard Lessons.” Can you look back 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 you can’t believe it. Everyone knows how I traded the Nasdaq bubble in ‘99. I sold perfectly in January, then bought back right at the top. Someone asked what I learned from it? I said, nothing, I learned not to do that twenty years earlier, but I got emotional, it’s something I struggle with every day. When I used to have drawdowns, I’d feel like vomiting once or twice a week from anxiety. At some point in my career, I realized, you’ll keep making mistakes, you’ll keep getting emotional, it’ll keep happening. But you have a gift, so stop beating yourself up for 48 hours or more. Because you’ve done this long enough, your track record is long enough, it’s no longer random luck—which I didn’t believe for fifteen years. So, the hard lesson is hundreds of mistakes, but they’re just moments in time. When you have a drawdown, if you’re a good capital manager—easy to say, hard to do—just get through it and move on.

 

Bouzali: So Stan Druckenmiller had fifteen years of impostor syndrome?

 

Druckenmiller: Yes, maybe longer.

 

Bouzali: As the interview comes to a close, I want to thank you for being our guest. I only got to know you late in your career, watching you think, trade, and seeing your actual operations is truly fascinating. You’ve been very generous with your time, and on behalf of Morgan Stanley, thank you very much.

 

Druckenmiller: Like I said at the start, I wouldn’t do this for many people. I hold Morgan Stanley in very high regard, so I’m happy to be here.

 

Bouzali: Thank you, Stan.

 

Druckenmiller: Thank you, Iliana.