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Stan Druckenmiller: 30% Returns for 30 Years

5 lessons from a Wall Street legend

Written by: Ryan Henderson & Braden Dennis

Happy Sunday!

Before jumping into this week’s news, I’d like to take a second to honor Jim Simons, who passed away on Friday at the age of 86.

Jim was the founder of Renaissance Technologies and a pioneer in the world of quantitative (quant) investing. While there have been many investing legends over the years, Simons’ track record stands head and shoulders above the rest.

Between 1988 and 2018, Renaissance’s Medallion Fund generated 66% annual returns before fees and 39.2% after fees. 

Beyond being a world-renowned mathematician and hedge fund manager, Jim was also extremely charitable. He founded the Simons Foundation where he has helped fund billions of dollars in grants to “advance the frontiers of research in mathematics and the basic sciences”.

Jim’s brilliance and philanthropy will be sorely missed.

Now let’s get to the news for the week.

Earnings Roundup
  • Airbnb: Travel giant Airbnb reported better than expected revenue and profits this quarter, but underwhelmed analysts with their guidance for Q2. The company, which has generated more than $10 billion in revenue and $2.3 billion in earnings before taxes over the last 12 months, is as optimistic as ever about the opportunity in front of them. During the quarterly conference call CEO Brian Chesky stated “as big as Airbnb is, and we are approaching half a billion room nights a year, for everyone who stays in Airbnb, somewhere around 8 or 9 people stay in hotels.” Airbnb stock was down 9% this week.

  • Roblox: Gaming platform Roblox delivered quarterly results that were in line with Wall Street’s expectations, but saw their stock drop more than 20% after lowering revenue guidance for the full year. The platform, which is home to ~78 million daily active users, is still yet to turn a GAAP profit as a public company. This uncertainty around profitability has left lingering concerns for investors. Despite more than tripling its bookings over the last 4 years, Roblox stock is still down 55% from its 2021 IPO price.

  • Shopify: Shopify, the platform that helps businesses of all sizes sell online reported strong results for the 1st quarter. Their subscription revenue of $511 million was up 34% from the year prior, while merchant solutions revenue jumped 20% to $1.4 billion.

    However, like Airbnb and Roblox, Shopify’s revenue guidance for the 2nd quarter was less than analysts were looking for sending the stock down 21% following the report. Despite the immediate reaction from investors, Shopify’s President Harley Finkelstein made his priorities clear in the company’s earnings press release “We are building a 100-year company, and we will continue to remain fiercely agile, capitalizing on every opportunity that accelerates the success of our merchants.”

  • Affirm: Buy now pay later provider Affirm reported better than expected results across the board. Revenue of $576.2 million came in well above expectations, and the company narrowed its net loss from $206 million a year ago to just $134 million this quarter.

    However, with Shopify being a large partner for them, the e-commerce giant’s lackluster guidance left investors worried about an overall slowdown in e-commerce spending. Ironically, Affirm’s CEO Max Levchin opened his shareholder letter with “We delivered another set of excellent results… In the parlance of our times, we slayed.” Affirm’s stock dropped 9% after earnings.

Investor Profile

Stan Druckenmiller

Stan Druckenmiller is the lead investor at the Duquesne Family Office, former portfolio manager of the Soros Quantum Fund, and one of the best investors in the world over the last 4 decades.

Duquesne Capital Management by the Numbers:

Stan Druckenmiller ran his hedge fund (Duquesne Capital Management) from 1981 to 2010. During that 30 year period, Duquesne averaged a whopping 30.2% a year before taxes. That means $10,000 invested at the fund’s inception would have culminated into $26.2 million by the time the fund closed! 🤯

Best of all, Druckenmiller generated these astounding returns without having a single down year.

Here’s a look at a few of his most notable investments:

  • 1979 Oil Bet: Shortly after being named portfolio manager for Pittsburgh National Bank at the age of 25, the Shah of Iran went under, which in his view meant the price of oil was going to rise. So, I go well, this is easy. Let’s put 70% of our money in oil stocks and let’s put 30% in defense stocks and let’s sell all our bonds.” Shortly after, the list of stocks he proposed was up 100% while the S&P was flat.

  • 1981 Treasury Bet: Right after starting Duquesne, Druckenmiller put 50% of his portfolio into US treasury bonds. At the time, the head of the Federal Reserve Paul Volcker was rapidly raising rates to tame inflation, so US treasury bonds held an interest rate of ~16% (the highest level in American history). This proved prescient: “sure enough, the bonds went up despite a bear market in equities. Right out of the chute I was able to be up 40%.”

  • 1992 British Pound: After a call with his housing analyst in Britain, Druckenmiller began to believe that Britain was going into a recession and they were going to have to lower rates in response. However, at the time, the German Deutsche mark and British Pound were linked together, and Germany didn’t want a repeat of the inflation the country had endured in the past.

    So Druckenmiller began shorting the British Pound on the premise that the Bundesbank’s selling would cause it to devalue. And that’s exactly what happened. Virtually over night, Druckenmiller generated $1 billion in profits for the Quantum Fund, which was managing ~$7 billion at the time.

Here’s what his portfolio looks like today:

Lessons from Druckenmiller:

1) Focus on the future

"Never, ever invest in the present. It doesn’t matter what a company’s earning, what they have earned... you have to visualize the situation 18 months from now, and whatever that is, that’s where the price will be.”

2) Learn multiple asset classes

“I was also lucky to travel across asset classes. I traded commodities, currencies, bonds, and equities, and it gave me the discipline, if I didn’t have a good idea in equities, I was happy to have no equities.”

3) Know when to participate

“The mistake I’d say 98% of money managers and individuals make is they feel like they got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch that basket very carefully."

4) Don't be afraid to bet big

“If there’s one thing I’ve learned from him (George Soros), it’s that when you’re right, and you know something, you really feel it, you can’t have enough.”

5) If you actively invest, make sure it's your passion

"The problem with this business if you're not passionate, it is so invigorating to certain individuals, they're going to work 24/7, and you're competing against them."

Product Improvements

Introducing FinChat Notepad ✍️ 

FinChat is working every day to build the best stock research platform on the internet. That’s why, we just launched “FinChat Notepad”.

With FinChat Notepad you no longer need to keep your company notes in a separate folder. All FinChat users now have a central repository to track all their thoughts on the companies they follow.

Simply click the “Add Notes” button on the top right corner of any company’s page, and start writing.

Meme of The Week

The world’s largest streaming company Netflix hosted a live event this week called “The Roast of Tom Brady”.

The event featured a star-studded cast of guests including the likes of Tom Brady, Kevin Hart, Kim Kardashian, and many others.

As the guests took their turns taking jabs at the legendary quarterback, Brady was left with several meme-worthy reactions.