Its Over

How the Nasdaq crushed the market wizard Stanley Druckenmiller

At a 2015 event where he gave a keynote speech, Druckenmiller was asked what he thought the biggest mistake of his career was and what he’d learned from it.

His remarks are highly illuminating:

“… in 1999 after Yahoo and America Online had already gone up like tenfold, I got the bright idea at Soros to short internet stocks. And I put 200 million in them in about February and by mid-March the 200 million short I had lost $600 million on, gotten completely beat up and was down like 15 percent on the year. And I was very proud of the fact that I never had a down year, and I thought well, I’m finished.So the next thing that happens is I can’t remember whether I went to Silicon Valley or I talked to some 22-year old with Asperger’s. But whoever it was, they convinced me about this new tech boom that was going to take place. So I went and hired a couple of gun slingers because we only knew about IBM and Hewlett-Packard. I needed Veritas and Verisign. … So, we hired this guy and we end up on the year – we had been down 15 and we ended up like 35 percent on the year. And the Nasdaq’s gone up 400 percent.So I’ll never forget it. January of 2000 I go into Soros’s office and I say I’m selling all the tech stocks, selling everything. This is crazy. [unintelligible] This is nuts. Just kind of as I explained earlier, we’re going to step aside, wait for the next fat pitch. I didn’t fire the two gun slingers. They didn’t have enough money to really hurt the fund, but they started making 3 percent a day and I’m out. It is driving me nuts. I mean their little account is like up 50 percent on the year.I think Quantum was up seven. It’s just sitting there. So like around March I could feel it coming. I just – I had to play. I couldn’t help myself. And three times during the same week I pick up a – don’t do it. Don’t do it. Anyway, I pick up the phone finally. I think I missed the top by an hour. I bought $6 billion worth of tech stocks and in six weeks I had left Soros and I had lost $3 billion in that one play. You asked me what I learned. I didn’t learn anything. I already knew that I wasn’t supposed to do that. I was just an emotional basket case and couldn’t help myself. So, maybe I learned not to do it again, but I already knew that.”

I don’t think many people would call Stanley Druckenmiller stupid. For years he had delivered remarkable investment performance and built up a personal fortune of over $4 billion. But the markets can make very smart people look stupid – and vice versa.