Street Stories: Managed Futures

Stanley Druckenmiller

Market Wizards Index: +37%
Compound annual over 12 years

Fund or affiliation

Methodology

Holding a core group of stocks long and a core group of shorts, then use leverage to trade S&P futures, bonds and currencies.

Research Techniques Employed

Focused his analysis on seeking to identify the factors that were strongly correlated to the stock price movement as opposed to looking at all the fundamentals.
He also used technical analysis.

Trading Techniques Employed

He never used valuation to time the markets. He use liquidity analysis and TA. Valuations only tells him how are a market can move if there is a catalyst.
To attain truly superior l-t returns is to grind it out until you’re up 30-40%, and then if you have convictions, go for a 100% year. If you can put together a few near-100% years and avoid losing years, you can achieve really outstanding l-t returns.
Soros taught: "when you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig." As far as Soros is concerned, when you’re right on something, you can’t own enough.
If a trade doesn’t work, Soros is confident enough about his ability to win on other trades that he can easily walk away from the position.

Philosophy and beliefs

When you earn the right to be aggressive, you should be aggressive. A philosophy reinforced by Soros.
The way to build long-term returns is through preservation of capital and home runs.

History and other facts

At the age of 28 Druckenmiller launched Duquesne after a person offered him $10,000/mo. just to talk to him.
In 1982, after losing all his money, he landed a client who had sold out his software business. This individual account allowed him to start using shorts and leverage.
The queen in chess, which can move in all directions, is a far more powerful piece than the pawn, which can only move forward. [analogy: hedge funds vs. pension funds]

Examples

Was dead wrong entering 19 Oct. 87 with a leveraged long position. Market opened over 200 points lower, liquidated his entire position and went net short; and made a small profit.
Long Deutsche mark right after the fall of Berlin Wall in anticipation of expansionary fiscal policy and tight monetary policy.

Performance Record

37% over 12 years: "The longest-running measure of Druckenmiller’s performance in the markets is his own Duquesne fund. Since its inception in 1980, the fund has averaged 37% annually."