斯坦·德鲁肯米勒：洞察宏观经济、AI投资与美联储政策的传奇投资人

hi everybody I'm Nicola tangan the CEO of the Norwegian Sovereign wealth fund and today I'm here with Stan Ren Miller at proper legend in the investment World San what a pleasure to be here happy to see you niai now what are the most important data you're looking at these days currently yeah interestingly enough I'm known as a macro investor but I do a macro from the bottom up so we're listening primarily to companies and we're not seeing any material signs of weakness other than maybe in the housing market but that's from a very elevated price level so we're not seeing bottom up in information indicating to us that there's an economic problem anytime in the next 3 to six months

interestingly enough I'm known as a macro investor but I do a macro from the bottom up so we're listening primarily to companies

and we're not seeing any material signs of weakness other than maybe in the housing market but that's from a very elevated price level

so we're not seeing bottom up in information indicating to us that there's an economic problem anytime in the next 3 to six months

I would also say I'm revealing now that I'm more of a market animal than an economist that we look at Financial conditions they've been very very loose

I mean they're is looser looser than they were when the FED actually started tightening

they've tightened considerably in the last four or five weeks ever since the ironically ever since the FED cut because the dollar has ried and obviously interest rates have gone up

but they're still they're still quite above normal so that's pretty much the data we're looking at

I'd say the other thing I'm focused on I've been obsessed with whether we were in the 70s um really since 2021 when this whole inflationary episode started

and I'd say two years ago or a year and a half ago I was very confident that inflation was going to come down which I was right on

but I was worried about the economy which I was completely wrong on

um more recently and you can take this with a grain of salt since I had one right and one wrong there um I've switched to being more worried about inflation going forward uh than the economy itself

why do I say that if we go back to the 70s there was an episode with OPEC that set off an inflation

you had a recession and inflation came down I think from about 8 to 3 and then went back up again

yes

it went back up again and the number of months um would correlate to the bottom being right about now yeah

so my confidence a year a year and a half ago was we're going to have that period where we came down again and then we'd see

and I'm a little worried that the FED has declared Victory too early

I don't have conviction like I had in 21 that inflation was going going to go up that's when the money supply was growing 40% and all sorts of things were happening

but I also don't have conviction that they've snuffed this thing out and won the battle

and to cut 50 basis points with credit spreads tight gold at new highs equity's roaring no sign of weakness um material weakness in the economy of course there are some spots um that just makes me nervous that this thing could turn up again

what would make you turn up again what would be the factors

I think what I just said uh easing into Financial conditions let's say

um Trump wins if Trump wins you could have animal spirits from the business Community who are dying for deregulation

you could have tariffs which are on the margin inflationary

uh immigration has been a great Boon to this country maybe not the way it was done but it certainly enabled us to have growth without inflation and labor materially the last two or three years

so the combination of animal spirits recovery doing better than it is I'm just open-minded to it again

why is it so urgent for the central bank to cut given this honestly

um I don't take the nefarious view that pal is doing it for quote unquote political reasons

I do think he's obsessed with the soft landing and I think he's obsessed with his legacy and having made the mistake he made in 21

and he's being egged on by other economists in the press

to me the fed's job is to avoid the big big mistakes yeah like the 70s like the great financial crisis like the big inflation we just had

but all this fine tuning and woring about a soft Landing that that is not the job of the FED in my opinion

is to maximize employment for the long term not for the next three months or the next four months

but I think the fed's obsession with nailing this so-called soft Landing

I would remind everybody that the reason we're having a landing is because they took they let inflation go from 2 to %. yeah

so there was no need for a landing for 20 years

but um I think that's what they're obsessed with

I don't really I don't know how much of a problem is the forward guidance

it's a huge problem

um my friend dream grants says they're forward guidance dependent not data dependent

um it's a problem because once you do forward guidance you eliminate your optionality

yeah and I think Nikolai you and I being in this business we know we have to change our mind when we're wrong yeah

this fed has shown over and over again that they think if they change their mind they're losing credibility

so it makes them have their hands tied behind their back

I'm wrong all the time I think my record is mainly because when I'm wrong I changed my mind not that I'm always right

I'm certainly not

forward guidance seems to tie them into positions where and eliminate flexibility they need

how big a problem is the budget deficit

as a practitioner it's something I can't be obsessed with on a 3 to six Monon basis

as an American it's something I'm really obsessed with because debt to GDP can't go up forever

and to me we have a reckoning but I don't know how the time when that's going to take place

I will say that because the reserve currency we've been permitted to engage in behavior that say the Brits couldn't have behaved in

there's a new term I have getting LZ trust we haven't been LZ trust because we are the reserve currency

even though if you look at everything we're doing it's much more radical than the Brits were doing yeah

um what's that old saying how do you go bankrupt slowly and then suddenly

running deficits with full employment at basically at 7% of GDP is a recipe that can't last forever

one of the reasons we haven't paid for it is in Co the entire private sector 80% of individuals refinance their mortgages

so the average mortgage rate is still under 4% even though at the margin it got to 8%

corporations termed out their debt that stuff rolls over in 25 and 26

if we're going to have a problem it's probably more like late 25 early 26 but you just don't know so

and what is it that can create this kind of trust moment where people suddenly change their mind in terms of the price they want to have to lend money to it

it could it could be a failed auction

it could be If the Fed is wrong about inflation and it turns back up again because they're easing Financial conditions into a melt up

um if they were to have to start increasing interest rates again which is why I think they should be so cautious about their optionality

um now that they've forward guided to a series of cuts that could cause it

um my best guess would be a failed auction but honestly it could be 6 months it could be six years I I just don't know

so he rat start to go up how high can they go

well that's a great question because right now the 10 year I guess it's around 4 and a half

it can go to nominal GDP

so let's say inflation went to four 4 and A2 and real growth was 2 and a half or three 10 years AG go to six or seven

I'm not predicting that but that would be consistent if things if inflation did turn back up again and the economy wasn't weakening

I think you could get there it's interesting that's what happened in the 70

the bond market didn't really respond until we went back up from like 3 to 12 and then it it responded in Spades

again I'm not predicting this but I'm as a practitioner I'm very open-minded to it and I've got a it's like on my radar

well you say you make the most money from uh from fed mistakes so is this the way you are positioned now

I'm short ponds

I'm not like mega short I I actually had good timing for once I shorted them literally the day the FED cut

um it's been kind of an easy ride since then

I should have been much bigger now that they move so much I'm a little worried about um if anything being too big

but yeah no that's the way I'm positioned

if I thought what we are talking about was happening and I don't see a sign of it yet I'm just open-minded to it I would be much bigger

I'm like 25% naav short uh 10e equivalent

moving on to the stock market uh the leadership is very narrow it's led by not so many stocks just how do you read this narrow leadership

um it's never been great but the leadership's not as narrow as it was last April

so you're starting to get some broadening out the financials are doing better

it's not great

we've never had a bare Market start without the leadership narrowing and it's narrowing enough that you're starting to get toward a necessary condition being satisfied but it's early

but it's it's a it's a yellow light it's not a red light that's how I read it

so how do you think the tech sector will develop what kind of science are you seeing there

the AI boom is going unabated Nikolai

the I think the private sector just sees it as an existential threat to their business if they don't um spend money on it

because if they don't spend money on it and their competitors do and their competitors are right they're going to have a big big competitive problem

and of course the hyperscalers they're all in and their demand is just continuing

so look you've got very rich prices in the tech sector stuff like apple selling I know 25 or 30 times earnings it's certainly not growing at 25 or 30%

but we don't have that much exposure to the tech sector and we're not short it so not really involved cuz

but you were very early into it

yeah

what um how do you spot these early Trends what is said that you look at

honestly uh I've got young really good analysts here yeah

a lot of people have a lot of young analysts who are who are on top of things

and they started um we noticed about three or four years ago that the kids that go to Stanford and MIT the engineers were shifting from crypto to AI

that was the first signed

then my my young Partners started talking more and more about AI

uh I asked them how to play it they mentioned a company called Nvidia which I thought was a gaming company I hadn't done work on in a long time

um I bought a pretty good chunk of it and then like a month later chaty PT happened

it was just total luck I had no idea caty p

but the AI drum around here was big enough and the stock was down I think from 400 to 150 or something

so that's how I got started in it

once we invest in something like that then we really start to dig deeper and then there was a whole chain of things

we knew it would affect power we knew it would affect uranium we just went through the whole chain

and it was a pretty easy Trend to spot not not unlike um the cloud was the you know these things come in waves M

but AI the question with AI now that I'm wrestling with and the reason our exposure is really neither long nor short is how to play it

because we started with pix and shovels which is Invidia and to some extent um Microsoft

but now we're seeing just massive amounts of capital being spent by these modelers

and if AI is for real and I think it is they're all going to give you the same answer

so we're going to have four or five companies will spent masses amounts of capital but I don't see it as a win or take all model

on the other hand I think there applications um that I haven't even thought of and nobody's thought of they're going to spring up

I mean who would have thought of Uber or Facebook when the internet started

so we're very bullish on AI but we're not bullish currently on exactly where we're supposed to be and how to play it aggressively

not unlike the internet in 2201 you could have believed in the internet not been exposed and then got your exposure on a more timely basis

or I could just be wrong which is wouldn't be that unusual

but you were also early into the anti-obesity drug producers

oh that was easy

I mean I don't know what it's like in Norway but in America yeah if you go to Disney World everything and

if you know the American psyche if you know an American they got a way to lose weight without doing any work

and uh I I knew the drug worked early on just because we were exposed to it

but I and then when I heard if you get off the drug you gain the weight back then I knew it was sort of a razor blade business cuz people would have to say on the drug

yeah

but you say it's C but I mean hey it's not like you're the only one who is walking around around in Disneyland and looking at these kind of things right so

but you you actually you actually act on your Intuition or your all the data that's in front of you

I do but it's it's you know it's not all Brilliance

I I I bought Nvidia very well but I sold it eight or 900 right when the party was really getting going

and I sold my Lily in the high 700s granted had a had a nice profit

but yeah I look for for big trends I'm not about guy that holds for 20 years but I look for two to four years stuff and both fit into that category

and frankly we're looking now for AI applications that might not have been recognized yet

I think I'm on the board of memal slone ketering have been for almost 30 years and the applications in cancer are unreal

and just FYI the memorial slone cing is the leading cancer hospital in the world

yes and they have a lot of money in the endowment partly because you are on the board or the investment committee

well they have a lot of money in their D and I wouldn't say partly because I'm on the board but thank you

now um when we last met you mentioned the concept of buy first analyze later tell me about that

yeah Soros used to call it invest and invest and then investigate

I think I just gave a classic example

I didn't know that much about Nvidia I just knew that Ai and I had some people here tell me how to play it

so we bought Invidia and then we we were in the process of doing a lot more work and then chat GPT tap and

but I've always had the view that markets are smart they're fast and they're getting much more so with with all the communication and the technology we have today

and that if I hear a concept and I like it uh if I wait and spend two or three months analyzing it I may miss big part of the move

and then psychologically be paralyzed

it's hard to buy a stock you're looking at at 100 it's 160 even if it's going to 400

somehow your your head is screwed up and you're waiting for the pullback

so we will we will buy something a meaningful position but not Earth shaking and then really do the work

and if I think we made a mistake I'll sell it and if I don't think we made a mistake We'll add to it if if we have to

yeah no I I I happen to have worked exactly the same way uh in my life

it it really focuses in your your work and your efforts your thinking

but have you always believed in your own pattern recognition

yes

when I started in the business I got promoted too early so before I had really learned the nuts and bolts of the analysis to the extent that I should have I was promoted to to a to a leadership position

and I had to rely a lot on charts and I had to rely a lot on intuition

but I found it's not that hard

if if you're dealing with a psychical company and they're losing money or they're not profitable and everybody in their industry is shutting capacity down it doesn't take a rocket scientist to try and envision 18 to 24 months out if nobody's add in capacity they may not be losing money anymore they might be making a lot of money

I have found it's very important never to invest in the present

always try and envision the situation as you see it in 18 to 24 months and then see if if you feel things would be differently than they are now would security prices reflect that

I think that's probably the biggest mistake investors make is they invest in the present rather than forward looking and looking where the Puck's going instead of where the puck is

yeah

now um a few people believe in other people's gutfield did Soros believe in your gutfield or did you have to show him analysis

Soros and I had a rocky start

I I I went there I had had some uh significant success running public funds at dfus

and he told me I was his successor but I don't really think his mind was completely made up when I got there

and and the first 6 months were quite Rocky because it wasn't clear who was in charge

um frankly we're both trading badly

and I was flying to Pittsburgh cuz I still had Duane I was running both

and um when I got off the airplane I think we had payones back then we didn't have cell phones and uh the head Trader there told me he had told out sold out my bond position

so I probably had a higher opinion of myself at the time that I should have I was young and I had always been in charge

so I was quite upset

and uh basically uh expressed extreme displeasure and he said we'll talk about it when you come back to New York

um implied that I I wanted to quit and he said that uh maybe there were too many cooks in the kitchen

and he was going to Eastern Europe for four or five years he'd be out of touch and then he'd find out whether he had been in my hair or if I really was incompetent

that's that's sort of the way he talks the way we think except he actually says it

and luckily for me while while he was gone the Bur Wall came down

I invested in the deut mark

but I think it was lucky for both of us

I went on like the best run I've had before or since for like four years

so he kept seeing the results so I think he trusted my intuition only because the record started that way

do you trust the intuition of your colleagues now

I trust their analysis

they're they're so much deeper and better at analysis than I was

um but I can see the intuition developing

that uh I'm I'm probably as bullish on the talent the equity talent in my firm as I've been in 45 years

so I guess that's that's an ner of yes

but partly uh brain partly analytics and then partly intuition

they're not as intuitive as I am because it'll have to be

I was sort of forced to be intuitive because I don't I never acquire their analytical skills

you mentioned some examples of where you had sold um a bit early do you do you generally sell early

no I mean embarrassingly I I did an interview on Nvidia I think it was like 370 or something and I said this is one we're probably going to own for a few years

but I didn't think it was going to go to 900 in a year uh and to over a$2 trillion market cap

I think it started like 100 billion or 150 billion it was something crazy

um so no I don't necessarily sell early

I'm a technician so I usually wait for Tops

um Nvidia had no top

I just thought um what does that just want to explain what does it mean to have a top

a top is something the rate of change of it's going up changes and it tends to flatten out for quite some time

the trick is in the technical world that could end up being a bull flag where it just Consolidated for a bit and then did a new leg

or it could be a top where that was it that was it

and how do you know which is which

you don't

you have an opinion and um you express it and sometimes you're right and sometimes you're wrong

with Nvidia um there was no top but I just I've I've analyzed the semiconductors industry not particularly well but since the 1970s

and it's a cycal industry

and I knew Nvidia had staying power and was they had 4,000 software Engineers so it wasn't just Hardware

you know they have a Cuda this thing called cuda software that they do to to make their gpus

but I just thought once it went through two trillion this is just too much

and worst case it'll have a big correction I'll get another chance

and of course I didn't get another chance

oh you may

yes I may

you think you will

uh I don't know

from this price I assume I will or would have bought it back

I don't mind buying something back higher than I would I don't like it but I'm perfectly willing to buy something back higher than I sold it

some people can't get themselves do it

oh I can

I'm the one thing I'm strong on is I'm not emotional

but um you never had a down a no stupid question why is that important

no good reason

I think it's it's important because other people talk about it and uh my investors loved it

one ah had of investors because um you know they have this stuff in our industry you know called risk weighted return

I'm not big on that but I will say it's a stressful job and there's less stress if you don't have big draw Downs

I have had significant draw Downs in inner year so part of the down year is just luck

what does a draw down do to you

I get uh anxious upset uh you get upet even though it's only your money

yes

yeah

I'm just um I'm a very competitive person even if it's just my own money

I I wish I wasn't but I am

and uh it's probably one of the reasons my results are as good as they are but I prefer myself not to be um

it's a bit of a sickness but it works for me

who do you compete against

I compete against what I would call the opportunity set

and if there was a great opportunity set that year and I missed it um I'm disappointed in my myself

like if I'm up 20 and I think I should have been up 50 I'm disappointed in myself

if the opportunity set was basically to be up 10 or 15 and an up 20 I'm thrilled

I mean the good the good thing about being an investor is always a good reason to hit yourself in a head right

I don't know if that's a good thing about our business but it's it's probably the bad thing about our business

and for some reason I like to hit myself in the head

I always measure from the top

but you um are quick at selling your losers what's the key to that

if the reason I bought a stock is no longer the case I don't care what I paid for it

and if I bought it at 60 and it's 50 because the markets discovered the problem before me I have I have no emotion whatsoever

um Soros was the same way

I didn't really learn it from him but it was certainly reinforced

like after a while Nikolai you all so develop enough confidence that you're not afraid to clean the slate and start over cuz you have the confidence that you'll be successful again

and you're not going to sit there in a lazy position that you're not that sure about anymore just clean house

and if you've been doing it for decades and it's worked you kind of have the confidence to take a loss and not worry about it too much

once I'm out I'm out

you said you don't have feelings what do you what do you mean by that did I say don't have feelings

did I say don't have feelings

I have a lot of feelings

you mean about taking losses

yeah just what I mean by that is I think one of the reasons charts work we have the reason there's support and there's um there's resistance

is the resistance is a bunch of people that bought it at 60 and it went down and they've been waiting for three or four years for it to get back to 60 while they could have been in something else that was going up the whole time

um I just don't care what I paid for a stock it's absolutely irrelevant uh in terms of my investment process going forward

now this uh combination of being on the one hand stubborn but other hand being able to change your mind it's pretty rare I'm told it is

yeah I told by my friends and other investors that I'm entirely unemotional and like yes I am told it's rare

is that the key to your success you think one of them

I I think I think it's I think it's a big part of it

I think again um being being open-minded and having humility

the only reason you can change your mind is if you're not arrogant about a position has mattered

I think I had some great mentors the one in Pittsburgh and then Soros in terms of sizing

and I think I learned some lessons very early on

uh concentration not to be afraid of concentration that that's a big reason for my success

and probably the other big reason was sort of self-taught is being willing to go into other asset categories

and if you're going to concentrate it's better to have five buckets to plan than to plan one

so I was brought up in the equity Market but sometimes the risk reward in the equity Market is not that clear when it actually is clear clearing the bond market or the currency markets

and it's a coincidence you asked about never h a down year part of it is the most action in bonds and currencies tends to happen in bare markets and Equity markets

so you can put the put the equities in the drawer for a while and just concentrate in those markets

I think that's been a huge part of my successes is it gives you the discipline not to play in areas that you don't have a lot of conviction in

because if you got credit to play in if you got Commodities to play in currencies or bonds you can usually find something that you think there's a great risk award in

it's also they tend to be more liquid than Equity markets so to our earlier conversation you can change your mind when you're wrong

what do you learn about siing from Source

I don't know whether you know about do you know baseball at all or would your listen about

I don't play it but uh when I went to Soros I thought I would learn what would make de Mark go up in the end go up

and modestly I found I was better at that than him

um in baseball terms I have a I had a very high batting average he had a much higher slugging percentage

um so what I learned from Soros is when you have conviction you should bet really big

I know your listeners have probably heard it before but I but probably the best illustration is the pound

yeah

so what happened so let's go back so you are in the office what's happening in the UK

so I'm in the office in New York and Scott bessent um who was a partner of mine in Europe mainly trade the European area he's in London

and he tells me the London housing market is in big trouble and the British economy is in trouble because like most Anglo sex and economies at the time it's very much driven by housing and so forth

Just P it out a bit so your office are you like overlooking Central Park

uh I'm not overlooking Central Park but I'm near it

I I'm in the Soros office on 32nd Floor but it's okay it's not a corner office it's nothing big fail see

and the UK economy is going down the toilet

we think the U econom is going down but I need to take you back about 3 years when the Berlin Wall cam comes down

it'll probably save me my job cuz I probably would have been fir at Soros 6 months after he went to Eastern Europe had the Berlin wallnut come down

but um the de Mark went down for two days dramatically because the theory in the market was the osmark which was the East German currency was going to pollute the deut Mark

I knew German history and knew they were obsessed with inflation because the viar Republic and then that led to Hitler and so forth and so on

so I knew the Germans were absolutely obsessed with inflation

I knew that all bringing all these East Germans into the labor Supply was going to cause a boom in the economy

so we were very bullish on the overall German economy

and we were very convinced that there is no way the bundes bank would let inflation

so we're very convinced it would be accompanied by tight monetary policy

so we had shorted the Italian L successfully um during that per period

so when the when Scott called me we were already sort of on this deark journey we've been for a few years

and the British econom is going down and new currencies are linked

so it was a peg right it was a peg

so um I called and asked how much it would cost me to Short the pound versus the deut mark for six months it was a half a percent

I called and asked how much it would cost me to Short the pound versus the deut mark for six months it was a half a percent

I think the fund was around 7 and a half billion at the time Quantum fund

and I decided to do an invest and then investigate position so I did a billion and a half or like 20 25% of the fund short the pound long the deut mark

figuring I'd probably lose a half per because it's a Peg and it won't break within 6 months but I wanted the position on

Fast Forward probably about five or six weeks the day I believe was September 15th not that I would remember

um I read the financial times and the head of the bunis bank now I'm sure I'm age but I'm pretty sure it was te Meer has written an editorial in the financial times

basically in more proper language but he's basically saying that the deark and the pound should no longer be linked

so I decide to take Duan and the quantum fund to 100% long the deark short the pound because it's still a half a perc unbelievably

now you're going to hear vintage Soros

so he happens to be in New York at the time which he wasn't always

I go into his office and I explain to him why I'm going to 100%

And he had a rather large personal account that's how we kept each other out of each other's hair

he traded that and you know it was 90 90 95% overlap

told him why I was doing this and he had this um unpleasant puzzled look on his face when I'm telling him my thesis that this one economy is booming and they need higher rates this other economy is falling apart they need lower rates

that's these two currencies shouldn't be linked

and I'm thinking what does he not understand about this because this guy pretty much understood everything

and he says uh look this is uh this is a one-way bet they come along very very rarely it's ridiculous doing 100% we should put 200% of the fund in this trade

so there you have it so that means that you borrow money in the bank and double up

yeah on a $7.5 billion fund he thought we should have $15 billion short the pound long the deark

um it turns out we never got there but it shows the way the man thinks

I saw it over and over again because you once you were trading the thing happened

yeah unfortunately we had a we had a pretty strong reputation

and when I started selling it that night I noticed a lot of other hedge funds started selling at the gossip community and the currency markets

and by midnight to 1:00 the Fords had blown out they'd started they at a half a percent they were like 6 or 7% and it basically wasn't trading after 1:00 in the morning

then the British raised rates I think from 6 to 9 to try and stop the bleeding and then they went to 12

I knew it was over but the forward to rout so much didn't matter

and it was it was done by noon the next day

and you were sitting at your desk looking at the royter screen

yes or whatever the screen at the time was

we only got 7 and a half billion done ironically

well I have to had it not been for Soros I probably would have not got to the 7 and a half cuz you know intending to do 15 I was in a bigger hurry

so what did you feel when when he broke

there was a lot of adrenaline

um it was exciting

I didn't feel bad because I thought the British economy needed it

I was gratified years later when they changed it from black Wednesday to White Wednesday

then I went into action after it broke because the guilts were down two points which I thought was ridiculous

British needed lower rates

there's some theory in the Academia that if you have a weak currency your interest rates have to go up

so I bought guilts I bought British stocks

there was a whole because what happened was that the currency depreciated and it was good for exports right so the stocks went up afterwards

the stocks went up the guilts went up because they needed lower rates and you know they'd been held artificially high

so there was all kinds of other stuff I did around it uh which is kind of the way I trade

you get a theme and then you look at the concentric circles or the or The Dominoes that fall because of a theme

and but the point was with Soros if he really believe something the position could be never be big enough

yeah particularly if it's in a liquid market

and I learned from him I like to play the turn maybe my ego in in a in a big turn in something

he was perfectly happy to play from the third to the sixth inning if we go back to baseball terms of it's a nine inning game he was perfectly happy to play the third to sixth inning when there was more certainty on much greater leverage

he had more courage than I did in terms of sizing positions

I don't think it totally rubbed off on me but it certainly helped and it it was a huge learning experience

I think the major thing I learned with him is 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

and that's what he was probably as good as anybody who's ever been at

Stan um many people have heard about the pound but um not many people know that you also did the Swedish Groner yes

yes

um my memory's a little less clear on that one as to the reasoning but it was just another another victim of the deark

yeah

um I assume there was some kind of Divergence between the two economies and and there was a peg that I thought was inappropriate and it turned out yeah that worked out

so you took that Peg too

but you took another Peg too because I thought you were also involved with the tibot

yeah the tibot was easy they they um

but but nobody knows about this right

no I think um Sebastian Malby wrote a book called more money than God there's a whole chapter on the tibot

that was not on the Swedish croner

no the Swedish croner no no

I prefer nobody knew any of this stuff

but well we need to get it right for the history books

I'm happy to talk about it 25 years later

any trades you regret not making

oh there's there's trades I regret not making um constantly

I'd say one of the biggest mistakes I made was having predicted the inflation really early and feeling so strongly about it I wrote a piece in the Wall Street Journal with my partner Christian broa in the spring of 21

I had a mass of short for me in two years um sort of like we just talked about with the pound it was a one-way bet

they were 15 basis points and I was so measured by where they'd win where they'd been I took most of them off at like 150 basis points

it seemed like a great win from 15 to basis point to 150 but as you know they went to 500

I regret deeply not holding that position

there's probably 30 others but I prefer to forget my mistakes

do you think machines can take the place of humans when it comes to investing

no I don't

but I think they can work um as a CO co-pilot and the combination can beat anything a mere human could be

I'm lucky enough to have known Gary caspro for a long time

I'm co-founder of the casprov chess Foundation

um for no good reason I I I can hardly play chess

my 9-year-old daughter was beating me that's how I started with Gary

but um he was probably one of the first guys to use machines to train himself and work with them

I could see the same thing happening with money management

so I don't think the pure machines they'll make money because they have a disciplined process and there's math

but I think if you could find an intuitive investor who's using Ai and other things to supplement I think that would probably be the top investor in the world not a machine

now you took um sabatical in 200000 yeah what was the reason behind that

it's a it's a painful but really fun story

um it really it really starts in 1998

well no it starts in the spring of 1999

I shorted I think it was 11 or 12 internet stocks not the leaders like aoi or Yahoo but the also rans

and I I believe the position was like $200 million

and in like four weeks I had lost like $600 million

so it was the first time I'd ever had a big draw down

I was down like 16 or 7% in the spring of 99

I then pivoted and realized that green span e because of the agent financial crisis while our economy was strong and we had the internet and all this behind it I went out and hired um a couple of young managers to buy tech stocks that I didn't know how to spell

they had their own little accounts and like I would plow in on top of their positions

and we ended up the year I think something like 42 net or something after being in this deole because you know I rode this crazy n sck wave in 99

so then uh in January I just said this is ridiculous

and um I sold out all my tech Holdings like I can't remember it was like they had grown to like $ billion dollar or it was it was enormous for that period of time

and I actually went and told Soros why I had sold them out

and next thing that happens the two little satellites inside they don't sell out they're gamblers

I don't really care cuz quantum's huge and they're this little thing they're not going to affect the performance that much

but Nikolai they're making like four to 5% a day I mean the market is still roaring going into March

and I'm uh I'm watching this and I'm getting really annoyed with myself that I'm not I'm not still in this trade

and then uh around early March I can't take it anymore

and I told you earlier I'm not emotional this was this was a real emotional really dumb move

um I buy everything back I think I missed the top by about an hour

so I buy back all these tech stocks and within a week I know I'm dead

and Quantum goes from like up 14% to up 1% in a week

and I go in and I now I've already been through the trauma of the spring before I recovered from it but it it had a big effect on me

the the stress I had young kids you know and it's like a repeat of the year before

so I go into Soros and I tell them two things a I'm getting out of all this stuff B uh I'm quitting

um we can't tell anybody cuz I got I got to liquidate this portfolio

but the NASDAQ is in the beginning wave of a Down 90% move and you can't get out

so by the time I get out takes a few weeks the fund is down like 17%

and duain is down 17%

and uh I'm just exhausted I've been running this high-profile fund for 12 years

so I sell everything out everything of duaine send my investors a letter and say uh I'm going on a sabatical I don't know whether I'm coming back or not

you can take all your money out but if you take your money out if I decide to come back I can't guarantee I'll let you back in

I think I had like 200 clients one of them pulled their money I remember who it was but they'll remain anonymous for now

so I I shut everything down I go to Africa with my wife and kids

and the best thing I did is during the summer I refused to expose myself in any way to something that would tell me where the markets were

so I'm not allowed to watch TV I'm not allowed to see the Wall Street Journal prices nothing

so I come back in labor day I think my wife couldn't have handled me being around uh once the kids go back to school uh sort of humor maybe not uh so I come back and it's remarkable because the S&P has rallied back almost to the high the nasdaq's retrace about 85% of the decline

but the dollar is up interest rates are up and oil is up three death nails for markets if you look at history

so I then start calling all my clients who are basically small businessmen they're not fancy institutions

and all their businesses are terrible

so then I call Ed Heyman and I say he Equity strategists microeconomist yeah

he's probably was the number one institutional guy whatever that rating Institutional Investor Economist

and um I say this is very odd and I've been out of touch dollars up blah blah blah blah

and uh two days later in his daily missive he has regression analysis and it says um it's 50% I think currency 25% oil and 25% interest rates

and it looks one year forward and it predicts earnings and it's predicting that earnings are going to decline 36% the next year and the Wall Street consensuses are going to go up 18%

so combination of that listening to my clients the fact that Greenspan got a tightening directive on which I think is inappropriate

I start buying all these treasuries and the market doesn't go my way but all the information keeps going

so I keep buying more and more and more and more

so now I have a 350% tenure equivalent in the fund

and then I get lucky with the gore Bush Fiasco economy falls apart

I end up making 40% in the fourth quarter

so I had I had written the year off

I I when I came back I'm down 18 I assume okay at least I got don't have to worry about this anymore i' finally going to have it down year

and it's like the best quarter I ever had

and to this day if I had stayed managing money I think I'd been tied of knots and there's no way I would make that trade

it was the fact that I was a raid for four months had a clean slate had a clear head and just looked at the New Evidence

so it was a very very very horrible beginning and a very lucky ending

now you don't take um four months off very often uh you work very hard when do you wake up in the morning

4 4 in the morning

yeah what do you do

uh I you have you have an an office at home right

yeah yeah

I immediately go to the Bloomberg

and 4:00 you do you make a cup of coffee before you go to Bloomberg or straight to Bloomberg

yes no yeah I make a cup of coffee

I go up I don't shower yet check all the markets read the journal skim the financial times skim the New York Times check like all the emails overnight

when I say check I mean skim them for the important ones

then it's probably uh 5:15 or 5:30 take a shower go to work start all over again

when you go to bed

uh usually around 8:30 qu or 9 as soon as I see Japan what's happening

you basically live according to financial markets

yes

uh my mother-in-law said a long time ago I'm an idiot savant

she thought she was joking but she's correct

it's the only thing I'm really good at

I really enjoy it keeps me young

I'm dealing with brilliant young people here as analysts but also I forc to read the newspaper and forc to learn about these waves and uh keeps me stimulated I love it

now you are 71 right

yes

and you will continue until you until you die you think

yes hopefully it won't be tonight

no I think probably not

I do um s last thing we got 10 thousands of young people here now they want to be like you make a lot of money be successful in financial markets

what should they be doing how should they enter what what should they think about

first of all if they're going in it for the money they should go elsewhere

yeah there's too many people in the business like me that just love the game and the passion for reasons I just articulated

and they're not going to be to out work the people that are passionate in the game

and it's not a fun game if you're losing it's horrible

I just told you and the how I respond to draw Downs

so but if they have a passion for it if I was a young person I would not get an MBA

I'd go find a mentor and if they didn't want me I would just relentlessly bug the hell out of them which a couple of have done with me until they finally accepted me to go and work for them

learn what I could from them

if they still like the business just keep trying to grow your knowledge base

I would say an analyst skill set in our business is completely different than a portfolio manager skill set

once in a while you'll get an overlap but I would be careful if they really love the the analyst part which is where we all start of thinking they have to become a portfolio manager

I've seen it ruin people's lives who weren't built for trigger pulling

so they should be open-minded

I got in the business because I wanted intellectual stimulation and you're going to get plenty in either one

but that would be that would be my advice to them and be open-minded

stand this been a an epic conversation thanks

Nikolai I probably said more than I should have

you said exact we get in too much trouble thank you