BY JODY CHUDLEY
POSTED
SEPTEMBER 2, 2015
20% of One Investing Icon’s Portfolio Now in Gold
If a world-class investor that I follow adds a new stock to his or her portfolio, I try to take a good look at it. If, arguably, the best hedge fund manager in the history of investing puts 20% of his portfolio into one position, I snap to attention because I’m probably looking at an unusually good opportunity.
I say it a lot, but I think it is worth repeating. I believe the best place for me, and most investors, to find investment ideas is in the portfolios of the most successful professionals.
Why do I believe this?
- These investors are among the smartest people on the planet and have decades of experience.
- They are motivated by the chance to earn an obscene amount of money, which results in them spending every waking moment focused on finding the best investment ideas.
- They have huge research budgets and access to all kinds of information that the rest of us don’t.
Focusing my search on the best ideas that these investing stars come up with doesn’t just increase my chances of finding a big winner. It also increases my chances of avoiding a big loser.
If something gets into the portfolio of someone in this group, you can sleep well knowing it has been studied from every angle by one of the best investment minds and their team. The bigger the portion of a star investor’s portfolio invested in a position, the more carefully it will have been researched.
Does this approach guarantee that I don’t make a mistake? No. But I’ve found it greatly reduces the odds, and also provides me with much bigger winners.
I don’t care for one second about whether I’ve dug an idea up by myself or whether I’ve followed someone else into it. All I care about are results, not style points.
There are usually 30-40 different hedge fund portfolios that I follow pretty closely. The portfolio of Stan Druckenmiller is one of the first that I check.
From 1981-2010, when he shut down his hedge fund Duquesne Capital Management, Druckenmiller’s annualized rate of return was 30%. That isn’t good; it is almost impossible to believe.
Equally impressive, over its 30 years of existence, Duquesne never had a single down year.
In 2010, citing exhaustion from trying to maintain his performance while managing a $12 billion fund, Druckenmiller returned all of the money to his investors. After doing that, he turned the Duquesne investment vehicle into a family office so that he could manage a chunk of his own fortune.
Fortunately for us, just a chunk of Druckenmiller’s personal fortune is so large that he is still required to file quarterly reports with the SEC detailing his holdings. Therefore, we know what he is buying and selling.
What Druckenmiller has been buying of late is gold. And a lot of it.
In his just-released quarterly filing, Druckenmiller’s Duquesne Family Office is shown to have $1.48 billion in publicly traded securities. Of that sum, $323 million, or nearly 22% of it, is now invested in SPDR Gold Trust (GLD). This GLD position is more than twice as large as Druckenmiller’s next largest holding.
This is a high-conviction investment from a brilliant investor.
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In case you are wondering if this big GLD position of Druckenmiller’s is one that he has been sitting on and losing money on for the past three years, you will be interested to know that he didn’t own a single share of GLD prior to this past quarter.
I love piggybacking the best investment ideas of the best investors. One complication, however, is that these folks are notoriously secretive about what they are doing. While I can see what they own, it isn’t always easy to understand why they own it.
Understanding why I own something is critical for me, because if the reason for owning it goes away, I need to be able to recognize that and sell. Additionally, knowing why I own something helps me ignore a stock price that is falling for no reason relating to company performance. I need to be able to have the conviction to hold a position if the market temporarily moves against me.
So why has Druckenmiller gone so aggressively into gold at this particular time?
Fortunately, he was kind enough to basically tip his hand when he gave a speech during Q2 to some high-end investors in which he said the following:
“Our monetary policy is so much more reckless and so much more aggressively pushing the people in this room and everybody else out the risk curve that we’re doubling down on the same policy that really put us [in the 2008 financial crisis] and enabled those bad actors to do what they do. Now, no matter what you want to say about them, if we had had 5% or 6% interest rates, it would have never happened, because they couldn’t have gotten the money to do it.
This is crazy stuff we’re doing. So I would say you have to be on alert to that ending badly. Is it for sure going to end badly? Not necessarily. I don’t quite know how we get out of this, but it’s possible.”
It seems Mr. Druckenmiller believes that this unprecedented stretch of miniscule interest rates that the central bankers around the world have cooked up has created the potential for a major financial disaster.
Given that more than 20% of Duquesne is now invested in gold, we don’t have to use our imaginations to figure out where Druckenmiller thinks safety lies for his money today. Given his track record, him putting that much into a single position is likely something we should all be paying attention to.
Regards
