Druckenmiller: Make high conviction plays... (856 Views)

In a recent interview, top Wall Street investor Stanley Druckenmiller says: Make concentrated bets in high conviction plays. Don’t practice the business school teaching of diversification.

That’s great advice. A lesson I've often had to relearn. Especially this time of year as two-yr. olds come out [and we encounter those void boxes ahead from Jerry. Ugh.]. Why spread in a race “hoping something stupid happens” in fields full of unknowns WHEN YOU KNOW Mike Maker is going to win a turfer at 4-1, like he did yesterday? It’s stunning the money we waste betting races we shouldn’t.

Druckenmiller quoted below:

“When I’ve looked at all the investors (that) have very large reputations — Warren Buffett, Carl Icahn, George Soros — they all only have one thing in common. And it’s the exact opposite of what they teach in a business school. It is to 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 that Icahn a few years ago put $5B into Apple. I don’t think he was worth more than $10B when he did that. [In 1992] when I went in to tell Soros that I was going to short a 100% of the fund in the British pound against the Deutschmark, he looked at me with great disdain. He thought the story was good enough that I should be doing 200%, because it was sort of a once-in-a-generation opportunity. So, [these investors] concentrate their holdings. This is very counterintuitive. In my thinking, [concentrating your bets] decreases your overall risk because where you tend to be in trouble is if you have 35 or 40 names. If you start paying attention to one. If you have a big massive position, it has your attention
 
My favorite quote of all time is maybe Mark Twain: “Put all your eggs in one basket and watch the basket carefully.” I tend to think that’s what great investors do.”