Stanley Druckenmiller gives his view on a range of hot button issues in his latest interview where he covers the high growth tech sector, particularly those involved with the digital transformation (e.g., cloud stocks), cryptos, and the common traits of some of a few legendary investors of our age.
Stanley Druckenmiller gives his view firstly on the tech sector and it is a far cry from Stanley Druckenmiller sheds light interview in February where the billionaire legendary macro investor recommended to buckle.
“I’m seeing some similarities and I’m seeing some differences with tech stocks today and during the Dotcom Bubble at the turn of the century” said Stanley Druckenmiller.
The crux to Stanley Druckenmiller’s differences with today’s tech, Web 3.0, which entails data mining, the decentralization of data, and the connectivity of almost everything to the network, and that of the internet boom in 1999 is that some tech valuations today could continue to grow.
“I’m seeing some similarities and I’m seeing some differences with tech stocks today and during the Dotcom Bubble at the turn of the century”
In other words, Stanley Druckenmiller gives his view where he remains bullish on the tech sector
Particularly those with activities building the booming digital ecosystem, whether it be the blockchain network, the building of mobile applications, and cloud security.
Stanley Druckenmiller believes these tech companies will be able to grow their valuations in 3-4 years.
Stanley Druckenmiller noted that Monetary policy was part of the issue in 1999 when Fed Chairman Alan Greenspan decided he would run an experiment and let unemployment go to lower levels than it had historically been. “It’s nothing like the crazy stuff we’re doing now, but that helps set it up for what was going on back then” said Stanley Druckenmiller.
“The internet was just sort of being built and the big winners in 1999 were companies like Sun Microsystem and Cisco, that were building the guts of the internet” said Stanley Druckenmiller.
“Think about the fact that Netscape didn’t exist until 1995. So, other than some nerdy professors back in the early 80s, no one even had email, right?” he added. “The growth was so rapid as this went on and valuations” he said.
“The internet was just sort of being built and the big winners in 1999 were companies like Sun Microsystem and Cisco, that were building the guts of the internet”
Stanley Druckenmiller gives his outlook by comparing the internet infrastructure with the railroads 150 years ago
“Think of the tech stocks like a company selling railway ties and building the guts of the internet” he said. When you’re building the railroad, your sales are going up +50, +60, or +70% a year. But once the railroad is built you don’t need the railway ties anymore. But that is a poor analogy, the blockchain secure network in Web 3.0 is constantly evolving, it is being built with faster transaction speed and improved security, it is a never-ending process. As hackers become smarter so to the security of the network needs to be upgraded. “Your growth not only doesn’t go up 70%, but it also goes down because, on a rate of change basis, you don’t need any more railroad ties,” said Stanley Druckenmiller.
“A lot of these companies with estimates of +50-70% growth for the next 2-3 years had businesses that were literally about to collapse” – Stanley Druckenmiller
But we disagree. The Ethereum secure blockchain network is evolving from a proof of work to a proof of state mining mechanism which is intended to reduce computational power and energy costs without compromising security. So, you’ll need version 2, version 3 of the railroad ties. Technology is dynamic, it is not static like railroad ties. The smartest people in the tech space are always disrupting their technologies, the technology race is like the arms race you have got to keep inventing because if you don’t your competitor will. So, it is not like building a bridge and moving on.
“None of us, I included, saw that in early 2000. A lot of these companies with estimates of +50-70% growth for the next 2-3 years had businesses that were literally about to collapse. So, the NASDAQ went down 95%. Not 30%, but 95%. Because you had this combination of inflated values, way over-estimated earnings, and then an earnings collapse” said Stanley Druckenmiller.
“Today, you have something similar and something different. Monetary policy is insane. We had no quantitative easing (QE) back then. And our [interest] rates weren’t 0%. They were 4% or 5% when they probably should have been 6% or 7%. No comparison.
“What you have now is this incredible wave of digital transformation, particularly moving onto the cloud” – Stanley Druckenmiller
So, we have an asset bubble. Now that’s not just in tech stocks, it’s in everything. I know some of the young backers of Dogecoin might disagree” said Stanley Druckenmiller
“What you have now is this incredible wave of digital transformation, particularly moving onto the cloud” he added.
“I used to say 2-3 years ago in some interviews that we’re in the bottom of the first or second inning in terms of digital transformation. And this is a 10-year runway” said Stanley Druckenmiller
“Well, COVID sort of jumped you from the bottom half of the first inning to the sixth inning. I think [Shopify CEO Tobi Lutke] said we went from 2019 to 2030 [in terms of e-commerce sales] in one year“ he added.
“I think the difference now is if you haven’t moved to the cloud, you’re dead because who you’re competing against, they can just beat you because the technology is so important” added Stanley Druckenmiller.
Stanley Druckenmiller gives his view on what makes a legendary investor
“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 largely concentrated bets where they have a lot of conviction. They’re not buying 35 or 40 names and diversifying. Icahn a few years ago put $5B into Apple. I don’t think he was worth more than $10B when he did that” said Stanley Druckenmiller.
My favorite quote of all time is maybe Mark Twain: “Put all your eggs in one basket and watch the basket carefully” he said. Indeed, in times of great disruption like the one we are living through Stanley Druckenmiller has probably hit the nail on the head with that quote.