Spur29 May 2021 at 04:05:00 GMT+8
Uncle8888,
In the spirit of refresh, here's an interview couple days ago with Stanley Druckenmiller.
Lots of good stuff about how he invests & what he thinks makes a good investor. Also talks a fair bit about cryptos & tech.
Some of the stuff he says are similar to Jim Rogers; no surprise as both worked under George Soros.
Enjoy!
PS: shld be a treat for Smol :)
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Read? Stanley Druckenmiller interview; Buffett on diversification; Phishing text messages
You can laugh or poke at Panda/Koala retail investors! No problem as they don't deserve to be Millionaires from the market! They don't learn to catch up with the latest and savvy investing trends! They deserve to be left behind and become extinct!
Read? Blog posts relating to Concentrate
On making concentrated, high-conviction bets:
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 $5 billion into Apple. I don’t think he was worth more than $10 billion when he did that.
[In 1992] when I went in to tell Soros that I was going to short 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.
On knowing when to sell and using stop losses:
The other thing to me [that makes a good investor] is you 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. It’s the dumbest concept I’ve ever heard. [If a stock goes down 15%] I’m automatically out.
But I’ve also never hung onto a security if the reason I bought it has changed. That’s when you need to sell.
If I buy X security for A, B, C, and D reasons, and those reasons are no longer valid, [I sell].
Whether I have a loss or a gain, that stock doesn’t know whether you have a loss or a gain.
You know, 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
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Hi CW,
ReplyDeleteI cannot sleep with concentrated bets. So better to earn less and sleep well.
I readily admits I am not Warren B or Soros, and I am far far away from them.
So I take the main school of thoughts, diversify.
If u think u come close, and have track records. Please go ahead.
I know of flesh and blood who do concentrated bets of 1 to 3 bets only worth hundreds of K in local market and is winning like siao.
He has my respect, and he can laugh at me ( although he didn't)
No need to be concentrated to be fearful during market crash?
DeleteDuring last STI crash in GFC, everyday reading Depression 2.0 coming and portfolio losses escalating every other days, and soon having more and more sleepless nights until I cut losses and raise cash level to sleeping threshold and cease worrying on escalating losses. The thought of going through one more time is damn bloody scary. Never again!
Yes. Indeed. Hence I remind myself to take some off table, like recently, although it is more tiggered by a belief that CB is coming.
DeleteBut I like to ask. When u fire, and direct your cash as opportunity fund.
Where do they go?
I mean dash, singlife and those that offer more than 1 percent saving ...
Is like having a cap.
Thanks CW for sharing about your sleepless nights during GFC. We were not much affected by the past crises (AFC, SARS, GFC, Covid etc) primarily because we were secure in our jobs. But now that my wife has retired and I am near to retirement myself, I do wonder if I could stomach a big crisis, and see a 50% drop in my equity value.
ReplyDeletePast crises were opportunities for us to buy stocks at a bargain, but I am not so sure if I would have the same confidence to bargain hunt when retired.
The other problem we have is, if we take profit off our shares, where to put the money in the meantime? Put into property? The ABSD ensures a 15% "loss" immediately for 3rd property! So no go for us.
Also cannot dump the money into CPF. Full for this year.
So in the end, we just gritted our teeth and continue with our equity holdings and collect "panadols". Hopefully the "panadols" will recover back to pre-Covid levels.
As shared before, we did try venturing directly in the US markets and play-play with cryptos two months ago. Both are below water currently, capital injected into US stocks: S$35K, current value : S$34,500. Capital injected into cryptos : S$14K, current worth : $12,500
Investing is not easy, collecting CPF interest is better.
The trick is to not have binary thinking. Your funds don't have to be all risk-on or all risk-less.
ReplyDeleteTilt.
You can have 80% (or 50%) in broad S&P500 or Global index, and 20% in individual counters.
E.g. I'm like 70% ETFs & funds, 10% individual names & 20% cash. My 80+ yr old dad is 70% cash, short-to-intermediate SG govt bonds & short duration endowments, 25% individual stocks, and 5% forex & futures LOL.
Everybody's sleep well at night (SWAN) allocation is unique, so just trial & error till you find the right one for you.
This table is a more prescriptive cash allocation, but just use as a guide.
Stanley Druckenmiller's talk is on diversification in equity investment, more for wealth building. For retirees desiring wealth protection & reliable passive incomes, diversification should be in asset class.
ReplyDeleteBesides CPF/equity/property, corporate bond is another asset class for reliable passive incomes. Bond yield is compressed in recent years due to the low interest environment, but may still get over 3% for perpetuals issued by the 3 local banks & branded issuers such as Mapletree Treasury, CapitaLand Treasury, Singtel Treasury etc. Better than CPF's OA 2.5%. Security wise, very unlikely these issuers will default. Actually, more secured than shares, bond holder being in front of equity owner in the queue in the event of liquidation. Normally coupon is reset every few years, with increased spread and adjusted according to prevailing 5/10 year SOR (or SORA in future). So, some protection against rise in interest/inflation. For purpose of incomes, may ignore price fluctuation (although may take profit if price increase due to interest rate drop). Downside is corporate bond is not so liquid if you want to cash out. Also must be Accredited Investor to buy.
Alternative is bond funds. Very reliable source of incomes. E.g., have been holding Fidelity Asian High Yield bond fund for 10/7/2.5/1 years (bought on 4 separate occasions), with annualised return of 5%/5.5%/7.2%/12% respectively. Can sleep very well with a large established bond fund, with the prices fluctuate within a narrow band, unlike equity.
This is how I understand concentration in Stan Druckenmiller's context.
ReplyDeleteWhen Stan Druckenmiller talks about concentration, he is mainly referring to forex and financial futures. Assets to express his macro views. Macro is his forte. These assets do not have big gap risks like stocks. Stocks can gap down double-digit on surprise earnings disappointment, even suspend trading overnight without giving the owner any chance to exit. A concentrated stock portfolio is much riskier than a concentrated portfolio in forex, government bonds, stock indices etc.
Forex and financial futures are also much more liquid than individual stocks. If Bill Hwang had the liquidity to exit, he would not have lost his entire $20 billion.
There are thousands of stocks to choose from. So, it is easy to construct a diversified portfolio of say, 40-50 stocks. For forex macro traders, there's only a handful of currencies to trade. How not to concentrate?
For stock investors, please don't concentrate because Stan Druckenmiller can do it. This is one advice I follow myself. The great Stan Druckenmiller did not get rich from a concentrated portfolio of individual stocks. He did it in other asset classes.
In Singapore, more and more members are concentrating their CPF as other asset class!
DeleteI won't be alarmed when close family members concentrate their savings in CPF. I will be very alarmed if they have a concentrated stock portfolio during retirement.
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