Epicureus (341-270 B.C.) was known as someone who relished the finer things in life. Yet, contrary to his image, his tastes were much more focused on the simple versus the extravagant. His motto was something to the effect of "pleasure in the present."
Pleasure, according to Epicureus, came as much from the absence of pain as from enjoyment. He believed that by moderating one's desires and cultivating friendships one could to craft a life of peace and correspondingly freedom from fear. Given our hectic pace, this seems particularly difficult to achieve in our modern, digital age.
And from an investor perspective, paradoxically, it could also lead to sub-optimal results if the philosophy and track record of Stanley Druckenmiller are any indication.
Druckenmiller is one of the great investors of all time, having produced annual returns of approximately 30% per year. Some of this track record was created in conjunction with his very successful partnership with George Soros that lasted a number of years.
While I'm sure that Druckenmiller would agree that having strong friendships is a wonderful thing in life, he would also probably assert that they are not necessarily a requirement to be a good investor. In fact, they may be counterproductive if one needs the security of having others around him to validate his opinions and decisions. The best investors are often ruthlessly individualistic and try to limit who they surround themselves with to make sure they have the courage to make the tough, out of consensus decisions.
Druckenmiller gave a very interesting speech
on January 18 to a group of friends and former investors that an attendee transcribed. What he covered was wide ranging but what follows will be what I think are the highlights.
Drukenmiller said that having great mentors cannot be understated in its value and importance, particularly when young and starting off in a career. Contrary to Epicureus, however, his first mentor taught him to:
"[N]ever, ever invest in the present. It doesn't matter what a company's earning. What they've earned. He taught me that you have to visualize the situation 18 months from now, and whatever that is that's where the price will be, not where it is today. And too many people tend to look at the present, oh this is a great company, they've done this or this central bank is doing all the right things. But you have to look to the future. If you invest in the present, you're going to get run over."
What else did he offer up? When investing with others it's critical to look for passion, open mindedness, and humility in money managers. You want someone who hates to lose, is incredibly competitive, deeply curious, humble, and open to changing one's mind and seeing other points of view.
Contrary to most traditional investment advice, Druckenmiller eschewed diversification as he was a big believer in concentrated bets. Druckenmiller is in the camp of putting all of your eggs in one basket and then watching that basket very carefully. He said this because the bulk of his annual returns almost always came from one or two ideas that he bet very big on. He knew when the odds were in his favor. Druckenmiller said he was a pig and he was proud of it. Wall Street folklore said that pigs get slaughtered while Druckenmiller would wholeheartedly disagree.
Another important lesson he learned from his first mentor was that earnings don't move the market, the Federal Reserve does. Focus on central banks and movements of liquidity. While others are obsessing over earnings, he focused on liquidity flows. So it truly does not pay to fight the Fed and this probably gave him some peace of mind knowing where he should focus. And that, I am thinking, is something Epicureus may have agreed with. Finally something in common!
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