Billionaire Trader: Sell Stocks, Buy Gold Before 2008 Replay

Although it’s always been difficult to make money consistently in the market, successful professional investors still exist.  If you could devise a short list of the best, Stanley Druckenmiller’s name would appear at the very top.  As founder and manager of Duquesne Capital Management, he sustained one of the finest trading records in the investment industry. In its thirty years of operation, the fund consistently returned thirty percent on its investors’ money without ever having posted a losing year.

For years, he was also a consultant to the prestigious Dreyfus Fund. And it seems George Soros wouldn’t take “no” for an answer when, in 1988, he asked Druckenmiller to manage his Quantum Fund; because Soros let him carry on his duties at Dusquesne while he performed his work at Quantum.Together, the two moguls made financial history when, in 1992, they successfully shorted the pound sterling to the tune of a $1 billion profit.

Even after his stints at Duquesne and Quantum, Druckenmiller still suffers no shortage of sheer nerve. In November of last year, he told Bloomberg he had taken a significant short position in IBM stock. When the interviewer brought up the delicate point that Warren Buffett actually was long IBM, he blithely replied “I have great respect for Mr. Buffett, [but] I don’t think technology is his area of expertise.” That’s chutzpah!

In the sheer-nerve playbook, Druckenmiller has become his own hard act to follow on Wednesday, when he advised attendees at the recent Sohn Investment Conference to sell all their stocks and buy gold. Normally, one would expect a stock guru who made that sort of radical recommendation to attend an investment conference only if he were accompanied by a food-taster. After all, stock recommendations are usually the highlight of most investment conferences.

What undoubtedly saved the day for Druckenmiller was this year’s abysmal performance by many of the stocks recommended by other gurus at last year’s Sohn event: Qualcomm, down twenty-seven percent; Valeant Pharmaceuticals, down eighty-five percent; SunEdison, down ninety-seven percent.

He also had scathing words for the Federal Reserve and their plan to avert a replay to 2008’s Great Recession, saying their non-strategy of Will they or won’t they? rate hikes has “no end game,” and referring to the years-long state of virtually no-interest free money as “an ephemeral sugar high.”  As a lifetime possessor of a sweet tooth, you and I both know what the crash from a sugar high is like.

Make no mistake; I’m not suggesting you panic or sell or all your stocks. What I am suggesting is stock-picking is difficult and time-consuming – even for the pros. If you own a stock that’s priced considerably higher than the price you paid for it, and is returning ample dividends, you could hold on to it. Or you could follow the advice only the most successful investors have the resolve to follow: sell high, at least on a portion of your winnings.

In 2010, Stanley Druckenmiller closed his fund after a spectacular thirty-year run, and returned his clients’ money. He felt, as an investor, he could no longer live up to his own expectations, and that his continual quest for profits was too emotionally draining.

Now think about Druckenmiller’s career and what it takes to be a successful investor in stocks. To pick even one worthwhile stock, you need to know something about cash flow, marketing, the company’s competition and the global economic outlook. Many professional investors will even visit a company and meet its management before dropping one dime on its stock.

Now think about what it takes to invest in gold – physical gold.  You only need to do two things: buy it and hold it. That’s all! Investors have done the heavy lifting for you throughout history; or, as Stanley Druckenmiller has observed, “The best currency is 5,000 years old.”