In his recent interview on the My First Million Podcast, Stanley Druckenmiller discussed what makes a great investor. Here’s an excerpt from the interview:
Druckenmiller: 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 exact opposite of what they teach in business school. It’s they make large concentrated bets where they have a lot of conviction.
They’re not buying 35 or 40 names and diversifying. I don’t know whether you remember Icahn, a few years ago, put $5 billion into Apple. And I don’t think he was worth more than 10 billion when he did that. When I went in to tell Soros that I was going to short a hundred percent 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%. Because it was sort of a once in a generation opportunity.
Trung: Right.
Druckenmiller: So, A, they concentrate their holdings. B concentration, this is very counterintuitive, it really gets your intention. So it actually, 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 stopped paying attention to one.
If you have big, massive positions, it has your attention. So, the way my favorite quote of all time maybe is Mark Twain,” Put all your eggs in one basket and watch the basket carefully.”
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. 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.
I’ve also never hung onto 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 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, 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 wrong. Just get out and move on. Because I said earlier, if you’re using the most 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.
You can listen to the entire interview here:
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