Dotcom, Soros, Druckenmiller (Thread)

A recent Twitter discussion I read reminds me of a story told to me by a friend who worked for Quantum from 99-02. The HF had a number of PMs. Soros and Druckenmiller were the two largest. My friend, an ex big IB exec, was a junior one.

At the time he joined, things between George and Stan had become so bad, they didn’t talk to each other. The rift had split the office into competing camps. New to this caustic scene, he didn’t want to be forced into picking a side.

The way the firm was organized, each PM ran their own money, and at the start of each month, pitched their investment thesis to a meeting of principals. Named principals represented investors who had put in $1b. Other principals represented groups of investors who put in $1b.

Each principal could decide every month how much to put with each PM. Soros got the largest allocation, with Druck a distant second. Other PMs got the crumbs (10s of millions). In 99, Tech took off. Soros maintained it was a bubble and began to short it.

Soros had always maintained that it was as, or even more, important to decide how much capital to allocate to the trade than knowing the details of the trade itself. In fact, he claimed that he had done “12,003 trades”. He said, “12,000 were a push, roughly breaking even.”

His son, the fund’s CFO, said that his dad’s “push” was a loss of $400m, but why quibble over details. Soros said the other three were:
1) shorting the British Pound in 92
2) shorting the Thai Baht in 97, and the Malaysian Ringgit in 98 (which he considered as one Asia FX trade)

3) shorting sub-prime mortgages in 07
The 12,000 trades were “throw aways”. He felt they could have gone either way, so he bet small. The three he mentioned, he was so sure of he would have bet his life, and he did financially if not physically. You know how they turned out,

so I won’t spend more time on this diversion.
Back to the tech run-up of 99. Soros shorted but slowly. Druck mainly sat on the sidelines. He took a few weeks off and came back recharged. He had had an epiphany. He got it now. Tech wasn’t a bubble. It was the future.

He began buying, and buying big. The market chugged up. Soros began increasing his shorts. Principals watched monthly as Druck’s returns jumped and theirs along with Soros’ fell. The end of 99 was brutal. Druck couldn’t buy fast enough and Soros couldn’t sell fast enough.

They didn’t need an exchange to fill their trades. They could have done it within the office. While the elephants battled, the smaller animal in the jungle began to feel the heat. One by one, bit by bit, they switched from Soros to Druckenmiller.

Soros admitted his timing was off, but begged them to stay. They all left with between 50 and 75 cents of their principal.
But, now with Druck, they were fully in to the greatest market ever. And they made money till Q1. Then things seemed to change.

On the 1st drop, Soros sold more. Druck bought. There was a summer pause for both the market and the fund’s trading. But, in Sep, the slide began again. Soros sat back and watched. Druck, sure it was just a dip, bought on. By the end of the year, the principals were in tears,

their portfolios in tatters. They cashed out, getting between 10 and 25 cents. They lost going up and lost going down. We’ve all heard some version of that story. Now, here is the part most aren’t aware of.
Soros made money on his short, covering from 01 to 03.

Druck who began buying in mid 99, kept buying till 03. He held on till 07 when he closed out with a healthy profit. The Bull made money, the Bear made money. The fad chasers (called the Pigs) got slaughtered.

I was reminded of this story today and think it’s very relevant.
Which one are you, the Bull, the Bear, or the fad chasing Pig?
If you’re either of the first two, given the right time horizon, you should be fine. If you’re the last one, don’t worry, it’s only money.

@AjayJKrishnan @realKunalAShah