Episode Details

I keep thinking about that interview with Stanley Druckenmiller.

Druckenmiller, a legend in US investing, worked with George Soros for many years, 12 of them as lead portfolio manager of Soros’s Quantum Fund, when he, among other things, spearheaded the infamous “Black Wednesday” raid on the pound in 1992 that forced the UK out of the European exchange rate mechanism (ERM). His own fund’s performance over many decades, year-in, year-out, is almost without equal.

The part that really struck home with me is what he says was the key thing he learnt from Soros: “sizing”. Others might call that: how much to speculate or invest. Others: how much to risk. Others: how much of your portfolio to allocate.

“Sizing is 70% to 80% of the equation. Part of the equation is seeing the investment, part of the equation is seeing myself in a good trading rhythm. It’s not whether you’re right or wrong, it’s how much you make when you’re right and how much you lose when you’re wrong”.

“I believe in streaks,” he says, “Like in baseball. Sometimes you’re seeing the ball, sometimes you’re not. And my number one job is to know when I’m hot and when I’m not. When I’m hot, I need to turn the dial straight up. When you’re cold the last thing you should do is make big bets to get even. You need to turn yourself down.”

The reason this has struck home with me – and perhaps might with you as well – is that I am not hot at the moment. I’ve had streaks when I’ve been great. Every stock I cover, every call I make, every buy or sell is red hot and bang on the knuckle. 

I could go through old articles and pick winners that eclipse other commentators.

Perhaps you followed me into these trades and made out like bandits as a result.

But I’ve also had streaks when I’ve been awful. And I could go through old articles and find you plenty of those too – articles that, when looked back on now, make me look a laughing stock.

Perhaps you followed me into those and made out like a bandit who’s just been put in jail.

Looking back, I first thought my hot streak came to an end in the spring, in early March. I was bullish on metals – I bought into the decade-of-under-investment narrative (and I still do) – but failed to fully heed to the Ukraine invasion “pop and drop” factor, followed by the impact of China lockdowns, never mind the broader market weakness.

But now I realise my mistakes go back further – into 2021 – with a failure to see the tech bear market for what it was sufficiently early to have gone on the defensive. One part of my portfolio was doing well, so perhaps it concealed the other.

Then, of course, since the spring decline of everything, I’ve taken some big hits. I imagine you have too. And I have been too slow to react.

That’s another thing Druckenmiller talks about by the way: act first, research later. Markets move quickly, ideas spread fast, especially good ones, so it pays to get positioned. You can always exit if your research changes the story.

As well as a failure to recognize what was what, or only half recognising it, and being slow to move, my risk management was poor. So to Druckenmiller’s “how much you lose when you’re wrong” – my answer? “Too much”. 

I should know better, and I’m more than a bit cross with myself. Nevertheless, I have been on a bit of a tidying-up exercise, re-evaluating positions and so on. I’ve also been working on my fitness as I believe that helps you make good decisions. 

What I’m betting on now

Rightly or wrongly, I sold down some of my oil positions last week, as I felt oil could be the next shoe to drop in these ongoing liquidations. I sold down another couple of positions elsewhere that I felt had got tired so as to have some cash in case this bear market